-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FsGnOdYmtDM8arWlIDQXS9Os0BpqxSwHc98ZL/ZwmLO47/c/0TE7YyqggH/W8mlk xF8/uOglOhShHqIG+kcBkQ== 0000950168-94-000101.txt : 19940526 0000950168-94-000101.hdr.sgml : 19940526 ACCESSION NUMBER: 0000950168-94-000101 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19940101 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LADD FURNITURE INC CENTRAL INDEX KEY: 0000721669 STANDARD INDUSTRIAL CLASSIFICATION: 2510 IRS NUMBER: 561311320 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11577 FILM NUMBER: 94519573 BUSINESS ADDRESS: STREET 1: ONE PLAZA CTR STREET 2: POST OFFICE BOX HP-3 CITY: HIGH POINT STATE: NC ZIP: 27261-1500 BUSINESS PHONE: 9198890333 10-K 1 LADD FURNITURE 10-K 3/31/94 #89209.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 1994 Commission file Number 0-11577 LADD FURNITURE, INC. (Exact name of registrant as specified in its charter) North Carolina 56-1311320 (State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
One Plaza Center, Box HP-3 High Point, North Carolina 27261-1500 (Address of Principal executive offices) (Zip Code) Registrant's telephone number, including area code 910-889-0333 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock - $.10 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] Market value of 18,720,472 shares held by nonaffiliates as of March 4, 1994 was $173,164,366. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 23,082,996 shares outstanding as of March 4, 1994 DOCUMENTS INCORPORATED BY REFERENCE The definitive Proxy Statement for the 1994 Annual Shareholders Meeting is incorporated by reference into Part III hereof. The registrant's Annual Report to Shareholders for the year ended January 1, 1994 is incorporated by reference into Part II and Part IV, Item 14, hereof. PART I ITEM 1. Business General LADD Furniture, Inc. is a vertically integrated manufacturer that is primarily engaged in the design, manufacture and sale of wood, metal, and upholstered furniture in various price ranges through its operating entities consisting of wholly owned subsidiaries and operating divisions. Unless the context otherwise indicates, "LADD" and "Company" refer to LADD Furniture, Inc., its divisions, and consolidated subsidiaries. Significant Developments in 1993 Acquisition of Pilliod Furniture -- On January 31, 1994, the Company acquired the furniture operations of The Pilliod Cabinet Company through the purchase of all of the outstanding stock of its parent company, Pilliod Holding Company. The Company's new wholly-owned subsidiary, Pilliod Furniture, Inc. ("Pilliod") is a major U.S. manufacturer of promotionally-priced, residential wood furniture. Pilliod's master bedroom and other furniture lines compliment products made and marketed by LADD's nine other furniture companies. Manufacturing Realignment -- In August 1993, the Company decided to discontinue much of its American of Martinsville Residential Casegoods ("Residential Casegoods") product lines which were unprofitable and to merge certain profitable lines into its American Drew operating division. As a result of this decision, manufacturing capacity in Residential Casegoods' Martinsville, Virginia facility became available for other purposes. To utilize the capacity, the Company shifted manufacturing production of American of Martinsville-Contract ("Contract") from Chilhowie, Virginia and Marion, Virginia to Martinsville, Virginia, the location of Contract's upholstery manufacturing and executive offices. Finally, to accommodate current and anticipated growth of the Company's Lea Industries division ("Lea"), production in Chilhowie, Virginia was realigned to Lea in the fourth quarter for its Charter House product line and production in Marion, Virginia was realigned to Lea for its Design Horizons product line. The Company believes that the realigned production better utilizes its manufacturing capacity. LADD's Businesses Lea Industries manufactures and sells wood furniture for the youth and adult bedroom markets. Lea Industries' products include beds, dressers, night stands, mirrors, desks, bookshelves, hutches, armoires, and correlated modular furniture in a variety of styles, including traditional, contemporary and colonial. The products are priced in the medium to low-medium price ranges and are considered high volume, promotional products to major furniture retailers. The products are marketed under the "Lea Industries," "Charter House," -2- and "Design Horizons" brand names primarily to national and regional chains, independent furniture retailers, national general retailers and department stores. Lea Industries products are manufactured in five plants located in Waynesville, NC, Marion, VA, Chilhowie, VA, and Morristown, TN. American Drew manufactures and sells medium to high-medium priced wood furniture. The products include various types of wood bedroom furniture (beds, dressers, night stands, mirrors, armoires, and dressing tables), wood dining room furniture (tables, chairs, buffets, chinas, and serving pieces), and wood living room occasional pieces (desks, end tables, coffee tables, entertainment units, wall units, and secretaries). American Drew products are manufactured in three plants located in North Wilkesboro, NC and are sold primarily to major independent furniture retailers, department stores, and regional furniture chains. Daystrom Furniture manufactures and sells kitchen, dinette, dining room, and bar furniture for the home furnishings market. Daystrom products are priced in the medium price range and include tables, chairs, bars and bar stools in contemporary styles that incorporate the use of metal, glass, wicker, and wood construction. Daystrom sells its products primarily to retail furniture chains, independent furniture retailers, department stores, and specialty retail stores. Daystrom operates one manufacturing plant located in South Boston, VA. Clayton-Marcus manufactures and sells a full line of upholstered household furniture, including sofas, loveseats, chairs, sleepers, rockers, and other upholstered living room furniture, which sells in the medium and high-medium price ranges. The products are marketed under the "Clayton-Marcus," "American of Martinsville," "Clayton House," and "Marclay Manor" brand names primarily to retail furniture chains, independent furniture retailers and department stores. Clayton-Marcus currently has established galleries with approximately 90 independent furniture stores in the United States, Canada, and Mexico. Clayton-Marcus operates three manufacturing plants in Hickory, NC. Barclay Furniture manufactures and sells moderately priced upholstered furniture, including sofas, loveseats, chairs, sleepers, and motion furniture styled in contemporary and traditional patterns. The products are considered high volume, promotional items and are sold under the Barclay Furniture name and various private label names. Barclay sells its products primarily to retail furniture chains, department stores, and national general merchandisers. Barclay operates two manufacturing plants located in Sherman, MS and Myrtle, MS. American of Martinsville-Contract is a leading supplier of guest room furniture to the U.S. hotel/motel industry, and has an expanding contract business overseas. American of Martinsville- Contract has also expanded its business into the health care furniture market for retirement homes and extended care facilities. Additionally, American of Martinsville-Contract sells to certain agencies of the U.S. government and university and college markets. -3- American of Martinsville-Contract operates two manufacturing plants located in Martinsville, VA. Pennsylvania House is one of the nation's leading manufacturers of American traditional and country residential furniture solid wood furniture and upholstery. The Pennsylvania House product line is priced in the upper-medium price range. Pennsylvania House created and introduced the in-store gallery concept to the furniture retailing industry in 1975, and currently has established galleries with approximately 270 independent furniture retailers in the U.S., Japan and Mexico. To enhance its product lines and galleries, Pennsylvania House also offers its gallery retailers an accessory line of over 3,000 items for sale to their customers. In addition, Pennsylvania House has opened approximately 35 independently owned dedicated showcase stores which offer exclusively Pennsylvania House furniture and accessories. Pennsylvania House operates three manufacturing plants located in Lewisburg, PA, Monroe, NC, and White Deer, PA. Brown Jordan is a leading manufacturer of high quality, high-priced leisure and outdoor furniture. To expand its market presence, Brown Jordan has begun selling a line of high-medium priced products in the casual furniture market. Brown Jordan's products are designed in wrought aluminum, extruded aluminum, cast aluminum, and wrought iron and include chairs, tables, chaises and outdoor accessories. Brown Jordan sells its products to the residential and hospitality markets primarily through the following distribution channels: quality department stores, specialty stores (such as pool and patio shops), interior design- ers, and the commercial contract and hospitality industry both in the United States and overseas. Brown Jordan's products are manufactured in facilities located in El Monte, CA, Newport, AR, and Juarez, Mexico. On March 1, 1994, a fire destroyed the wrought iron manufacturing operations located in Brown Jordan's manufacturing facility in Juarez, Mexico. The aluminum frame operations located in the same facility were not materially affected by the fire. The Company believes that the fire will not have a material financial impact as the Juarez facility was insured for both property and business interruption losses. A new facility for wrought iron manufacturing has been leased and is expected to be in operation during the second quarter of 1994. Fournier Furniture manufactures and markets a complete line of ready-to-assemble ("RTA") furniture including home office and home electronics furniture, kitchen and bedroom furniture, closet organization products, kitchen cabinets and other storage products. The company's products are priced in the lower price ranges and are sold throughout the United States and Canada principally to mass merchandisers, department stores, warehouse clubs, and mail order catalog merchandisers. Fournier Furniture operates one manufacturing facility in St. Paul, VA and has a distribution facility located in Ajax, Ontario, Canada. Pilliod Furniture, acquired by LADD on January 31, 1994, manufactures and markets a wide range of promotionally priced contemporary and traditional residential furniture, including master bedroom products, occasional tables, entertainment centers, wall systems, -4- and dining room chinas. Pilliod Furniture's products are marketed under the Pilliod and Symmetry brand names. The majority of Pilliod Furniture's products incorporate simulated wood, stone or other, often high gloss decorative surfaces applied to medium density fiber board or particle board. The Company's products are sold throughout the United States through large volume customers, mainly large furniture chains and outlets. Pilliod Furniture operates three manufacturing facilities in Nichols, SC, Selma, AL, and Swanton, OH. Lea Lumber & Plywood Co. manufactures cut-to-size plywood, veneer, and wood laminated parts in one plant located in Windsor, NC. Lea Lumber and Plywood's products are sold to furniture manufacturers and manufacturers of pianos, recreational vehicles, kitchen cabinets, and other products requiring laminated wood parts and veneers. LADD Transportation, Inc. operates a modern fleet of over- the-road tractors and trailers that are primarily used to provide transportation services to LADD operating companies and to meet the special needs of LADD's customers. Together with fleets operated by other LADD operating companies, LADD Transportation provides approximately 30% of LADD's out-bound shipping requirements for finished products and also hauls a portion of the Company's in-bound raw materials and supplies. LADD Transportation has received certain contract carrier rights from the Interstate Commerce Commission and markets its transportation services to independent customers. Marketing and Major Customers The Company's operating entities generally market under their own trade names. The general marketing practice followed in the furniture industry and by the Company is to exhibit products at national and regional furniture markets. Internationally, the Company markets its products primarily through LADD International, a corporate marketing unit formed to coordinate the worldwide marketing efforts of LADD's operating companies. The Company also sells its furniture products directly and through approximately 425 independent sales representatives to a broad variety of customers, including retail furniture chains, national general retailers, department stores, independent furniture retailers, mail order catalog merchandisers, major hotel chains, and various specialty stores and rental companies. The Company currently sells to more than 11,000 furniture customers. No single customer accounted for more than 5% of net sales in 1993. The Company's business is not dependent upon a single customer, the loss of which would have a material effect on the Company. Product Design and Development Each operating entity develops and manages its own product lines. New product groups are introduced at the national or regional furniture markets, and, based upon their acceptance at the markets, the products are either placed into production or withdrawn from -5- the market. Consistent with industry practice, the Company designs and develops new product groups each year, replacing collections or items that are discontinued. Raw Materials The most important raw materials used by the Company are hardwood lumber, veneers, upholstery fabrics, plywood, particle board, hardware, finishing materials, glass, steel, steel springs, aluminum, and high pressure laminates. The wood species include cherry, oak, maple, white pine, poplar, and other American species, and imports such as rattan, guatambue and mahogany. The Company believes that its sources of supply for these materials are adequate and that it is not dependent on any one supplier. However, in 1992 and 1993, dramatic escalation of costs of certain lumber species such as cherry and maple negatively impacted the Company's gross margins. The Company's plants are heated by furnaces using gas, fuel oil, wood waste, and other scrap material as energy sources. The furnaces located at a majority of the wood manufacturing plants have been adapted so that they can use alternate energy sources, and the Company has been able to fuel these furnaces principally by wood wastes. The Company's plants use electrical energy purchased from local utilities. The Company has not experienced a shortage of energy sources and believes that adequate energy supplies will be available for the foreseeable future. Patents and Trade Names The trade names of the Company's divisions and subsidiaries represent many years of continued business, and the Company believes such names are well recognized and associated with quality in the industry. The Company owns a number of patents and licenses which are considered to be important to the business, which intellectual properties do not have a limited duration. The Company also has various patents, licenses, and trademarks none of which are considered material to the Company's business. In January 1994, the Company began the transfer of tradenames and certain other intellectual property to a wholly owned subsidiary, Cherry Grove, Inc., to better manage those intellectual properties. Inventory Practices, Order Backlog and Credit Practices The Company generally schedules production of its various groups based upon orders on hand. Manufacturing efficiencies and investment in inventories are, therefore, directly related to the current volume of orders. The Company, and the industry generally, honors cancellation of orders made prior to shipment. The Company's backlog of unshipped orders believed to be firm at 1993 fiscal year end was approximately $80.6 million, as compared to $80.2 million at 1992 fiscal year end. Generally, orders in the backlog are shipped during the following 12 months. The Company's businesses as a whole are not subject to significant seasonal variations. The business of Brown Jordan, however, is heavily seasonal with -6- inventories being built in the winter months and sales concentrated in the March - June time frame. Competition The residential furniture market is highly competitive and includes a large number of manufacturers, none of which dominate the market. Industry estimates indicate that there are over 1,500 manufacturers of all types of furniture in the United States. Competition within the market for wood, metal and upholstered furniture occurs principally in the areas of style or design, quality, price, and service. Some of these include manufacturers of furniture types not manufactured by the Company. According to industry data, the Company believes it is the fourth largest manufacturer of residential furniture in the United States. In recent years, foreign imports of finished furniture and component parts have increased. Although some of the imported products compete with products manufactured and marketed by the Company, other than in its Daystrom Furniture operating division, the Company has not experienced any significant negative impact. Where appropriate, the Company has capitalized upon the cost advantages of importing selected component parts and a limited number of finished products but is not dependent upon any foreign sources. The Company currently (including the operations of Pilliod Furniture) imports approximately $17.2 million of finished furniture and unfinished furniture parts. In addition, Brown Jordan operates a manufacturing facility in Juarez, Mexico. The Company estimates production in its Mexican facility costs 25% to 40% less than comparable domestic production principally because of lower labor and overhead costs at the Mexican facility. Governmental Regulations The Company's operations must meet extensive federal, state, and local regulatory standards in the areas of safety, health, and environmental pollution controls. Historically, these standard's have not had any material adverse effect on the Com- pany's sales or operations. The Company believes that its plants are in compliance in all material respects with all applicable federal, state, and local laws and regulations concerned with environmental protection. See "Legal Proceedings" regarding the status of environmental proceedings in which the Company is involved. The furniture industry anticipates increased federal and state regulation, particularly for emissions from furniture paint and finishing operations and wood dust levels in manufacturing operations. The industry and its suppliers are attempting to develop water-based finishing materials to replace commonly used organic-based finishes which are a major source of regulated emissions. The Company cannot at this time estimate the impact of compliance with these new standards on the Company's opera- tions or costs of compliance. -7- Employees The Company employed approximately 7,700 persons as of March 1, 1994. Substantially all of the employees were employed on a full-time basis. Employees at six Company plants are represented by various labor unions. The Company is not aware of any organizing activity at any of its other plants. The Company considers its relations with its employees to be good. Export Sales In 1993, the Company's export sales increased to $40.6 million (approximately 7.8% of 1993 net sales), an increase of 39% from export sales in 1992 of $29.3 million (approximately 5.9% of 1992 net sales). The Company's export sales in 1991 were $12.5 million, or approximately 2.9% of 1991 net sales. None of the Company's assets are dedicated solely to export sales. ITEM 2. Properties LADD and its operating companies operate 27 manufacturing facilities, of which 26 facilities, approximately 6,900,000 square feet, are owned, and one facility, approximating 125,000 square feet is leased. These facilities range in size from approximately 20,000 square feet to approximately 785,000 square feet. Five of the manufacturing facilities (approximately 1.8 million aggregate square feet) are subject to encumbrances associated with industrial revenue bond financings, the outstanding balances of which aggregated approximately $8.0 million at January 1, 1994. The Company believes that each of the current manufacturing plants are suitable and adequate for the particular production conducted at that plant. During fiscal 1993, the Company estimates that its plants operated at approximately 80% of total capacity on an aggregate basis. In addition, the Company owns three warehouse facilities aggregating approximately 340,000 square feet and leases seven warehouse facilities aggregating approximately 840,000 square feet. The Company has one idle manufacturing facility located in Kenbridge, VA which is held for sale. The Company's manufacturing facilities are located in North Carolina, Alabama, Arkansas, California, Mississippi, Pennsylvania, Ohio, South Carolina, Tennessee, Virginia and Mexico. The Company leases its corporate offices, which aggregate approximately 38,000 square feet, in High Point, North Carolina. The Company believes that its manufacturing, warehouse and office space is well maintained for its intended purposes. Although the closure of any particular Company facility may be disruptive to that particular operating entity's business, it would not be materially adverse to the Company's operations. The Company normally operates all of its furniture manu- facturing facilities from a one shift per day, five-day week basis. Increasingly, certain departments and facilities are -8- operated on a multi-shift basis. The plywood and ready-to- assemble manufacturing facilities are typically operated on a three shifts per day and two shifts per day, five-day week basis, respectively. The Company also leases and maintains showrooms in High Point, NC, Dallas, TX, Atlanta, GA, Chicago, IL, Miami, FL, Washington, DC, Los Angeles and San Francisco, CA, New York, NY, and Ontario, Canada, and retail stores in Topeka and Shawnee, KS. The Company owns rights to cut timber on approximately 526 acres of undeveloped timberland in eastern North Carolina. The Company owns substantial quantities of woodworking, sewing and metalworking equipment located in its various plants. The Company considers its present equipment to be adequate, well- maintained, and generally modern. The Company currently owns 16 tractors and 26 trailers and leases an additional 97 tractors and 307 trailers. ITEM 3. Legal Proceedings The Company is involved in routine litigation from time to time in the regular course of its business. In the opinion of the Company, there are no material legal proceedings pending or known to be contemplated to which the Company is a party or of which any of its property is subject. The Company and its operating entities presently are involved in the following environmental proceedings: 1. Brown Jordan's California manufacturing facility is located in El Monte, California in the San Gabriel Valley Ground- water Basin. The Basin has been designated by the United States Environmental Protection Agency ("EPA") and the State of California as a Superfund Site. Although no administrative or judicial enforcement action has been taken by the EPA or applicable California authorities, the State of California is seeking to identify potentially responsible parties ("PRPs") and has ordered certain tests to be conducted by Brown Jordan in connection with their investigation. Such tests have been completed and no future activities are currently scheduled. The Company is currently negotiating with applicable authorities in the State of California to settle Brown Jordan's involvement in this matter. Under the terms of the Asset Purchase Agreement with Maytag Corporation ("Maytag"), dated June 1, 1989 ("the Maytag Agreement"), the Company's liabilities in the matter are limited to the first $200,000 of costs for off-site liabilities and $1,000,000 of costs for on-site liabilities. 2. American Drew, a division of the Company, has been identified as a PRP by the EPA in connection with the EPA's clean-up efforts at the Caldwell Systems Incinerator -9- ("CSI") in Lenoir, North Carolina. American Drew is one of several hundred companies thus far identified in connection with the site and it is anticipated that several hundred more PRPs will eventually become involved. While the preliminary clean-up costs are estimated to be as high as $3,000,000, American Drew's share of clean-up costs is estimated to be less than $50,000 because of the large number of PRPs, the relative amount of waste apparently sent to the CSI facility by American Drew, and the information thus far available. The PRPs have organized themselves and are negotiating with the EPA with respect to the site. No litigation has been commenced, and at the present time none is anticipated. Given the inherent uncertainties in such matters, it is nevertheless possible that American Drew's ultimate share could exceed the estimated $50,000. 3. Plants 1 and 4 of Clayton-Marcus Company, Inc., a wholly-owned subsidiary of the Company ("Clayton-Marcus"), have been identified as PRPs by the EPA in connection with the EPA's clean-up efforts at the Caldwell Systems Incinerator in Lenoir, North Carolina. Clayton-Marcus is one of several hundred companies thus far identified in connection with the site. As discussed in paragraph 2 above, the PRPs have organized themselves and are negotiating with the EPA with respect to the site. No litigation has been commenced, and at the present time, none is anticipated. 4. The Company's former subsidiary, The Gunlocke Company ("Gunlocke"), has been named as a PRP by the New York Department of Environmental Conservation ("NYDEC") with respect to the Prattsburg Landfill in Tonawanda, New York. NYDEC has to date not pursued Gunlocke concerning this matter. Instead, the NYDEC has obtained from Steuben County a signed Consent Order for a remedial investigation and feasibility study and a remedy for the landfill. Nevertheless, this action does not preclude the possibility that the NYDEC, Steuben County or other third parties may subsequently make claims against Gunlocke and other PRPs regarding this matter. Under the terms of the Maytag Agreement, the Company's liabilities are limited to $200,000 for all off- site liabilities in the aggregate. 5. Manifest show that No. 2 diesel fuel impacted soil was sent by the Redd Level, Virginia plant of American of Martinsville, a division of a subsidiary of the Company, to the Seaboard Chemical Corporation treatment, storage and disposal facility in Jamestown, North Carolina. The Seaboard Chemical site is currently subject to remedial action under the jurisdiction of the State of North Carolina. The Company has been named as one of over 100 PRPs for this site. The group representing the PRPs was contacted with regard to participation by American of Martinsville as a de minimis buyout participant for the removal phase of the work at the site. On February 8, 1993, the Company participated in the de minimis buyout by signing the appropriate documents and paying its buyout share of approximately $2,300. It is not known at this time if additional phases will be involved. 6. The former facility of Pilliod Furniture, Inc., a subsidiary of the Company acquired in January 1994 ("Pilliod"), located in Meridian, Mississippi was identified as a PRP with respect to the Diaz Refinery disposal site in Diaz, Arkansas. This site is currently -10- subject to remedial action under the jurisdiction of the State of Arkansas. Over 700 PRPs have been identified in connection with this site. A trust fund for remediation of the site has been established by the PRP Committee, and PRPs have been assessed based on the volume of waste they sent to the site. As of October 1992, Pilliod had been assessed a total of approximately $15,000. No additional monetary assessments were collected from the PRPs during 1993. Although a major portion of the site remediation and environmental assessment has already been completed and paid for by the PRPs, additional assessment and possible long-term monitoring or corrective action measures may be required. Since Pilliod sent a relatively small volume of waste to the site, its future contributions for remediation are expected to be relative to this volume. 7. In July 1993, Pilliod's Swanton, Ohio facility was served with a Complaint and Notice of Opportunity for Hearing from the EPA, Region 5 alleging several reporting and record keeping violations of Title III of the Superfund Amendments and Reauthorization Act, also known as the Emergency Planning and Community Right-To-Know Act of 1986 ("EPCRA"). The total proposed civil penalty for the alleged violations is approximately $68,000. The settlement of this matter continues to be negotiated with the EPA by counsel for Pilliod. 8. With respect to all expenses incurred by the Company arising in connection with the following items in excess of $50,000 in the aggregate, the Company will claim indemnification from Maytag pursuant to the terms of the Maytag Agreement: (i) In December 1991, Gunlocke was served with a Complaint and Notice of Opportunity for Hearing from the EPA, Region II alleging several record keeping violations with respect to PCBs for various periods between July 2, 1978 through December 31, 1978, and the years 1979 through 1988. The total proposed civil penalty for the alleged violations is $54,600. Counsel has been retained to negotiate a possible settlement with the EPA. The settlement of this matter continues to be negotiated with the EPA. A recent federal guideline regarding recordkeeping and reporting has resulted in a re-evaluation by the EPA of the situation. The EPA has not yet responded to this penalty reduction effort. (ii) Gunlocke has been identified by the NYDEC as a generator of wastes which may have been disposed of at the Bath Landfill in Bath, New York. The NYDEC is currently gathering information from waste generators and transporters which may have sent wastes to the landfill, and on February 12, 1993, Gunlocke responded to an information request letter from the NYDEC. (iii) Gunlocke has been named as a PRP at the Rose Chemicals Superfund Site in Missouri. Gunlocke has participated as a member of the de minimis buyout group of PRPs. On September 2, 1992, the EPA signed an -11- Unilateral Order. The PRP group Steering Committee subsequently entered into negotiations with the EPA and an Amended Order was issued on December 3, 1992. On December 24, 1992, the PRP group Steering Committee entered into an Affirmative Response stating that the group would comply with the Amended Order and complete the remediation. During 1993, a final work plan was submitted to the EPA for approval and the PRP Group anticipates that final remediation will begin in the spring of 1994. (iv) Pennsylvania House and a former subsidiary, The Kittinger Company ("Kittinger"), have been named as PRPs by the EPA for the Envirotek II Superfund Site in Tonawanda, New York according to a notice issued by the EPA on January 9, 1990. Pennsylvania House and Kittinger were operated as a single entity during the late 1980's. Both Pennsylvania House and Kittinger shipped hazardous materials to the site during the period in question, which materials were to be properly disposed of by an independent contractor. Pennsylvania House and Kittinger are represented on the PRP Steering Committee. The EPA and the PRPs have entered into a consent order and the removal action under the supervision of the EPA has been substantially completed pursuant to the order. Pennsylvania House's de minimis involvement in this stage of the matter has been settled. The Company remains involved on behalf of Kittinger and Pennsylvania House as to possible future remedial action not covered by the de minimis settlement. The final allocation financial responsibility for the initial phase of the clean up within the PRP group has been decided with the allocation for Kittinger determined to be approximately $2,100. Removal activities are substantially complete at the site, but it is not known at this time if the EPA or NYDEC will require further remediation. (v) The NYDEC has notified the PRP Group for the Envirotek II matter of an investigation of the Roblin Steel complex within which the Envirotek II site is located. The second PRP group, made up primarily of PRPs in Envirotek II, including Pennsylvania House and Kittinger, has been formed to respond. It is anticipated that the Roblin Steel PRP group will undertake a limited remedial investigation in an effort to demonstrate there is relatively limited impact on the overall site as a result of conditions at Envirotek II. (vi) The EPA has alleged that the operators at the Envirotek II site transported waste to the second site, known as Envirotek I. A PRP group, including Kittinger and Pennsylvania House, has been formed and is preparing a response for the EPA. (vii) The EPA is currently investigating a site at York Haven, York County, Pennsylvania. A PRP group has organized to respond to the EPA, -12- and Pennsylvania House has been identified by the PRP group as a de minimis party having shipped 0.01506% of the total quantity of hazardous waste to the site on June 18, 1984. Pennsylvania House's de minimis involvement for the clean up of the site will be settled with payment of its allocated share of approximately $11,100. The first payment of approximately $5,600 was paid on December 29, 1993, and the remaining balance will be due in 12 months from this date. This is a final settlement for de minimis settlors with the remaining PRPs conditionally indemnifying de minimis settlors. The EPA is continuing to remove tanks and drums from the site. A remedial investigation feasibility study report has not been prepared at this time. The Company is cooperating fully with government authorities in each of these matters. ITEM 4. Submission of Matters to a Vote of Security Holders No such matters were submitted to security holders of the Company in the fourth quarter of fiscal year 1993. PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters The stock price data and common dividends per share and the Stock Listing Information which appear on pages 26 and 31, respectively, of the LADD Furniture, Inc. Annual Report to Share- holders for 1993, are incorporated by reference in this Form 10-K Annual Report. There were approximately 885 security holders of record of the Company's common stock as of March 4, 1994. ITEM 6. Selected Financial Data The summary of selected financial data for each of the periods in the five-year period ended January 1, 1994, which appears on page 26 of the LADD Furniture, Inc. Annual Report to Shareholders for 1993, is incorporated by reference in this Form 10-K Annual Report. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations for the years ended January 1, 1994, January 2, 1993, and December 28, 1991, which appears -13- on pages 27 to 30 of the LADD Furniture, Inc. Annual Report to Shareholders for 1993, is incorporated by reference in this Form 10-K Annual Report. ITEM 8. Financial Statements and Supplementary Data The consolidated financial statements, together with the independent auditors' report thereon of KPMG Peat Marwick dated February 11, 1994, and the selected quarterly data, appearing on pages 9 to 25 and page 31, respectively, of the accompanying LADD Furniture, Inc. Annual Report to Shareholders for 1993 are incorporated by reference in this Form 10-K Annual Report. With the exception of the aforementioned information and the information incorporated in Items 5, 6, 7, and 8, the LADD Furniture, Inc. Annual Report to Shareholders for 1993 is not to be deemed filed as part of this report. ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No changes in accountants or disagreements with accountants on accounting or financial disclosure occurred in fiscal years 1993 and 1992. PART III Part III is omitted as the Company intends to file with the Commission within 120 days after the end of the Company's fiscal year a definitive proxy statement pursuant to Regulation 14A which will involve the election of directors. ITEM 10. Directors and Executive Officers of the Registrant See reference to definitive proxy statement under Part III. ITEM 11. Executive Compensation See reference to definitive proxy statement under Part III. ITEM 12. Security Ownership of Certain Beneficial Owners and Management See reference to definitive proxy statement under Part III. ITEM 13. Certain Relationships and Related Transactions See reference to definitive proxy statement under Part III. -14- PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Page in Annual Report* (a) The following documents are filed as part of this report: (1) Financial Statements Consolidated Statements of Operations for the years ended January 1, 1994, January 2, 1993, and December 28, 1991 . . . . . . . . . . . . . . 10 Consolidated Balance Sheets as of January 1, 1994 and January 2, 1993 . . . . . . . . . . . 11 Consolidated Statements of Cash Flows for the years ended January 1, 1994, January 2, 1993, and December 28, 1991 . . . . . . . . . . . . . . 12 Consolidated Statements of Shareholders' Equity for the years ended January 1, 1994, January 2, 1993, and December 28, 1991 . . . . . 13 Notes to Consolidated Financial Statements . 14-25 Independent Auditors' Report . . . . . . . . . . 9 *Incorporated by reference from the indicated pages of the LADD Furniture, Inc. Annual Report to Shareholders for 1993. (2) Index to Financial Statement Schedules: Independent Auditors' Report . . . . . . . . . . . F-1 For the years ended January 1, 1994, January 2, 1993, and December 28, 1991 V - Property, Plant and Equipment . . . . . . . F-2 VI - Accumulated Depreciation of Property, Plant and Equipment . . . . . F-3 VIII - Valuation and Qualifying Accounts and Reserves F-4 X - Supplementary Earnings Statement Information F-5 -15- All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) List of Executive Compensation Plans LADD Furniture, Inc. 1994 Incentive Stock Option Plan Employee Restricted Stock Purchase Agreements for all directors and the named executive officers of the registrant as required by Item 402(a)(2) of Regulation S-K LADD Furniture, Inc. Supplemental Retirement Income Plan LADD Furniture, Inc. Long-Term Incentive Plan LADD Furniture, Inc. 1994 Management Incentive Plan (b) No reports on Form 8-K were filed in the last quarter of fiscal 1993. (c) Exhibits 3. Articles of Incorporation and Amendments. (Previously filed as Exhibit 10 to Item 14 of the Company's Annual Report on Form 10-K for the year ended December 29, 1990, filed with the Commission on March 28, 1991) Bylaws (as amended February 25, 1993) (Previously filed as Exhibit 3 to Item 14 of the Company's Annual Report on Form 10-K for the year ended January 2, 1993, filed with the Commission on March 30, 1993) 10. LADD Furniture, Inc. 1994 Incentive Stock Option Plan Employee Restricted Stock Purchase Agreement between the Company and Don A. Hunziker dated February 28, 1991 -16- Employee Restricted Stock Purchase Agreement between the Company and O. William Fenn, Jr. dated February 28, 1991 Employee Restricted Stock Purchase Agreement between the Company and Richard R. Allen dated February 28, 1991 Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated February 28, 1991 Employee Restricted Stock Purchase Agreement between the Company and Gerald R. Grubbs, dated February 28, 1991 (Previously filed as Exhibit 10 to Item 14 of the Company's Annual Report on Form 10-K for the year ended December 29, 1990, filed with the Commission on March 28, 1991) Employee Restricted Stock Purchase Agreement between the Company and Don A. Hunziker dated June 20, 1991 (Previously filed as Exhibit 10 to Item 14 of the Company's Annual Report on Form 10-K for the year ended December 28, 1991, filed with the Commission on March 26, 1992) Employee Restricted Stock Purchase Agreement between the Company and Richard R. Allen dated February 25, 1993 Employee Restricted Stock Purchase Agreement between the Company and Gerald R. Grubbs dated February 25, 1993 Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated February 25, 1993 -17- Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated February 25, 1993 (Previously filed as Exhibit 10 to Item 14 to the Company's Annual Report on Form 10-K for the year ended January 2, 1993, filed with the Commission on March 30, 1993) Enclosed as Exhibits 10.1 - 10.4 to this Annual Report on Form 10-K for the year ended January 1, 1994. 10.1 Employee Restricted Stock Purchase Agreement between the Company and Richard R. Allen dated February 24, 1994 10.2 Employee Restricted Stock Purchase Agreement between the Company and Gerald R. Grubbs dated February 24, 1994 10.3 Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated February 24, 1994 10.4 Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated February 24, 1994 Asset Purchase Agreement, dated as of June 1, 1989, among the Company, Maytag Corporation, The BJC Company and The Gunlocke Company (Previously filed as Exhibit 10(a) to the Company's Current Report on Form 8-K, dated as of June 1, 1989, filed with the Securities and Exchange Commission on June 2, 1989) -18- First Amendment and Waiver to Asset Purchase Agreement, dated as of July 7, 1989, by and among the Company, Pennsylvania House, Inc., The McGuire Furniture Company, The Kittinger Company, Charter Furniture, Inc., Brown Jordan Company and The Gunlocke Company, a North Carolina corporation, and Maytag Corporation, The Gunlocke Company, a Delaware corporation, and The BJC Company (Previously filed as Exhibit 10 to the Company's Current Report on Form 8-K, filed with the Commission on July 21, 1989, as amended by Form 8 filed with the Commission on September 18, 1989.) Agreement of Purchase and Sale, dated as of September 30, 1989, together with the First Amendment, among the Company, The Gunlocke Company and HON Industries, Inc. Agreement of Purchase and Sale, dated as of November 7, 1989, among the Company, The McGuire Furniture Company and Kohler Interiors Group, Ltd. LADD Furniture, Inc. Supplemental Retirement Income Plan (Previously filed as Exhibit 10 to the Company's Annual Report on Form 10-K, for the year ended December 30, 1989, filed with the Commission on March 30, 1990.) Agreement of Purchase and Sale dated as of June 22, 1990, together with the first Amendment, among the Company, The Kittinger Company, and USC Industries, Inc. (Previously filed as Exhibit 10 to the Company's Annual Report on Form 10-K, for the year ended December 30, 1989, filed with the Commission on March 30, 1990.) -19- LADD Furniture, Inc. Long-Term Incentive Plan (Previously filed as Exhibit 10 to the Company's Annual Report on Form 10-K, for the year ended December 29, 1990, filed with the Commission on March 28, 1991.) Credit Agreement, dated as of January 15, 1993, between the Company, The Chase Manhattan Bank (National Association) as agent, and each of the banks signatory to the Credit Agreement Form of Term Loan Note of the Company in the aggregate principal amount of $45,000,000 Form of Revolving Credit Loan Note of the Company issued in the aggregate principal amount of $85,000,000 (All previously filed as Exhibit 10 to the Company's Annual Report on Form 10-K, for the year ended January 2, 1993, filed with the Commission on March 30, 1993.) Transfer and Administrative Agreement dated January 28, 1994 between Enterprise Funding Corporation, LADD Furniture, Inc., and Clayton-Marcus Company, Inc., Barclay Furniture Co. and LADD Transportation, Inc., as designated subsidiaries. Receivables Purchase Agreement dated January 28, 1994, between Clayton-Marcus Company, Inc., Barclay Furniture Co. and LADD Transportation, Inc. Letter Agreement, dated January 28, 1994, between the Company and The Chase Manhattan Bank, N.A. -20- Form of Promissory Note of the Company dated January 28, 1994 to The Chase Manhattan Bank, N.A. in the aggregate principal amount of $20,000,000. (Previously filed as Exhibits 99.1, 99.2, 99.3 and 99.4 to the Company's Current Report on Form 8-K dated January 31, 1994, filed with the Commission on February 14, 1994.) Enclosed as Exhibits 10.5 - 10.8 to this Annual Report on Form 10-K for this year ended January 1, 1994 10.5 Letter Agreement dated February 28, 1994 between the Company and PNC Bank, National Association 10.6 Form of Line of Credit Note of the Company dated February 28, 1994 to PNC Bank, National Association in the aggregate principal amount of $15,000,000 10.7 Form of Guaranty and Suretyship Agreement dated February 28, 1994 between PNC Bank, National Association and Pennsylvania House, Inc., Brown Jordan Company, Clayton-Marcus Company, Inc., LADD Contract Sales Corporation, Fournier Furniture, Inc., Barclay Furniture Co., American Furniture Company, Incorporated, Pilliod Furniture, Inc. and Lea Industries, Inc. (a North Carolina corporation) 10.8 1994 Management Incentive Plan Enclosed as Exhibit 13.1 to this Annual Report on Form 10-K for the year ended January 1, 1994. 13.1 1993 Annual Report to Shareholders -21- 22. Subsidiaries of Registrant American Drew, Inc., a North Carolina corporation American Furniture Company, Incorporated, a Virginia corporation Barclay Furniture Co., a Mississippi corporation Brown Jordan Company, a North Carolina corporation Cherry Grove, Inc., a Delaware corporation Clayton-Marcus Company, Inc., a North Carolina corporation Fournier Furniture, Inc., a North Carolina corporation Kenbridge Furniture, Inc., a North Carolina corporation LFI Capital Management, Inc., a Delaware corporation LADD Transportation, Inc., a North Carolina corporation Lea Industries, Inc., a North Carolina corporation Lea Industries, Inc., a Tennessee corporation Lea Industries, Inc., a Virginia corporation Lea Lumber and Plywood Co., a Virginia corporation LADD Contract Sales Corporation, a North Carolina corporation LADD International Sales Corp., a U.S. Virgin Islands corporation Pennsylvania House, Inc., a North Carolina corporation Pilliod Furniture, Inc., a North Carolina corporation Enclosed as Exhibit 24.1 to this Annual Report on Form 10-K for the year ended January 1, 1994. 24.1 Consent of KPMG Peat Marwick -22- SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, there- unto duly authorized. LADD FURNITURE, INC. (Registrant) By s/William S. Creekmuir 3/31/94 William S. Creekmuir (Date) Senior Vice President, Chief Financial Officer, Secretary, and Treasurer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dated indicated. s/Don A. Hunziker 3/31/94 s/Richard R. Allen 3/31/94 Don A. Hunziker (Date) Richard R. Allen (Date) Director Chairman of the Board, President and Chief Executive Officer and Director s/O. William Fenn, Jr. 3/31/94 s/Daryl B. Adams 3/31/94 O. William Fenn, Jr. (Date) Daryl B. Adams (Date) Director Vice President, Corporate Controller, Assistant Secretary, and Assistant Treasurer (Principal Accounting Officer) s/Thomas F. Keller 3/31/94 s/Gerald R. Grubbs 3/31/94 Thomas F. Keller (Date) Gerald R. Grubbs (Date) Director Vice Chairman of the Board and Director s/William B. Cash 3/31/94 s/James H. Corrigan, Jr. 3/31/94 William B. Cash (Date) James H. Corrigan, Jr. (Date) Director Director s/Fred L. Schuermann, Jr. 3/31/94 s/William S. Creekmuir 3/31/94 Fred L. Schuermann, Jr. (Date) William S. Creekmuir (Date) Executive Vice President, Senior Vice President, Chief Assistant Secretary and Financial Officer, Secretary, and Director Treasurer (Principal Financial Officer) -23-
Schedule V LADD FURNITURE, INC. AND SUBSIDIARIES Property, Plant and Equipment (dollar amounts in thousands) Balance at Additions in Other Balance at beginning of acquisition of additions at Transfers end of Description year business cost Retirements (b) year Year ended January 1, 1994: Land and improvements $ 5,717 - 235 (60) - 5,892 Buildings and improvements 60,689 - 5,373 (212) - 65,850 Machinery and equipment 62,276 - 12,379 (1,658) - 72,997 Construction in progress 5,587 - 6,679 (a) - - 12,266 $134,269 - 24,666 (1,930) - 157,005 Year ended January 2, 1993: Land and improvements $ 5,231 383 169 (66) - 5,717 Buildings and improvements 58,686 1,164 1,247 (408) - 60,689 Machinery and equipment 56,262 1,036 5,455 (506) 29 62,276 Construction in progress 3,432 - 2,155 (a) - - 5,587 $123,611 2,583 9,026 (980) 29 134,269 Year ended December 28, 1991: Land and improvements $ 5,254 - 4 (34) 7 5,231 Buildings and improvements 55,895 - 2,670 (172) 293 58,686 Machinery and equipment 52,908 - 5,031 (2,376) 699 56,262 Construction in progress 3,588 - (156)(a) - - 3,432 $117,645 - 7,549 (2,582) 999 123,611 Notes: (a) Represents net increase (decrease) in construction in progress. (b) Represents cost of property, plant and equipment transferred from (to) property, plant and equipment held for sale.
Schedule VI LADD FURNITURE, INC. AND SUBSIDIARIES Accumulated Depreciation of Property, Plant, and Equipment (dollar amounts in thousands) Additions Balance at charged to Balance at beginning of cost and Transfers end of Description year expense Retirements (a) year Year ended January 1, 1994: Land and improvements $ 426 72 - - 498 Buildings and improvements 17,542 3,314 (213) - 20,643 Machinery and equipment 32,692 7,122 (1,447) - 38,367 $50,660 10,508 (1,660) - 59,508 Year ended January 2, 1993: Land and improvements $ 362 64 - - 426 Buildings and improvements 14,903 2,793 (154) - 17,542 Machinery and equipment 26,687 6,294 (317) 28 32,692 $41,952 9,151 (471) 28 50,660 Year ended December 28, 1991: Land and improvements $ 262 63 - 37 362 Buildings and improvements 12,213 2,725 (152) 117 14,903 Machinery and equipment 22,411 5,995 (1,373) (346) 26,687 $34,886 8,783 (1,525) (192) 41,952 Note: (a) Represents accumulated depreciation on property, plant and equipment transferred from (to) property,plant and equipment held for sale.
Schedule VIII LADD FURNITURE, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves (dollar amounts in thousands) Charged Balance at (credited) Charged to Balance at beginning of to costs and other accounts Deductions end of Description year expenses (a) (b) year Year ended January 1, 1994: Doubtful receivables $2,763 2,056 - (1,503) 3,316 Discounts 23 - (c) - (23) 0 Returns and allowances 731 131 (c) - - 862 $3,517 2,187 - (1,526) 4,178 Year ended January 2, 1993: Doubtful receivables $4,937 3,309 408 (5,891) 2,763 Discounts 23 - (c) - - 23 Returns and allowances 914 (183)(c) - - 731 $5,874 3,126 408 (5,891) 3,517 Year ended December 28, 1991: Doubtful receivables $2,344 6,989 - (4,396) 4,937 Discounts 18 5 (c) - - 23 Returns and allowances 552 362 (c) - - 914 $2,914 7,356 - (4,396) 5,874 Notes: (a) Represents initial reserves of acquired business. (b) Represents uncollectible receivables written-off, net of recoveries. (c) Represents net increase (decrease) in required reserve.
Schedule X LADD FURNITURE, INC. AND SUBSIDIARIES Supplementary Earnings Statement Information (dollar amounts in thousands) Year ended January 1, 1994 Maintenance and repairs $7,634 Advertising costs $9,869 Year ended January 2, 1993 Maintenance and repairs $6,844 Advertising costs $8,732 Year ended December 28, 1991 Maintenance and repairs $6,330 Advertising costs $7,357 Amortization expense $4,407 Other items required in this schedule are not shown since they did not exceed one percent of net sales. EX-10 2 EXHIBIT 10.1 Exhibit 10.1 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 24th day of February, 1994, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Richard R. Allen (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 6,871 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to January 1, 1999, the Company shall have the right and option (the -1- "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extend the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on -2- account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or -3- (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. -4- (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all -5- of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. -6- 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. -7- 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE _______________________________________ Address: _____________________________ _____________________________ Social Sec. No.________________________ -8- EX-10 3 EXHIBIT 10.2 Exhibit 10.2 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 24th day of February, 1994, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Gerald R. Grubbs (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 4,418 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to January 1, 1999, the Company shall have the right and option (the -1- "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extend the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on -2- account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or -3- (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. -4- (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all -5- of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. -6- 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. -7- 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE _______________________________________ Address: _____________________________ _____________________________ Social Sec. No.________________________ -8- EX-10 4 EXHIBIT 10.3 Exhibit 10.3 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 24th day of February, 1994, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and Fred L. Schuermann, Jr. (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 4,418 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to January 1, 1999, the Company shall have the right and option (the -1- "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extend the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on -2- account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or -3- (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. -4- (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all -5- of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. -6- 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. -7- 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE _______________________________________ Address: _____________________________ _____________________________ Social Sec. No.________________________ -8- EX-10 5 EXHIBIT 10.4 Exhibit 10.4 EMPLOYEE RESTRICTED STOCK PURCHASE AGREEMENT Agreement, made this 24th day of February, 1994, between LADD Furniture, Inc., a North Carolina corporation (the "Company"), and William S. Creekmuir (the "Employee"). For valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Purchase of Shares. The Employee subscribes for and, upon acceptance, shall purchase, subject to the terms and conditions set forth in this Agreement, 1,956 shares (the "Shares") of common stock ("common stock"), $.10 par value, of the Company at a purchase price of $.10 per share. The aggregate purchase price of the Shares shall be paid by the Employee by check, payable to the order of the Company, or such other method as may be acceptable to the Company. Upon the Company's receipt of payment for the Shares, the Company shall issue to the Employee one or more certificates in the name of the Employee for that number of Shares purchased by the Employee. The Employee agrees that the Shares shall be subject to the Re-purchase Option set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement. 2. Re-purchase Option. (a) If the Employee ceases to be employed by the Company for any reason other than death or disability or ceases to be employed by the Company in an appropriate executive capacity (as determined by the Company in its sole discretion), prior to January 1, 1999, the Company shall have the right and option (the -1- "Re-purchase Option") to purchase any or all of the Shares from the Employee at the same price as the Employee paid for the Shares. (b) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company. 3. Exercise of Re-purchase Option and Closing. (a) The Company may exercise the Re-purchase Option by delivering or mailing to the Employee in accordance with Section 14, written notice of exercise within 60 days after the termination of the employment of the Employee with the Company or the date upon which the Employee ceases to be employed in an appropriate executive capacity (as determined by the Company in its sole discretion). This notice shall specify the number of Shares to be purchased. If and to the extend the Re-purchase Option is not exercised within the 60-day period, the Re-purchase Option shall automatically expire, effective upon the expiration of the 60-day period. (b) Within 10 days after his receipt of the Company's notice of the exercise of the Re-purchase Option pursuant to Subsection 3(a), the Employee shall tender to the Company at its principal offices the certificate or certificates representing the Shares that the Company has elected to purchase, duly endorsed in blank by the Employee or with duly endorsed stock powers attached, all in form suitable for the transfer of the Shares of the Company. Upon its receipt of these Shares, the Company shall deliver or mail to the Employee a check in the amount of the aggregate Option Price. (c) After the time when any Shares are required to be delivered to the Company for transfer to it pursuant to Subsection 3(b), the Company shall not pay any dividend to the Employee on -2- account of those Shares, or permit the employee to exercise any of the privileges or rights of a stockholder with respect to those shares, but shall, insofar as permitted by law, treat the Company as the owner of the Shares. (d) The Option Price may be payable, at the discretion of the company, in cancellation of all or a portion of any outstanding indebtedness of the Employee to the Company, or in cash (by check), or both. 4. Restrictions on Transfer: (a) Except as otherwise provided in Subsection 4(b), the Employee shall not, during the term of the Re-purchase Option, sell, assign, transfer, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless the Shares are no longer subject to the Re-purchase Option. (b) Notwithstanding the foregoing, the Employee may transfer Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, provided that those Shares shall remain subject to this Agreement, including without limitation the restrictions on transfer set forth in this Section 4 and the Re-purchase Option, and the permitted transferee shall, as a condition to the transfer, deliver to the Company a written instruction confirming that the transferee shall be bound by all of the terms and conditions of this Agreement. 5. Effect of Prohibited Transfer. The Company shall not be required: (a) To transfer on its books any of the Shares that shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or -3- (b) To treat as owner of those Shares or to pay dividend to any transferee to whom any of those Shares shall have been sold or transferred. 6. Restricted Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws: The shares of stock represented by this certificate are subject to restrictions on transfer and an option to purchase set forth in a Stock Restriction Agreement between the corporation and the registered owner of this certificate (or his predecessor in interest). This Agreement is available for inspection without charge at the office of the Secretary of the corporation. 7. Investment Representations. The Employee represents, warrants, and covenants as follows: (a) The Employee is purchasing the Shares for his own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any rule or regulation under the Securities Act. (b) He has had an opportunity he deems adequate to obtain from representatives of the Company the information necessary to permit him to evaluate the merits and risks of his investment in the Company. (c) He has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to that purchase. -4- (d) He can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding the Shares for an indefinite period. (e) He understands that: (i) The Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act; (ii) The Shares cannot be sold, transferred, or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) In any event, the exemption from registration under Rule 144 will not be available for at least two years and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) The Company has no obligation or current intention to register the Shares under the Securities Act. (f) A legend substantially in the following form will be placed on the certificate representing the Shares: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the corporation to the effect that registration is not required. 8. Adjustments. If from time to time during the term of the Re-purchase Option there is any stock split, stock dividend, stock distribution, or other reclassification of the Common Stock of the Company, or any merger, consolidation, or sale of substantially all -5- of the assets of the Company, any and all new, substituted, or additional securities to which the Employee is entitled by reason of his ownership of the Shares shall be subject immediately to: The Re-purchase Option (and be included as "Shares"), the restrictions on transfer, and other provisions of this Agreement in the same manner and to the same extent as the Shares, and the Option Price shall be adjusted appropriately. 9. Withholding Taxes. (a) The Employee acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Employee any federal, state or local taxes of any kind required by law to be withheld with respect to the purchase of the Shares by the Employee. (b) If the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1954, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company will require at the time of that election an additional payment for withholding tax purposes based on the difference, if any between the purchase price for the Shares and the fair market value of the Shares as of the day immediately preceding the date of the purchase of the Shares by the Employee. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 11. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company. -6- 12. Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the Company and the Employee and their respective heirs, executors, administrators, legal representatives, successors, and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement. 13. No Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Employee any right to be retained, in any position, as an employee of the Company. 14. Notice. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown beneath his or its respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 14. 15. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns and pronouns shall included the plural, and the plural form of nouns and pronouns shall include the singular. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 17. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. -7- 18. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY LADD FURNITURE, INC. By:____________________________________ Chairman and Chief Executive Officer Address: P. O. Box HP-3 High Point, NC 27261 EMPLOYEE _______________________________________ Address: _____________________________ _____________________________ Social Sec. No.________________________ -8- EX-10 6 EXHIBIT 10.5 Exhibit 10.5 February 28, 1994 LADD Furniture, Inc. One Plaza Center - Box HP3 High Point, NC 27261-1500 Attention: William S. Creekmuir, Senior Vice President and Chief Financial Officer RE: $15 Million Committed Line of Credit Ladies/Gentlemen: LADD Furniture, Inc., a North Carolina corporation (the "Borrower"), has requested that PNC Bank, National Association (the "Bank") make available to it a $15,000,000 unsecured, committed line of credit (the "Line of Credit"). The Bank is willing to establish the Line of Credit upon the following terms and conditions: 1. The Line of Credit shall be available for a period of one year from the date hereof to February 28, 1995 (the "Termination Date"). During the period of the Line of Credit, the Borrower shall have the right to borrow, repay and reborrow amounts hereunder; provided that principal amounts outstanding and all accrued unpaid interest under the Line of Credit shall be repaid in full on or before the Termination Date. 2. The maximum aggregate principal amount outstanding under the Line of Credit shall at no time exceed $15,000,000. The Borrower's obligation to repay shall be evidenced by a Line of Credit Note substantially in the form of Exhibit "A" hereto (the "Line of Credit Note"). Repayment of the Line of Credit Note shall be guaranteed by the companies listed on Schedule 1 hereto and by any other company which may become a "Material Subsidiary" as defined in the Credit Agreement dated as of January 15, 1993 among the Borrower, The Chase Manhattan Bank (National Association) as Agent, the Banks parties thereto (the "Existing Banks") and the Guarantors (the "Existing Credit Agreement"), pursuant to a Guaranty and Suretyship Agreement substantially in the form of Exhibit "B" hereto (the "Guaranty Agreement"). This Letter Agreement, the Line of Credit Note and the Guaranty Agreement are collectively referred to as the "Loan Documents". 3. Upon the Borrower's application and subject to the Borrower's compliance with all of the provisions of this letter agreement (the "Agreement"), the Bank will make an advance to the Borrower under the Line of Credit in such an amount or amounts as the Borrower may request (the "Line of Credit Loans"). 4. The proceeds of the Line of Credit Loans shall be used by the Borrower as direct extensions of credit from the Bank to fund working capital needs of the Borrower and other general corporate purposes. 5. All amounts outstanding under the Line of Credit shall bear interest at a rate per annum selected by the Borrower from the interest rate options set forth below; it being understood that the Borrower may select different options to apply simultaneously to different portions of the Line of Credit Loans and may select up to four (4) different interest periods to apply simultaneously to different portions of the Line of Credit Loans bearing interest at the As Offered Rate or Euro-Rate as set forth below. (i) As Offered Rate. A rate per annum (computed on the basis of a year of 360 days and the actual number of days elapsed), determined in the Bank's sole discretion, as offered from time to time by the Bank to the Borrower as the rate at which the Bank would advance funds to the Borrower in the principal amount requested for the interest period requested (the "As Offered Rate"). (ii) Prime Rate. A rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and the actual number of days elapsed) equal to the rate of interest announced from time to time by the Bank at its principal office as its prime rate, which rate may not be the lowest interest rate then being charged commercial borrowers by the Bank (the "Prime Rate"). (iii) Euro-Rate. A rate of interest per annum (computed on the basis of a year of 360 days and the actual number of days elapsed) equal to the sum of (A) the rate at which deposits in U.S. dollars are offered to the Bank in the London Interbank Market plus (B) the Applicable Margin for Eurodollar Loans defined and determined as set forth in Section 1.01 of the Existing Credit Agreement, for the Interest Period (as hereinafter defined) in an amount equal to the advance and having a comparable maturity as determined at or about 11 a.m. (London time) two Business Days prior to the commencement of the Interest Period (the "Euro- Rate"). For the purpose hereof, the following terms shall have the following meanings: (x) "Business Day" shall mean a day on which banks are open for business in Pittsburgh, Pennsylvania and on which transactions are conducted in the London Interbank Market; and (y) "Interest Period" shall mean the period of one, two or three months selected by the Borrower commencing on the date of disbursement of an advance and each successive period selected by the Borrower thereafter; provided, that if an Interest Period would end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless such day falls in the succeeding calendar month in which case the -2- Interest Period shall end on the next preceding Business Day. In no event shall any Interest Period end on a day after the Expiration Date. The Borrower shall pay accrued interest on the unpaid principal balance of the Note in arrears: (i) for the portion of Line of Credit Loans bearing interest at the Prime Rate on the last Business Day of each December, March, June and September of each year during the term hereof, (ii) for the portion of Line of Credit Loans bearing interest at the Euro-Rate or As Offered Rate, on the last day of each Interest Period, and (iii) for all Line of Credit Loans, at maturity, whether by acceleration or otherwise of the Note, and after maturity, on demand until paid in full. 6. The Borrower shall notify the Bank of each election of an interest rate option, each conversion from one interest rate option to another, the amount of the Loans then outstanding to be allocated to each interest option and where relevant the Interest Periods. Any such communication may be oral or written and if oral, it shall be followed immediately by written confirmation of such interest rate option election executed by an authorized officer of the Borrower. 7. After the principal amount of all or any part of the Line of Credit Loans shall have become due and payable, whether by acceleration or otherwise, all the Loans shall bear interest at a rate per annum which shall be 200 basis points (2%) per annum above the rate otherwise in effect under the Prime Rate option, Euro-Rate option or As-Offered Rate option, as applicable. 8. Notwithstanding anything to the contrary herein: (a) On written demand, together with the written evidence of the justification therefor, the Borrower agrees to pay the Bank all direct costs incurred and any losses suffered or payments made by the Bank as a consequence of making the Line of Credit Loans by reason of any change in law or regulation or its interpretation imposing any reserve, deposit, allocation of capital or similar requirement (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) on the Bank, its holding company or any of their respective assets. (b) The Borrower agrees to indemnify the Bank against any loss or expense which the Bank, as a consequence of either (i) the Borrower's failure to make a payment on the due date thereof or (ii) the Borrower's payment, prepayment or conversion of any As Offered Rate portion or any Euro-Rate portion of the Loans on a day other than the last day of the applicable Interest Period, may sustain or incur in liquidating or employing deposits from third parties acquired to effect, fund or maintain such As Offered Rate portion or Euro-Rate portion or any part thereof. The Bank's determination of an amount payable under this subparagraph (b) shall, in the absence of manifest error, be conclusive and shall be payable on demand. -3- 9. Beginning on March 31, 1994 and continuing on the last day of each calendar quarter thereafter until the Termination Date, the Borrower shall pay a facility fee to the Bank, in arrears, at the rate of twenty-five (25) basis points per annum on the average daily unused portion of the Line of Credit during the calendar quarter then ending. The facility fee shall be computed on the basis of a year of 365 or 366 days, as the case may be, and paid on the actual number of days elapsed. 10. Each request for an advance under the Line of Credit shall constitute, as of the time made, a certification by the Borrower that the Borrower shall have performed and complied with all agreements and conditions herein required under this Letter Agreement, and at the time of the advance, no condition or event shall exist which constitutes an Event of Default. 11. As conditions to the establishment of the Line of Credit, the Borrower shall provide to the Bank the following: (a) this Agreement and the Line of Credit Note, duly executed by the Borrower; (b) The Guaranty Agreement, executed by the Guarantors; and (c) evidence of the due authorization by the Borrower of this Agreement and the Line of Credit Note and by the Guarantors of the Guaranty Agreement, an opinion of counsel to the Borrower and the Guarantors and such other instruments as the Bank shall reasonably require in form and substance satisfactory to the Bank. 12. The Bank shall open and maintain on its books a loan account in the name of the Borrower with respect to advances, payments and the computation and payment of interest, fees and other amounts due hereunder. Such loan account shall be conclusive and binding on the Borrower as to the amount at any time due to the Bank from the Borrower except in the case of error in computation. 13. Covenants. Unless waived in writing by the Bank or until payment in full and termination of the Line of Credit: (a) The Borrower will promptly submit to Bank such information relating to the Borrower or any Guarantor as the Bank may reasonably request. (b) The Borrower will comply with the financial covenants set forth in Sections 8.10, 8.11, 8.12, 8.13 and 8.16 of the Existing Credit Agreement. In the event that the Existing Banks approve any amendment to or waiver of any of these covenants that the Bank does not approve, then the Bank at its option may terminate this Line of Credit 90 days after notice to the Borrower and any and all advances will be due and payable on such early termination date. -4- (c) The Borrower will provide to Bank with copies of all financial reports and notices provided to the Banks under Sections 8.01 or 8.02 of the Existing Credit Agreement at the same time sent to the Banks. 14. Representations, Warranties and Other Agreements. The Borrower represents and warrants to the Bank as follows: (a) It has the power to make and carry out the terms of this Agreement and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. (b) This Agreement constitutes the legally binding obligation of the Borrower enforceable in accordance with its terms. (c) The making and performance of this Agreement does not and will not violate in any respect any provisions of (i) any federal, state or local law or regulation or any order or decree of any federal, state or local governmental authority, agency or court, or (ii) the organizational documents of the Borrower or of any of its subsidiaries, or (iii) any mortgage, contract or other undertaking to which the Borrower is a party or which is binding upon the Borrower or any of its subsidiaries or any of their respective assets, and does not and will not result in the creation or imposition of any security interest, lien, charge or other encumbrance on any of their respective assets pursuant to the provisions of any such mortgage, contract or other undertaking. (d) No Default or Event of Default as defined in the Existing Credit Agreement has occurred and is continuing. The Borrower further represents and warrants that none of the exceptions described in Schedule II to the Existing Credit Agreement has any material adverse effect on the consolidated financial condition, operations, business or prospects of the Borrower and its consolidated subsidiaries taken as a whole. 15. Events of Default and Remedies. The occurrence of any of the following described events will constitute an "Event of Default" hereunder: (a) Any failure of the Borrower to make any payment of principal, interest or other amounts when due under this Line of Credit or under any other obligations of the Borrower to the Bank; (b) Any failure of the Borrower or any Guarantor to comply fully with all of the terms, covenants and conditions of the Loan Documents, or any breach of any representation or warranty under the Loan Documents; or (c) Any Event of Default under the Existing Credit Agreement. -5- Upon the occurrence of an Event of Default: (i) the Bank shall be under no further obligation to make advances hereunder; (ii) if an Event of Default specified in clause (f) or (g) of Section 9 of the Existing Credit Agreement shall occur, the outstanding principal balance or the Line of Credit Loans and accrued interest together with any additional amounts payable hereunder shall be immediately due and payable without demand or notice of any kind; (c) if any other Event of Default shall occur, the outstanding principal balance and accrued interest together with any additional amounts payable hereunder, at the option of the Bank and without demand or notice of any kind, may be accelerated and become immediately due and payable; (d) at the option of the Bank, the Note will bear interest at the applicable default rate specified herein from the date of the occurrence of the Event of Default; and (e) the Bank may exercise from time to time any of the rights and remedies available to the Bank under the Loan Documents or under applicable law. 16. The Borrower agrees to pay or cause to be paid and to save the Bank harmless against liability for the payment of all reasonable out-of-pocket expenses (including but not limited to reasonable attorney's fees and expenses of the Bank's counsel) incurred by the Bank in connection with the enforcement of the Loan Documents. 17. All notices required to be sent to the parties hereto shall be sent to the following addresses, by hand delivery, overnight courier, facsimile transmission (with confirmation of receipt) or other means of electronic data communication or by the United States mail, first class postage prepaid: (a) Bank PNC Bank, National Association One PNC Plaza Pittsburgh, PA 15265 Attn: Southeast Group Facsimile: (412) 762-6484 Telephone: (412) 762-8746 (b) Borrower LADD Furniture, Inc. One Plaza Center - Box HP3 High Point, NC 27261-1500 Attn: William S. Creekmuir Facsimile: (910) 888-6050 Telephone: (910) 889-0333 18. The Borrower agrees that any action or proceeding arising out of or relating to this Agreement and the Line of Credit Note may be commenced in the United States District Court for the Western District of Pennsylvania or in the Court of Common Pleas of Allegheny County, Pennsylvania and the Borrower agrees that a summons and complaint commencing an action or proceeding in either of such courts shall be properly served and shall confer personal jurisdiction if served personally or by certified mail to the Borrower -6- at the Borrower's address as provided herein or as otherwise provided under the laws of the Commonwealth of Pennsylvania. The Borrower hereby waives any claim that either Pittsburgh, Pennsylvania or the Western District of Pennsylvania is an inconvenient forum or that either of the aforementioned courts lacks proper venue for any action arising out of any transaction involving this Letter Agreement and the Line of Credit Note. The Borrower also waives any and all rights it may have to a trial by jury in any action, proceeding or claim it may have relating to Loan Documents. 19. This Agreement and the Line of Credit Note shall be governed by the laws of the Commonwealth of Pennsylvania, except conflict of law rules. This Letter Agreement may be executed in counterparts, each of which when executed by the Borrower and the Bank shall be regarded as an original. If the foregoing accurately reflects the understanding of the parties, please execute the duplicate original of this Letter Agreement and return it to me. Very truly yours, PNC BANK, NATIONAL ASSOCIATION By________________________ James A. Fink, Vice President Southeast Group Accepted this 28th day of February, 1994 LADD FURNITURE, INC. By________________________________ Title_____________________________ -7- EX-10 7 EXHIBIT 10.6 Exhibit 10.6 LINE OF CREDIT NOTE $15,000,000 Pittsburgh, Pennsylvania February 28, 1994 This Line of Credit Note is executed and delivered under and pursuant to the terms of that certain Letter Agreement dated as of February 28, 1994 (the Letter Agreement and all extensions, renewals, amendments, substitutions or replacements referred to herein as the "Letter Agreement") by and between PNC BANK, NATIONAL ASSOCIATION (the "Bank") and LADD FURNITURE, INC. (the "Borrower"). FOR VALUE RECEIVED the Borrower promises to pay to the order of the Bank at the office of the Bank at Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania 15265 on or before the Termination Date the lesser of the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000) or the aggregate unpaid principal amount of all outstanding advances made by the Bank to the Borrower pursuant to the Letter Agreement and reflected on the loan account maintained by the Bank pursuant to Paragraph 12 of the Letter Agreement. Interest on the unpaid principal balance hereof shall be due and payable at the rates and the times set forth in the Letter Agreement. This Line of Credit Note is the Line of Credit Note referred to in the Letter Agreement. Reference is made to the Letter Agreement for provisions for the prepayment hereof and for the acceleration of the maturity hereof. All of the terms, including defined terms, conditions, covenants, representations and warranties, in the Letter Agreement are incorporated herein by reference as if same were fully set forth herein. Demand, presentation, protest, notice of dishonor and notice of default are hereby waived. WITNESS the due execution hereof with the intent to be legally bound hereby. ATTEST: LADD FURNITURE, INC. (SEAL) By_____________________ By____________________________ Title__________________ Title_________________________ EX-10 8 EXHIBIT 10.7 Exhibit 10.7 GUARANTY AND SURETYSHIP AGREEMENT 1. FOR VALUE RECEIVED, the undersigned hereby absolutely and unconditionally guarantees, and becomes surety for, the prompt and punctual payment at maturity, whether by acceleration or otherwise, of the principal of, interest on, and other sums payable in connection with, all indebtedness and obligations of LADD FURNITURE, INC. ("Borrower") to PNC BANK, NATIONAL ASSOCIATION, ("Bank"), pursuant to the Letter Agreement dated February 28, 1994 and $15,000,000 Line of Credit Note dated on or about that date (hereinafter such indebtedness and obligations are referred to as "Indebtedness"). 2. This is a guaranty of performance or payment and not merely of collection and Bank shall not be required, as a condition of the liability of the undersigned, to make any demand upon, or to pursue any of its rights against, Borrower, or to pursue any rights which may be available to it with respect to any other person who may be liable for the payment of the Indebtedness and this Agreement shall survive and continue in full force notwithstanding the dissolution or liquidation of, or the insolvency or bankruptcy of, or any corporate change or other occurrence whatsoever affecting Borrower or the obligations and liabilities of Borrower, including without limitation any amendment to, renewal of or waiver of default under the Indebtedness, regardless of when any obligations or liabilities to Bank may accrue or be deemed to accrue. 3. The undersigned hereby unconditionally and irrevocably waives, to the extent permitted by applicable law: (a) notice of acceptance of this Agreement and any notice regarding the performance or non-performance of the Borrower with respect to the Indebtedness; (b) presentment for payment, notice of non- payment or non-performance, demand, protest, notice of protest and notice of dishonor or default to anyone; (c) defenses to payment or performance based upon the Indebtedness not being a valid and binding obligation of the Borrower enforceable in accordance with its terms for any reason whatsoever; (d) all other notices to which the undersigned may be entitled but which may be legally waived; (e) any disability of Borrower or defense available to Borrower (other than payment in full) including absence or cessation of liability for any reason whatsoever; and (f) any defense or circumstance which might otherwise constitute a legal or equitable discharge of a guarantor or surety. 4. Without notice to the undersigned, Bank shall have the right, at any time and from time to time, to: (a) deal in any manner it shall see fit with the Indebtedness and with any security for the Indebtedness; (b) accept partial payments on account of the Indebtedness; (c) grant extensions or renewals of all or any part of the Indebtedness; (d) demand or receive additional security for the Indebtedness; and (e) accept substitutes for, or release, all or any security which it holds or may hold for the Indebtedness. 5. If Borrower shall at any time fail to pay to Bank (a) the principal of, interest on, or other sums payable in connection with, the Indebtedness, when the same shall be due; and (b) all amounts that would be due under (a) if effect were not given to the bankruptcy, insolvency or other similar laws of general application relating to the enforcement of creditors' rights or to general principles of equity, the undersigned promises to pay such amount to Bank forthwith. 6. The undersigned hereby agrees to reimburse Bank for all cost and expense, including reasonable attorney's fees and expenses incurred in connection with the enforcement of Bank's rights hereunder or which would otherwise not have been incurred but for the Indebtedness. 7. This Agreement shall continue in force in any event for so long as Borrower shall be indebted to Bank pursuant to the Indebtedness, and thereafter until Bank shall have actually received written notice of the termination hereof from the undersigned, it being contemplated that Borrower may borrow, repay and subsequently borrow money from, or become indebted to, Bank from time to time pursuant to the Indebtedness, and the undersigned, not having given notice of the termination hereof, as herein provided for, shall be deemed to have permitted this Agreement to remain in full force and effect for the purpose of inducing Bank to make further loans to Borrower pursuant to the Indebtedness, provided, however, no notice of termination of this Agreement shall affect in any manner the rights of Bank arising under this Agreement with respect to indebtedness incurred by Borrower prior to receipt by Bank of written notice of termination or indebtedness incurred after receipt of such written notice pursuant to an agreement entered into by Bank prior to receipt of such notice; provided, further, however, that if at any time all or any part of any payment previously applied by Bank to the Indebtedness or the proceeds of any enforcement of any security interest of Bank or any exercise of the right of set-off by Bank is invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by, or, is or must be rescinded or returned by Bank for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Borrower) the Indebtedness shall be deemed to have continued in existence for the purpose of this Agreement, and to the extent that such payment is or must be rescinded or returned, this Agreement shall continue in force or be reinstated, as the case may be, as though such application by Bank had not been made. 8. Without notice to the undersigned, and without prejudice to this Agreement, Bank may release and discharge from liability to it any of the undersigned, or any other guarantor of, or surety for, the payment of the Indebtedness, any of the undersigned not so discharged agreeing to remain bound hereby notwithstanding. 9. THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHTS WHICH THE UNDERSIGNED MAY HAVE AT ANY TIME (WHETHER ARISING DIRECTLY OR INDIRECTLY, BY OPERATION OF LAW, BY CONTRACT OR OTHERWISE) TO (1) ASSERT ANY CLAIM AGAINST THE BORROWER ON ACCOUNT OF PAYMENTS MADE UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY AND ALL RIGHTS OF SUBROGATION, -2- REIMBURSEMENT, EXONERATION, CONTRIBUTION OR INDEMNITY, AND (2) ANY REALIZATION ON ANY PROPERTY OF THE BORROWER, INCLUDING PARTICIPATION IN ANY MARSHALLING OF ASSETS OF THE BORROWER. 10. The undersigned hereby makes the following representations and warranties for the benefit of the Bank and covenants with the Bank as follows: (a) It is a corporation duly incorporated and validly existing under the laws of the place of its incorporation and has the corporate power and authority to own its property and assets and carry on its business as it is now being conducted. (b) It has the power to make and carry out the terms of this Agreement and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. (c) This Agreement constitutes the legally binding obligation of the undersigned enforceable in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws or equitable principles relating to or affecting the rights of creditors generally. (d) The making and performance of this Agreement does not and will not violate in any respect any provision of (i) any federal, state or local law or regulation or any order or decree of any federal, state or local governmental authority, agency or court, or (ii) the organizational documents of the undersigned or of any of its subsidiaries, or (iii) any mortgage, contract or other undertaking to which the undersigned is a party or which is binding upon the undersigned or any of its subsidiaries or any of their respective assets, and does not and will not result in the creation or imposition of any security interest, lien, charge or other encumbrance on any of their respective assets pursuant to the provisions of any such mortgage, contract or other undertaking. (e) It has received or obtained every consent of, license from or exemption by any governmental or administrative body or authority required to authorize or required in connection with the performance, validity or enforceability of this Agreement and the payments by it in accordance with the provisions of this Agreement and the same are valid and subsisting. (f) It is not in default under any agreement to which it is a party or by which it may be bound, and no litigation or administrative proceeding is presently pending or, to its knowledge threatened, which default, litigation or proceeding would have a material adverse effect on its business, assets or financial condition. 11. All demands, communications and notices to be served hereunder by the Bank shall be effective when received and shall be addressed to the undersigned at the address shown on -3- the signature pages or at such other address as shall be designated by the undersigned in a written notice to the Bank. 12. No postponement or delay on the part of Bank in the enforcement of any right hereunder shall constitute a waiver of such right. 13. This Agreement is fully assignable and transferable by Bank; however, the duties and obligations of the undersigned may not be delegated or transferred by the undersigned without the prior written consent of Bank, the rights and privileges of Bank hereunder shall inure to the benefit of Bank's successors and assigns and the duties and obligations of the undersigned shall bind the undersigned's successors and assigns. 14. No invalidity, irregularity or unenforceability of all or any part of the Indebtedness hereby guaranteed or of any security therefor shall affect, impair, or be a defense to this Agreement, and this Agreement is a primary obligation of the undersigned. Any provisions of this Agreement which are held to be invalid or unenforceable by any court will not affect the validity or enforceability of any other provision thereof or hereof. 15. This Agreement constitutes the entire agreement by the undersigned and supersedes all previous agreements and negotiations, written or oral, respecting the obligations of the undersigned set forth herein. The undersigned warrants that no representations, promises or understandings, except as are contained herein, have been made to the undersigned in connection herewith. 16. This Agreement has been executed, delivered and accepted at and shall be deemed to have been made at Pittsburgh, Pennsylvania and shall be interpreted, and the rights and liabilities of the parties hereto determined in accordance with the laws of the Commonwealth of Pennsylvania without application of any statute relating to conflicts of law. The undersigned hereby agrees to the jurisdiction of any state or federal court located within Allegheny County, Pennsylvania, or such other venue as shall be selected by Bank, and the undersigned further agrees that all service of process may be made by certified mail directed to the undersigned at its address set forth on Bank's records and service so made will be deemed to be completed five (5) business days after the same has been deposited in U.S. mails, postage prepaid; provided that nothing contained herein will prevent Bank from bringing any action or exercising any rights against any security or against the undersigned individually, or against the property of the undersigned within any other state or nation to enforce any award or judgment obtained in the federal or state court located within Allegheny County, Pennsylvania, or such other venue as shall be selected by Bank. The undersigned waives any objection based on forum non conveniens and any objection to venue of any action instituted hereunder. 17. As used herein "undersigned", if there are more than one, shall mean, "all of the undersigned, or each or any of them," and in such case they are jointly and severally bound, and "Bank" shall mean "Bank, its successors and assigns". -4- 18. THE UNDERSIGNED WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY SUCH AGREEMENTS; IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND THE UNDERSIGNED HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE UNDERSIGNED TO THE WAIVER OF THE RIGHT TO TRIAL BY JURY. THE UNDERSIGNED AGREES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. WITNESS the due execution and sealing hereof with the intent of being legally bound this 28th day of February, 1994. PENNSYLVANIA HOUSE, INC. By___________________________________ Title_________________________________ BROWN JORDAN COMPANY By_____________________________________ Title________________________________ CLAYTON-MARCUS COMPANY, INC. By___________________________________ Title________________________________ LADD CONTRACT SALES CORPORATION By__________________________________ Title________________________________ -5- FOURNIER FURNITURE, INC. By____________________________________ Title_________________________________ BARCLAY FURNITURE CO. By___________________________________ Title_________________________________ AMERICAN FURNITURE COMPANY, INCORPORATED By___________________________________ Title_________________________________ PILLIOD FURNITURE, INC. By____________________________________ Title_________________________________ LEA INDUSTRIES, INC. (a North Carolina corporation) By:____________________________________ Title:_________________________________ Address for all Guarantors: c/o LADD Furniture, Inc. One Plaza Center - Box HP3 High Point, NC 27261-1500 -6- EX-10 9 EXHIBIT 10.8 Exhibit 10.8 PROPOSED LADD FURNITURE, INC. 1994 ANNUAL MANAGEMENT INCENTIVE PLAN PLAN HIGHLIGHTS 1. Incentive payments based on financial performance and individual performance as follows: For Corporate Participants (bullet) achievement of PAT target (bullet) achievement of ROAE target (selected management) (bullet) achievement of individual objectives For Operating Company Participants (bullet) achievement of PBT targets (bullet) achievement of ROIC targets (presidents only) (bullet) achievement of individual objectives 2. No incentive payments will be made to any individual if the operating unit to which the individual is assigned does not earn 6 1/2% return on beginning invested capital. Incentive payment expense will be accrued in results before calculation of profit. 3. Total of 222 officers and key managers to participate in the plan (Exhibit I) vs 231 in 1993. Maximum incentives range from 10% to 100% of January 1, 1994 base salary. Incentive payments are based on achieving performance criteria established by senior management. 4. Program includes $50,000 discretionary incentive pool for extraordinary performance by LADD employees not covered by the Management Incentive Plan. 5. Estimated incentive payout at planned performance levels is $3.2 million. 6. Incentives earned in 1994 will be paid after completion of annual audit (not later than March 31, 1995). 7. In the event of a transfer of a participant during the fiscal year to an operating unit other than the unit in which originally a Plan participant, an appropriate adjustment will be made in Incentive Plan eligibility pro-rata for the time worked in each unit. 8. In the event of a promotion of a participant within the same operating unit, an appropriate adjustment will be made in Incentive Plan eligibility pro-rata. In the event of a demotion which would place participants in a position substantially different from that in which they were nominated as a participant, an appropriate adjustment may be made as to the amount of incentive payment for which they are eligible as determined by the Compensation Committee of the Board of Directors. 9. Participants will forfeit all income from plan if employment is terminated prior to January 1, 1995 for any reason other than death, disability or retirement (over 55). 10. 1994 Management Incentive Plan approved only for fiscal year 1994. -1- EX-13 10 EXHIBIT 13.1 LADD is North America's fourth largest residential furniture manufacturer, with annualized net sales in excess of $600 million, 26 manufacturing facilities in ten states and Mexico, and nearly 8,000 employees. LADD markets its broad line of residential and contract furniture products under the major brand names American Drew, American of Martinsville, Barclay, Brown Jordan, Clayton Marcus, Daystrom, Fournier, Lea Industries, Pennsylvania House and Pilliod, and distributes these products domestically and worldwide through LADD International. Financial Highlights In thousands, except per share data and ratios Percent 1993 1992* Change Operations Statement Net sales $521,200 496,679 + 4.9% Gross profit 94,279 95,429 -- 1.2 Operating income 12,326 16,936 --27.2 Net earnings 3,846 4,545 --15.4 Weighted average shares outstanding 23,054 21,442 + 7.5 Per Share Net earnings $ 0.17 0.21 --19.0% Cash dividends 0.12 ---- ---- Year-end book value 6.51 6.46 + 0.8 Closing stock price 10.00 10.50 -- 4.8 Balance Sheet Net working capital $123,004 117,693 + 4.5% Total assets 335,737 315,649 + 6.4 Long-term debt** 105,257 91,503 +15.0 Shareholders' equity 150,103 148,724 + 0.9 Ratios Gross margin 18.1% 19.2 Operating profit margin 2.4 3.4 Net return on sales 0.7 0.9 Return on beginning equity 2.6 4.1 Long-term debt** to capitalization 37.9 35.2 Current ratio 3.1x 3.1 *1992 contained 53 weeks and has been restated to reflect LADD's adoption of SFAS No. 109. **Excluding current installments. (AMERICAN, LADD Furniture, Inc., Lea Lumber & Plywood Co., AMERICAN DREW, LADD TRANSPORTATION, INC. and Pilliod Logos) Letter to Shareholders Strong housing activity and low interest rates during 1993 produced a second year of recovery for the U.S. residential furniture industry. In this environment, LADD achieved record net sales of $521 million during its 52-week 1993 fiscal year, an increase of 5 percent over the (Photo, $497 million recorded in fiscal 1992's 53 weeks. While see sales hit a record level, net earnings for the year declined appendix) to $3.8 million, or $.17 per share, from $4.5 million, or $.21 per share in 1992. During 1993, LADD was required to adopt a new accounting standard for postretirement benefits (SFAS No. 106) which reduced 1993 net earnings by $1.3 million, or $.05 per share. Excluding SFAS No. 106, net earnings rose 13 percent and net earnings per share were up 5 percent on an 8 percent increase in average shares outstanding. Factors affecting 1993 performance Several major strategic actions were initiated in 1993 to improve LADD's longer-term profitability and return on investment. While painful in the short-term, we believe these actions will generate significant future returns for LADD shareholders. They include: (bullet) the discontinuation of unprofitable American of Martinsville ("AOM") Residential Casegoods product lines and the merger of the remaining AOM lines into our American Drew business; (bullet) the reallocation of certain Virginia-based manufacturing assets among two LADD operating companies; and (bullet) the initiation of a major capital investment program designed to increase productivity, improve product quality and reduce operating costs. In 1993, LADD's capital spending exceeded $24 million, compared to the previous yearly high of $9 million. These strategic actions had a significant negative impact on 1993's second half results. In total, we discontinued AOM product lines representing approximately $12 million in annualized sales. Discontinuing this unprofitable business produced operating losses in excess of $1 million in each of 1993's last two quarters and reduced fourth quarter sales by almost $3 million. 1 (AMERICAN, LADD Furniture, Inc., Lea Lumber & Plywood Co., AMERICAN DREW, LADD TRANSPORTATION, INC. and Pilliod Logos) In addition, production capacity reallocations and major capital investment projects initiated during 1993 at LADD's Martinsville, (Photo, Chilhowie, Marion and St. Paul, VA manufacturing facilities caused see short-term manufacturing disruptions during the second half of the appendix) year. As a result, LADD's profitability was adversely impacted during the third and fourth quarters of 1993. We expect these projects to be completed by mid-1994. Finally, sales weakness in higher-priced product lines, primarily AOM Residential Casegoods and the casegoods (wood furniture) products of Pennsylvania House, reduced LADD's overall 1993 sales gains and profitability. The AOM Residential Casegoods product mix was thinned out and refocused as previously mentioned, while Pennsylvania House began aggressively introducing new products at somewhat lower price points during 1993. Featuring more casual styling, these products are designed to provide increased value to the Pennsylvania House dealers and customers, a process which will continue in 1994. Pilliod acquisition On January 31, 1994, LADD invested $54 million to acquire Pilliod Furniture, a major U.S. manufacturer of promotional bedroom and occasional furniture. Headquartered in High Point, NC, Pilliod has annual sales in excess of $85 million and employs over 1,100 people in its headquarters and its three plants in Ohio, Alabama and South Carolina. The acquisition was financed with available bank credit lines and the sale of (International selected trade accounts receivable in an asset Sales Graph securitization transaction. Following the appears here, acquisition, LADD's long-term debt-to-capitalization see appendix) ratio was approximately 42%, which remains within our goal of having no more than 45% of capitalization in the form of long-term debt. International market development One of LADD's key strategies is the identification and development of new markets around the world. LADD International, formed in 1992, facilitates the international cross-marketing of products from all the LADD operating companies. LADD further increased its international business last year, making shipments to 51 countries totaling more than $40 million. An additional and ongoing part of our international thrust is the investigation and development of possible joint ventures with various overseas partners. We believe being an experienced international company will be a distinct competitive advantage in the latter half of the 1990's. 2 (PENNSYLVANIA HOUSE, Clayton Marcus, BARCLAY, Daystrom, LADD INTERNATIONAL, Brown Jordan and Fournier Logos) Operating company management changes Early in 1994, four new LADD operating company presidents were appointed. These executives each have extensive general management experience and demonstrated leadership capabilities that we feel will lead their respective operating companies to significant future growth in sales and profits. (bullet) Craig M. Shoemaker (44) was appointed president of Pennsylvania House. Craig worked for Pennsylvania House in various managerial positions for 14 years early in his career and has served since that time as president of two other furniture companies. (bullet) Robert J. Maricich (43) was appointed president of American Drew. Bob has served as president of our AOM Contract business since 1989 and brings strong leadership skills to his new assignment. (bullet) Lee H. Houston, Jr. (49) was appointed president of Daystrom. Lee's experience includes service as a consultant to numerous furniture manufacturers and general management experience in the industry. (bullet) D. Fredric ("Fritz") Myers (58) was appointed president of Fournier. A strong marketing and operating executive, Fritz has over 30 years of senior management experience with a variety of manufacturing companies. I am pleased to welcome these four men to their new LADD responsibilities. Outlook At this point in early 1994, the outlook for the U.S. furniture industry remains positive. Consumer confidence, a major factor influencing retail furniture sales, has strengthened appreciably from previously depressed levels. Recent strong housing activity also suggests substantial future demand for a wide variety of residential consumer durables, including home furnishings. We believe LADD is well-positioned to capitalize on this favorable industry outlook. We have the size, diversity and financial resources necessary to compete effectively. We have a strong commitment to excellence and to meeting the needs of our customers and consumers. Further, we are dedicated to aggressively investing financial and human resources for the future benefit of our customers, employees and shareholders. On behalf of LADD's 7,800 employees, I want to thank you for your continuing support and confidence. Sincerely, (Signature, see appendix) Richard R. Allen Chairman and Chief Executive Officer 3 (LADD INTERNATIONAL, Daystrom, PENNSYLVANIA HOUSE, AMERICAN, Clayton Marcus, BARCLAY and FOURNIER Logos) Investing for the Future As discussed in the 1992 Annual Report, LADD is committed to making strategically-driven investments in all areas of its business that will enable it to be a world-class (Capital manufacturer and marketer of products known for their quality Investment and value. In the manufacturing area, new automation Graph, technologies continue to emerge which can shorten cycle see appendix) lead times for LADD's retailers and consumers, reduce manufacturing costs, increase productivity and improve product quality. In 1993, capital investment totaled a record $24.7 million, more than double the year's depreciation. A similar level of investment is anticipated for 1994. LADD is also committed to making strategic investments aimed at improving its information systems and developing new products and markets. In the market development category, LADD invested $54 million in early 1994 to acquire Pilliod Furniture, a leader in the fast growing promotional casegoods sector. The following paragraphs outline several of the major investments LADD has initiated. Virginia manufacturing realignment During 1993, a strategic decision was made to reallocate (Photo, certain Virginia-based manufacturing capacity among two see LADD business units in order to consolidate the operations appendix) of one company while providing additional production capability to meet the current and anticipated sales growth of the other. In this process, more than $15 million will have been invested during 1993 and 1994 in realigning the production capabilities of LADD's Martinsville, Chilhowie and Marion manufacturing plants. These moves accomplished two objectives. First, the American of Martinsville ("AOM") contract manufacturing operations were concentrated into one larger, more efficient facility in Martinsville. Second, the former AOM plants in Chilhowie and Marion were transferred to Lea Industries ("Lea"), which has significantly expanded its already broad line of youth bedroom furniture to accommodate the strong demographics of this market segment. Although these plant realignments disrupted production and hurt profit margins during the third and fourth quarters of 1993 and early 1994, the reconfigured facilities will substantially improve the future business prospects of both AOM and Lea. 4 (Brown Jordan, LADD TRANSPORTATION, AMERICAN DREW, Lea Lumber & Plywood, Co., PILLIOD and LADD Furniture, Inc. Logos) American of Martinsville investment As part of AOM's manufacturing consolidation, a 100,000 (Photo, square foot expansion of the Martinsville plant was completed see in late 1993 and the facility was substantially reconfigured. appendix) During 1994, a new highly- automated panel manufacturing (Photo, line which uses construction see techniques new to AOM will be appendix) installed at Martinsville. This new line has the flexibility to efficiently manufacture parts in smaller quantities with reduced labor. When fully operational in mid-1994, it will broaden Martinsville's production capabilities, enabling AOM to target the faster growing "budget" sector of the hospitality (hotel/motel) market with high value lower-priced wood furniture. Buyers in this market segment generally seek casegoods at price points lower than traditionally manufactured by AOM. Lea Industries investment The Chilhowie plant began manufacturing Lea's residential bedroom furniture in late 1993, following a 112,000 square foot expansion of the facility. A major new base coat and print line being installed in the Chilhowie facility is expected to become operational around mid- 1994. This highly automated line will efficiently provide the large quantities of printed end and top panels required for Lea's lower- medium to medium-priced youth bedroom and correlate furniture. During 1993, several other major pieces of sophisticated new equipment which lower unit costs and improve product quality were also installed at Chilhowie. In total, the investments at the Chilhowie location significantly increase Lea's capability to efficiently produce its growing medium-priced Charter House product line. The Marion plant is being converted during 1994 for the manufacture of Lea's lower-priced Design Horizons product line, targeted at the relatively fast-growing low-priced youth bedroom furniture segment of the market. By internally manufacturing Design Horizons products which were previously assembled from purchased parts, Lea will be able to improve quality levels while at the same time 5 (Lea, PILLIOD, LADD TRANSPORTATION, AMERICAN DREW, Lea Lumber & Plywood Co., LADD Furniture, Inc. and AMERICAN Logos) (Photo, lowering production costs. The investment in Marion includes see computer-controlled saws and boring machinery, edge banding and appendix) edge foiling equipment and materials handling equipment, all designed to make Design Horizons a low cost, high value product. Fournier investment Shortly after its acquisition by LADD in mid-1992, Fournier Furniture significantly increased the size of its St. Paul, VA ready-to-assemble ("RTA") furniture manufacturing facility. Since that time, Fournier has made major additional capital investments in the St. Paul facility to increase capacity, improve production efficiency and enhance product quality. Over $8 million has been invested in Fournier since its 1992 acquisition, including a fully-automated production line (Photo, which began operating during 1993's third quarter. This see new line substantially increased Fournier's production appendix) capacity, improved the quality of its products and reduced unit costs. A second automated line is scheduled to begin operating at St. Paul in mid-1994. This second line will have the capability of manufacturing Fournier products with contoured edges, a growing design feature of RTA furniture. Another major 1994 investment at Fournier is the (Photo, installation of equipment which will allow the company see to laminate its own particleboard, as opposed to appendix) purchasing laminated board from outside suppliers. The laminating equipment will also furnish panels for Lea's Design Horizons plant in nearby Marion, VA. 6 (FOURNIER, Brown Jordan, LADD INTERNATIONAL, Daystrom, BARCLAY, Clayton Marcus and PENNSYLVANIA HOUSE Logos) American Drew investment Major investments are also being made at American Drew's North Wilkesboro, NC facilities (Photo, to improve production efficiencies, substantially see increase material yields and otherwise add value to the appendix) company's line of medium-priced wood bedroom, dining room and occasional furniture products. The installation of a flat line finishing system has (Photo, increased American Drew's manufacturing productivity, see while at the same time allowing the company to meet appendix) increasingly stringent regulations governing permissible levels of volatile organic compound ("VOC") emissions. New computer-controlled molding equipment now produces all of American Drew's visible critical drawer parts, reducing machine set-up times, accelerating production run rates and virtually eliminating subsequent sanding and rough trim operations on these parts. Another major current capital investment project (Photo, at American Drew's North Wilkesboro facilities is see the pending automation during 1994 of the company's appendix) rough mill operation. This investment will significantly increase American Drew's lumber yields - an extremely important consideration given recent increases in U.S. hardwood lumber prices and the importance of lumber as a raw material component in American Drew's products. Other investments In addition to the capital projects discussed above, investments which improve LADD's marketing, product development, information systems and human resource capabilities are also deemed to be equally critical to the company's future success. Some examples are: (bullet) Significant joint marketing investments were initiated last year with an international electronics manufacturer and a large national retailer to market 7 (FOURNIER, BARCLAY, Clayton Marcus, AMERICAN, PENNSYLVANIA HOUSE, Daystrom, and LADD INTERNATIONAL Logos) (Photo, LADD's home theatre products and Lea's youth see furniture, respectively. appendix) (bullet) LADD continued its strong emphasis on product development, as Pennsylvania House (Photo, introduced exciting new products targeted at a lower see price point and Lea introduced a record number of new appendix) products at the October International Home Furnishings Market. Brown Jordan continued to win national design recognition for new product additions to its metal casual and outdoor furniture line. (bullet) A major new information system enhancement initiated at (Photo, the High Point data center takes advantage of new data base and see client server technologies and will give LADD and its operating appendix) companies improved marketing information, as well as increased capabilities for serving customers with electronic data interchange ("EDI") and voice response. (bullet) LADD completed its first comprehensive company wide employee survey during 1993 which has led to, among other things, an accelerated employee training initiative throughout the organization. LADD will continue to increase its investments in its people with training designed to improve their skills and abilities to deal with an increasingly complex business environment, to ensure that LADD remains a leader in the furniture industry. (Photo, The future see The rate of change in the U.S. furniture industry has appendix) increased and will likely accelerate further in the years ahead. LADD has the resources, commitment and vision to capitalize on change and turn it into a competitive (Photo, advantage. Through intelligent, aggressive investment see in new technologies, new products, new domestic and appendix) global market opportunities and the development of LADD's human resources, continued growth and improved profitability will be achieved. 8 (Fournier, Brown Jordan, LADD INTERNATIONAL, Daystrom, Barclay, Clayton Marcus, Pennsylvania House logos) Management's Statement of Responsibility The management of LADD Furniture, Inc. is responsible for the integrity of the financial statements of the Company and for ascertaining that the financial statements accurately reflect the financial position and results of operations of the Company. The financial statements were prepared in conformity with generally accepted accounting principles, applying estimates and management's best judgment, as required. Information presented elsewhere in this Annual Report is consistent with the financial statements. LADD has established and maintains a system of internal controls designed to provide reasonable assurance, at an appropriate cost, that the Company's assets are adequately safeguarded and that the accounting records reflect the transactions of the Company accurately, fairly and in reasonable detail. The internal control system provides for careful selection and training of personnel, the delegation of management authority and responsibility, the dissemination of management control policies and procedures and an internal audit program. The board of directors, through its Audit Committee consisting of three directors who are not officers or employees of the Company, is responsible for reviewing and monitoring the financial statements and accounting practices of the Company. The Audit Committee meets periodically, either separately or jointly, with the independent auditors, representatives of management and the Company's internal auditors to discuss auditing, accounting and financial statement matters. To ensure complete independence, representatives of KPMG Peat Marwick, certified public accountants retained by the Company to audit the financial statements, have full and free access to meet with the Audit Committee with or without the presence of management representatives. (Signature of Richard R. Allen) (Signature of William S. Creekmuir) Richard R. Allen William S. Creekmuir Chairman & Chief Executive Officer Senior Vice President & Chief Financial Officer February 11, 1994 February 11, 1994
Independent Auditors' Report The Board of Directors and Shareholders LADD Furniture, Inc.: We have audited the accompanying consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of January 1, 1994 and January 2, 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended January 1, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LADD Furniture, Inc. and subsidiaries as of January 1, 1994 and January 2, 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended January 1, 1994 in conformity with generally accepted accounting principles. As discussed in notes 1, 10 and 11 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes," in 1993. (Signature of KPMG Peat Marwick) Greensboro, North Carolina February 11, 1994 9 (American, LADD Furniture, Inc., Lea Lumber & Plywood Co., AMERICAN DREW LADD TRANSPORTATION, INC., PILLIOD, Lea logos) LADD Furniture, Inc. and Subsidiaries Consolidated Statements of Operations Years ended January 1, 1994, January 2, 1993 and December 28, 1991 Dollar amounts in thousands, except share data 1993 1992 1991 Net sales $ 521,200 496,679 429,110 Cost of sales 426,921 401,250 356,025 Gross profit 94,279 95,429 73,085 Selling, general and administrative expenses 81,953 78,493 79,322 Operating income (loss) 12,326 16,936 (6,237) Other deductions: Interest expense -- Note 7 5,542 7,502 10,413 Other, net 377 1,164 2,594 5,919 8,666 13,007 Earnings (loss) before income taxes 6,407 8,270 (19,244) Income tax expense (benefit) -- Note 11 2,561 3,725 (6,041) Net earnings (loss) $ 3,846 4,545 (13,203) Net earnings (loss) per common share $ 0.17 0.21 (0.70) Cash dividends per common share $ 0.12 ---- 0.24 Weighted average number of common shares outstanding 23,053,654 21,441,616 18,945,763
See accompanying notes to consolidated financial statements. 10 (PENNSYLVANIA HOUSE, Clayton Marcus, Barclay, Daystrom, LADD INTERNATIONAL, Brown Jordan, FOURNIER logos) LADD Furniture, Inc. and Subsidiaries Consolidated Balance Sheets Dollar amounts in thousands, except share data January 1, January 2, 1994 1993 Assets Current assets: Cash $ 1,350 1,826 Trade accounts receivable, less allowances for doubtful receivables, discounts, returns and allowances of $4,178 and $3,517, respectively -- Note 13 72,975 69,843 Inventories -- Note 3 100,639 95,576 Prepaid expenses and other current assets - Note 9 6,110 6,171 Total current assets 181,074 173,416 Property, plant and equipment, net -- Note 4 97,497 83,609 Intangible and other assets, net -- Notes 5 and 9 57,166 58,624 $ 335,737 315,649 Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt -- Note 7 $ 5,815 1,070 Trade accounts payable 23,414 23,104 Accrued expenses and other current liabilities - Notes 6, 11 and 13 28,841 31,549 Total current liabilities 58,070 55,723 Long-term debt, excluding current installments -- Note 7 105,257 91,503 Deferred compensation and other liabilities -- Notes 9 and 10 3,405 1,477 Deferred income taxes - Note 11 18,902 18,222 Total liabilities 185,634 166,925 Shareholders' equity -- Notes 8 and 14: Preferred stock of $100 par value. Authorized 500,000 shares; no shares issued ---- ---- Common stock of $.10 par value. Authorized 50,000,000 shares; issued 23,062,262 shares and 23,019,631 shares, respectively 2,306 2,302 Additional paid-in capital 49,186 48,681 Currency translation adjustment (170) (89) Retained earnings 99,568 98,489 150,890 149,383 Less unamortized value of restricted stock (787) (659) Total shareholders' equity 150,103 148,724 Commitments and contingencies -- Notes 12 and 13 $ 335,737 315,649
See accompanying notes to consolidated financial statements. 11 (LADD INTERNATIONAL, Daystrom, PENNSYLVANIA HOUSE, AMERICAN, Clayton Marcus, BARCLAY, FOURNIER logos) LADD Furniture, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years ended January 1, 1994, January 2, 1993 and December 28, 1991 Dollar amounts in thousands 1993 1992 1991 Cash Flows from Operating Activities: Net earnings (loss) $ 3,846 4,545 (13,203) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation of property, plant and equipment 10,508 9,151 8,783 Amortization 2,554 2,848 5,081 Provision for losses on trade accounts receivable 2,056 3,126 7,356 Gain on sales of property, plant and equipment (155) (127) (1,280) Provision for deferred income taxes 214 802 3,456 Increase (decrease) in deferred compensation and other liabilities 1,840 (144) 696 Change in assets and liabilities, net of effects from the acquisition of a business in 1992: Increase in trade accounts receivable (5,188) (6,407) (1,613) (Increase) decrease in inventories (5,063) (5,633) 6,207 (Increase) decrease in refundable income taxes ---- 7,264 (5,050) Decrease in prepaid expenses and other current assets 61 2,132 1,128 Increase in trade accounts payable 310 3,031 5,734 Increase (decrease) in accrued expenses and other current liabilities (2,239) 5,750 (11,505) Total adjustments 4,898 21,793 18,993 Net cash provided by operating activities 8,744 26,338 5,790 Cash Flows From Investing Activities: Acquisition of a business - Note 2 ---- (4,720) ---- Additions to property, plant and equipment (24,666) (8,988) (7,549) Proceeds from sales of property, plant and equipment 425 1,161 6,035 Additions to intangible and other assets (724) (420) (2,598) Net cash used in investing activities (24,965) (12,967) (4,112) Cash Flows From Financing Activities: Proceeds from long-term borrowings 19,654 ---- 13,590 Principal payments of long-term debt (1,155) (49,010) (7,695) Proceeds from common stock issued 94 34,049 218 Dividends paid (2,767) ---- (4,545) Net cash provided by (used in) financing activities 15,826 (14,961) 1,568 Effect of Exchange Rate Changes on Cash (81) (89) ---- Net increase (decrease) in cash (476) (1,679) 3,246 Cash at beginning of year 1,826 3,505 259 Cash at end of year $ 1,350 1,826 3,505
See accompanying notes to consolidated financial statements. 12 (Brown Jordan, LADD TRANSPORTATION, INC., AMERICAN DREW, Lea Lumber & Plywood Co., PILLIOD, LADD Furniture, Inc., Lea logos) LADD Furniture, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity Years ended January 1, 1994, January 2, 1993 and December 28, 1991 Dollar amounts in thousands, except share data Unamortized Total Number Additional Currency value of shareholders' of shares Common paid-in translation Retained restricted equity issued stock capital adjustment earnings stock (Notes 8 and 14) Balance at December 29, 1990, restated (Notes 1 and 11) 18,840,526 $1,884 13,912 ---- 111,692 (157) 127,331 Shares issued in connection with incentive stock option plan 30,928 3 204 ---- ---- ---- 207 Shares issued in connection with and amortization of employee restricted stock awards 112,998 11 920 ---- ---- (720) 211 Net loss ---- ---- ---- ---- (13,203) ---- (13,203) Dividends paid ---- ---- ---- ---- (4,545) ---- (4,545) Balance at December 28, 1991, restated 18,984,452 1,898 15,036 ---- 93,944 (877) 110,001 Shares issued in connection with incentive stock option plan 10,179 1 29 ---- ---- ---- 30 Proceeds from public offering of 4,025,000 shares 4,025,000 403 33,616 34,019 Currency translation adjustment ---- ---- ---- (89) ---- ---- (89) Amortization of employee restricted stock awards 218 218 Net earnings ---- ---- ---- ---- 4,545 ---- 4,545 Balance at January 2, 1993, restated 23,019,631 2,302 48,681 (89) 98,489 (659) 148,724 Shares issued in connection with incentive stock option plan 11,668 1 90 ---- ---- ---- 91 Shares issued in connection with and amortization of employee restricted stock awards 30,963 3 415 ---- ---- (128) 290 Currency translation adjustment ---- ---- ---- (81) ---- ---- (81) Net earnings ---- ---- ---- ---- 3,846 ---- 3,846 Dividends paid ---- ---- ---- ---- (2,767) ---- (2,767) Balance at January 1, 1994 23,062,262 $2,306 49,186 (170) 99,568 (787) 150,103
See accompanying notes to consolidated financial statements. 13 (Lea, PILLIOD, LADD TRANSPORTATION, INC., AMERICAN DREW, Lea Lumber & Plywood Co., LADD Furniture, Inc., AMERICAN logos) Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of LADD Furniture, Inc. and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR The Company's fiscal year ends on the Saturday nearest the end of December. Fiscal year 1993 ended January 1, 1994; fiscal year 1992 ended January 2, 1993; and fiscal year 1991 ended December 28, 1991. Fiscal years 1993 and 1991 comprised 52 weeks; fiscal year 1992 comprised 53 weeks. INVENTORIES In both 1993 and 1992, approximately 64% of the Company's inventories are valued using the last-in, first-out (LIFO) cost method, which is not in excess of market. All other inventories in 1993 and 1992 are valued at the lower of first-in, first-out (FIFO) cost or market (net realizable value). PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation of plant and equipment is provided over the estimated useful lives of the respective assets on the straight-line method. Estimated useful lives are 10 to 35 years for buildings and improvements and 3 to 13 years for machinery and equipment. REVENUE RECOGNITION The Company's only line of business is the manufacture and sale of furniture, related components and accessories. Sales are recognized when products are shipped and invoiced to customers. Monthly provision is made for doubtful receivables, discounts, returns and allowances. Substantially all of the Company's accounts receivable are due from retailers of residential furniture. Management periodically performs credit evaluations of its customers and generally does not require collateral. The Company has no concentrated credit risk with any individual customer. FOREIGN CURRENCY TRANSLATION Assets and liabilities of a foreign subsidiary are translated at year-end rates of exchange, and revenues and expenses are translated at the average rates of exchange for the year. Gains and losses resulting from translation are accumulated in a separate component of shareholders' equity. Gains and losses resulting from foreign currency transactions are included in net income. INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement No. 109), effective January 3, 1993 and has applied the provisions of the statement retroactively to January 1, 1989. The adoption of the statement resulted in an increase to retained earnings at December 29, 1990 of approximately $226,000. Under the asset and liability method of Statement No. 109, deferred tax assets and liabilities are recognized for the temporary differences between the financial statement carrying amounts and the tax bases of the Company's assets and liabilities at income tax rates expected to be in effect when such amounts are realized or settled. Under Statement No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. EARNINGS PER SHARE Earnings per share are calculated based upon the weighted average number of common shares outstanding during each fiscal year. The effect of dilutive stock options on the calculation is insignificant in each of the fiscal years presented. INTANGIBLE ASSETS Intangible assets consist principally of values assigned to patents, furniture designs, trade names and the excess of cost over the assigned value of net assets acquired. These assets are being amortized using the straight-line method over periods of 15 to 40 years. The Company assesses the recoverability of the excess of cost over the assigned value of net assets by determining whether the amortization of the balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operations. 14 (FOURNIER, Brown Jordan, LADD INTERNATIONAL, Daystrom, BARCLAY, Clayton Marcus, PENNSYLVANIA HOUSE) Note 1: Summary of Significant Accounting Policies (continued) POSTRETIREMENT BENEFITS In addition to providing pension benefits, the Company provides certain health care benefits for certain retired employees. The Company's policy had been to expense retiree health costs as they were incurred (i.e., the "pay as you go" method). Effective January 3, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions, which was issued in December 1990. The provisions of this statement require the Company to accrue for the expected costs of retiree health care benefits, for which substantially all employees are eligible if they reach normal retirement, during the active period when such benefits are earned. Additionally, the new standard requires the recognition of a transition obligation which represents that portion of future retiree benefit costs related to the service already rendered by both active and retired employees up to the date of adoption. The Company has elected to amortize the transition obligation of $20,618,000 at January 3, 1993 over a period of 20 years. POSTEMPLOYMENT BENEFITS Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits, which was issued in November 1992, establishes new financial accounting and reporting standards for postemployment benefits for fiscal years beginning after December 15, 1993. The Company plans to adopt the provisions of Statement No. 112 in fiscal year 1994 and believes, based upon analyses performed to date, that the impact of adoption will not be material. RECLASSIFICATION Certain items in the 1992 and 1991 consolidated financial statements have been reclassified to conform with the presentation adopted in the current year. The reclassifications did not impact the results from operations as previously reported. Note 2: Acquisitions On January 31, 1994, the Company acquired The Pilliod Cabinet Company (Pilliod), a manufacturer of promotional priced casegoods furniture, by purchasing all of the common stock of its parent company, Pilliod Holding Company, for $24,257,000 cash (including acquisition expenses), the repayment of Pilliod debt of $29,893,000, and the assumption of other long-term debt of $247,000. The excess of cost over fair value of the net assets acquired was approximately $31,134,000 and will be amortized on a straight-line basis over 40 years. The acquisition will be accounted for as a purchase and accordingly, the net assets and operations of Pilliod will be included in the Company's consolidated financial statements beginning in fiscal 1994. The following unaudited pro forma data presents the combined 1993 results of operations of the Company and Pilliod as though the acquisition had occurred on January 3, 1993, giving effect to depreciation and amortization of assets on the accounting basis recognized in recording the purchase, the interest on the funds used to effect the purchase, and excluding certain non-recurring expenses of Pilliod during 1993. Valuations assigned are preliminary and subject to change. In thousands, except per share data 1993 Net sales $ 607,845 Net earnings 7,000 Net earnings per common share $ 0.30 15 (FOURNIER, BARCLAY, Clayton Marcus, AMERICAN, PENNSYLVANIA HOUSE, Daystrom, LADD INTERNATIONAL logos) Notes to Consolidated Financial Statements (continued) Note 2: Acquisitions (continued) An unaudited pro forma combined balance sheet follows: January 1, In thousands 1994 Assets Current assets $ 186,689 Property, plant and equipment, net 106,747 Intangible and other assets, net 88,322 $ 381,758 Liabilities and Shareholders' Equity Current liabilities $ 89,160 Long-term debt 119,509 Deferred items and other liabilities 22,986 Shareholders' equity 150,103 $ 381,758 On July 2, 1992, the Company acquired substantially all of the assets and assumed certain liabilities of Fournier Furniture Corporation and subsidiary for an aggregate purchase price of approximately $11,000,000, including acquisition accounting adjustments. The purchase price consisted of approximately $4,720,000 in cash and the assumption of a $3,500,000 Industrial Development Authority obligation and certain other liabilities. The acquisition was accounted for as a purchase, and the net assets and results of operations of Fournier are included in the Company's consolidated financial statements from the acquisition date. Note 3: Inventories A summary of inventories follows: January 1, January 2, In thousands 1994 1993 Inventories on the FIFO cost method: Finished goods $ 55,881 52,823 Work in process 19,277 19,014 Raw materials and supplies 37,183 32,431 Total inventories on the FIFO cost method 112,341 104,268 Less adjustments of certain inventories to the LIFO cost method (11,702) (8,692) $100,639 95,576 16 (Lea, LADD Furniture, Inc., PILLIOD, Lea Lumber & Plywood Co., AMERICAN DREW, LADD TRANSPORTAION, INC., Brown Jordan logos) Note 4: Property, Plant and Equipment A summary of property, plant and equipment follows: January 1, January 2, In thousands 1994 1993 Land and improvements $ 5,892 5,717 Buildings and improvements 65,850 60,689 Machinery and equipment 72,997 62,276 Construction in progress 12,266 5,587 157,005 134,269 Less accumulated depreciation (59,508) (50,660) $97,497 83,609 Note 5: Intangible and Other Assets A summary of intangible and other assets follows: January 1, January 2, In thousands 1994 1993 Trade names $26,031 26,031 Excess of cost over assigned value of net assets acquired 27,289 27,289 Furniture designs and patents 10,570 10,570 Other 3,095 2,287 66,985 66,177 Less accumulated amortization (9,819) (7,553) $57,166 58,624
Note 6: Accrued Expenses and Other Current Liabilities A summary of accrued expenses and other current liabilities follows: January 1, January 2, In thousands 1994 1993 Payrolls, commissions and employee benefits $ 13,637 15,715 Other 15,204 15,834 $ 28,841 31,549
17 (AMERICAN, LADD Furniture, Inc., Lea Lumber & Plywood Co., AMERICAN DREW, LADD TRANSPORTATION, INC., PILLIOD, Lea logos) Notes to Consolidated Financial Statements (continued) Note 7: Long-term Debt Long-term debt consists of the following: January 1, January 2, In thousands 1994 1993 Term loan due at various dates through January 15, 1999 $ 45,000 45,000 Revolving credit loan, due January 15, 1996 58,000 38,350 Other indebtedness, primarily fixed-rate industrial revenue bonds, due through 2001 8,072 9,223 Total long-term debt 111,072 92,573 Less current installments of long-term debt 5,815 1,070 Long-term debt, excluding current installments $105,257 91,503
At January 1, 1994, the Company had outstanding under a term and revolving credit loan agreement (the Facility) provided by a syndicate of banks a term loan of $45,000,000 and borrowings of $58,000,000 under an $85,000,000 revolving credit loan. Borrowings under the Facility are unsecured. The term loan is payable in quarterly installments commencing April 15, 1994 ranging from $1,750,000 to $2,375,000. Borrowings under the Facility bear interest at rates selected by the Company of LIBOR (3.35% at January 1, 1994) plus 1 1/8% or prime (6.0% at January 1, 1994). The Company pays a commitment fee of 3/8% per annum on the unused portion of the revolving credit loan. The Facility contains restrictions relating to the maintenance of certain ratios pertaining to shareholders' equity, working capital, cash flow and operating earnings. Additionally, the Facility contains restrictions which relate to future borrowings, liens on assets, specified amounts of consolidated net worth and include covenants relating to the operations of the Company. The Company was in compliance with all such restrictions at January 1, 1994. The industrial revenue bonds are secured by property, plant and equipment with a depreciated cost of approximately $4,349,000 at January 1, 1994. The aggregate annual maturities of long-term debt during each of the five fiscal years subsequent to January 1, 1994 are approximately as follows: $5,815,000 in 1994; $9,401,000 in 1995; $67,943,000 in 1996; $9,872,000 in 1997; and $9,716,000 in 1998. Interest paid by the Company in 1993, 1992 and 1991 amounted to approximately $4,995,000, $7,338,000 and $10,629,000, respectively. Note 8: Employee Stock Plans STOCK OPTION PLAN Under an Incentive Stock Option Plan which expired in June 1993, the Company granted nontransferable stock options to officers, key management employees and nonemployee directors. Although options were generally granted at fair market value on the dates of grant, nonqualified options could have been granted at less than fair market value at the discretion of the Plan's Administrative Committee. Incentive stock options and director options were granted at not less than fair market value on the date of grant. All optionees were employees or directors of the Company on the date of grant and throughout the term 18 (PENNSYLVANIA HOUSE, Clayton Marcus, BARCLAY, Daystrom, LADD INTERNATIONAL, Brown Jordan, FOURNIER logos) Note 8: Employee Stock Plans (continued) of the option except in the case of death, retirement, or disability. In February 1994, the board of directors, subject to shareholder approval, adopted a new Incentive Stock Option Plan substantially similar in nature to the prior plan. A total of 1,166,666 shares were reserved for option under the Plan. Options granted prior to 1991 are generally exercisable at the cumulative rate of 20% per year after one year from the date of grant. Options granted subsequent to 1990 are exercisable at the cumulative rate of 25% per year after one year from the date of grant. Options expire over a period not to exceed ten years from the date of grant. Stock option activity during 1993, 1992 and 1991 follows: Number of Option price shares per share Outstanding at December 29, 1990 501,818 $ 6.00 - $22.76 Granted in 1991 247,201 $ 7.25 - $ 9.75 Exercised in 1991 (30,928) $ 6.56 - $ 6.96 Cancelled in 1991 (43,466) $ 9.75 - $20.69 Outstanding at December 28, 1991 674,625 $ 6.00 - $22.76 Granted in 1992 16,000 $ 8.25 Exercised in 1992 (10,179) $ 6.00 - $ 9.75 Cancelled in 1992 (131,295) $ 6.00 - $20.69 Outstanding at January 2, 1993 549,151 $ 6.00 - $22.76 Granted in 1993 136,101 $11.50 - $14.85 Exercised in 1993 (11,668) $ 6.00 - $11.63 Cancelled in 1993 (81,700) $ 6.00 - $22.76 Outstanding at January 1, 1994 591,884 $ 7.25 - $16.13 Exercisable at January 1, 1994 304,092 $ 7.25 - $16.13
RESTRICTED STOCK AWARDS The board of directors periodically awards restricted common stock to key executives. Vesting of such awards is subject to future service requirements of five years from the date of each award. The difference between cash paid by the employee for the awarded shares, generally par value, and the market value of the shares as of the award date is amortized over the five-year service requirement periods. During 1993 and 1991, the board of directors awarded and issued 30,963 and 112,998 shares, respectively. During 1992, there were no shares awarded or issued. Note 9: Employee Benefit Plans DEFINED BENEFIT PENSION PLANS The Company and several of its subsidiaries have noncontributory defined benefit pension plans covering qualified salaried and hourly employees. The plans covering qualified salaried employees provide pension benefits based on the participant's final average salary before retirement. The plans covering qualified hourly employees provide pension benefits based on years of service. The Company's policy is to fund normal costs and amortization of prior service costs. 19 (LADD INTERNATIONAL, Daystrom, PENNSYLVANIA HOUSE, AMERICAN, Clayton Marcus, BARCLAY, FOURNIER logos) Notes to Consolidated Financial Statements (continued) Note 9: Employee Benefit Plans (continued) In addition to the qualified plans, the Company has a nonqualified retirement plan covering certain salaried employees. At January 1, 1994 and January 2, 1993, the Company had approximately $471,000 and $469,000, respectively, of assets available to fund future obligations of the nonqualified plan. These assets are included in intangible and other assets, and the related liability is included in deferred compensation and other liabilities in the accompanying consolidated balance sheets. The liability for the nonqualified retirement plan is reflected in the reconciliation of the funded status of the plans below. The following sets forth the funded status of the plans: In thousands January 1, 1994 January 2, 1993 Assets exceed Accumulated Assets exceed Accumulated accumulated benefits accumulated benefits benefits exceed assets benefits exceed assets Actuarial present value of benefit obligations: Vested benefit obligation $(32,113) (875) (26,597) (709) Accumulated benefit obligation (32,781) (1,042) (27,179) (863) Projected benefit obligation for service rendered to date (40,778) (1,370) (34,179) (1,080) Less plan assets at fair value, primarily equity, fixed income and short-term investment funds 36,445 ---- 31,669 ---- Projected benefit obligation in excess of plan assets (4,333) (1,370) (2,510) (1,080) Unrecognized net asset at transition being amortized over 15 years (651) ---- (730) ---- Unrecognized net (gain) loss 3,124 227 1,511 (20) Unrecognized prior service cost 2,375 270 2,577 320 Adjustment required to recognize minimum liability ---- (169) ---- (83) Pension asset (liability) recognized in the consolidated balance sheets $ 515 (1,042) 848 (863) Net pension expense for the plans for 1993, 1992 and 1991 included the following components: In thousands 1993 1992 1991 Service costs - benefits earned during the period $ 1,915 1,698 1,818 Interest cost on projected obligation 2,644 2,517 2,152 Return on assets (4,737) (1,358) (4,508) Amortization of unrecognized net obligation (asset) at transition and net deferrals 2,166 (872) 3,007 Net pension expense $ 1,988 1,985 2,469
20 (Brown Jordan, LADD TRANSPORTATION, INC., AMERICAN DREW, Lea Lumber & Plywood Co., PILLIOD, LADD Furniture, Inc., Lea logos) Note 9: Employee Benefit Plans (continued) The projected benefit obligation at January 1, 1994 and January 2, 1993 was determined using an assumed discount rate of 7.25% and 8.00%, respectively. The salary plans assume a long-term rate of increase in compensation of 5% to age 60, and 3% thereafter. The assumed long-term rate of return on plan assets is 8.5%. DEFINED CONTRIBUTION PLANS The Company has savings plans for certain employees which qualify under Section 401(k) of the Internal Revenue Code. The plans allow eligible employees to contribute up to a fixed percentage of their compensation, with the Company matching a portion of each employee's contributions. Company contributions under the plans aggregated approximately $687,000 in 1993, $422,000 in 1992 and $525,000 in 1991. Note 10: Postretirement Benefits Other than Pensions The Company has plans which provide for postretirement health care benefits for certain employees. These benefits include major medical insurance with deductible and coinsurance provisions. The Company pays all benefits on a current basis, and the plans are not funded. The components of the net postretirement benefit cost for the year ended January 1, 1994 are as follows: In thousands 1993 Service costs $ 439 Interest costs of benefit obligation 1,611 Amortization of transition obligation 1,031 $ 3,081 The plan's funded status as of January 1, 1994 was as follows: In thousands 1993 Accumulated postretirement benefit obligation: Retirees $(11,985) Active participants eligible to retire (6,285) Other active participants (4,472) (22,742) Unrecognized net loss 1,104 Unrecognized transition obligation 19,587 Accrued postretirement benefit cost $ (2,051) The postretirement benefit obligation was determined by application of the terms of the various plans using relevant actuarial assumptions. Health care costs are projected to increase at annual rates ranging from 9.25% in 1993 down to 5.25% in 1997 and thereafter. A one percent annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at January 1, 1994 by approximately $1,372,000 and the service and interest cost components of the net postretirement benefit cost for 1994 by approximately $100,000. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.25%. 21 (Lea, PILLIOD, LADD TRANSPORTATION, INC., AMERICAN DREW, Lea Lumber & Plywood Co., LADD Furniture, Inc., AMERICAN logos) Notes to Consolidated Financial Statements (continued) Note 10: Postretirement Benefits Other than Pensions (continued) For the year ended January 1, 1994, the effect of adopting Statement No. 106 was to increase the net postretirement benefit cost by approximately $2,100,000, to decrease net earnings by approximately $1,260,000 and to decrease net earnings per share by $0.05. Note 11: Income Taxes The consolidated financial statements for the years ended January 2, 1993 and December 31, 1991 have been restated to comply with the provisions of Statement No. 109, Accounting for Income Taxes. The following summarizes the impact on net earnings (loss) and net earnings (loss) per share of applying Statement No. 109 for the years ended January 2, 1993 and December 28, 1991: In thousands 1992 1991 Net earnings (loss) as previously reported $ 5,176 (12,749) Effect of Statement No. 109 (631) (454) Net earnings (loss) as restated $ 4,545 (13,203) Per share amounts as previously reported $ 0.24 (0.67) Effect of Statement No. 109 (0.03) (0.03) Net earnings (loss) per share as restated $ 0.21 (0.70) Components of income tax expense (benefit) are as follows: In thousands 1993 1992 1991 Current: Federal $ 1,855 2,394 (9,497) State 492 529 __ 2,347 2,923 (9,497) Deferred: Federal 199 657 2,833 State 15 145 623 214 802 3,456 $ 2,561 3,725 (6,041) 22 (FOURNIER, Brown Jordan, LADD INTERNATIONAL, Daystrom, BARCLAY, Clayton Marcus, PENNSYLVANIA HOUSE logos) Note 11: Income Taxes (continued) The effective income tax rate on earnings (loss) before income taxes for the years ended January 1, 1994, January 2, 1993 and December 28, 1991 was 40.0%, 45.0% and 31.4%, respectively. The actual income tax expense (benefit) differs from the "expected" income tax expense (benefit) computed by applying the applicable Federal corporate income tax rate (34% for each year) to earnings (loss) before income taxes for the years ended January 1, 1994, January 2, 1993 and December 28, 1991 as follows: In thousands 1993 1992 1991 Computed "expected" income tax expense (benefit) $ 2,178 2,812 (6,543) Increase (reduction) in income taxes resulting from: State income taxes, net of Federal income tax benefit 335 445 ---- Amortization of the excess of cost over the assigned value of net assets acquired 250 250 250 Other (202) 218 252 Actual income tax expense (benefit) $ 2,561 3,725 (6,041) During 1993, the effect of enacted changes in tax rates was to increase deferred tax expense by approximately $469,000. The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following: January 1, January 2, In thousands 1994 1993 Deferred tax liabilities: Inventories $ (6,226) (7,815) Property, plant and equipment (7,975) (7,593) Intangible and other assets (10,938) (10,686) Other (2,174) (2,164) Total deferred tax liabilities (27,313) (28,258) Deferred tax assets: Accounts receivable 1,655 1,590 Liabilities and reserves 3,730 4,487 Capital loss carryforwards 2,614 2,552 Other 728 1,257 Gross deferred tax assets 8,727 9,886 Valuation allowance (2,600) (2,600) Total deferred tax assets 6,127 7,286 Net deferred tax liability $ (21,186) (20,972) 23 (FOURNIER, BARCLAY, Clayton Marcus, AMERICAN, PENNSYLVANIA HOUSE, Daystrom, LADD INTERNATIONAL logos) Notes to Consolidated Financial Statements (continued) Note 11: Income Taxes (continued) Deferred taxes are classified in the accompanying consolidated balance sheet captions as follows: January 1, January 2, In thousands 1994 1993 Accrued expenses and other current liabilities $ 2,284 2,750 Deferred income taxes 18,902 18,222 $21,186 20,972 The Company has approximately $6,600,000 of capital loss carryforwards available to offset future capital gains. These carryforwards will expire in 1994 and 1995 if not utilized and total approximately $2,375,000 and $4,225,000, respectively. A valuation allowance has been provided for the deferred tax assets related to these loss carryforwards. There was no change in the valuation allowance for any of the years reported. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining deferred tax assets. Note 12: Leases The Company leases manufacturing facilities, various warehouses, sales offices and showrooms, as well as manufacturing, transportation and data processing equipment under operating leases which expire at various dates through 2026. Future minimum lease payments under noncancelable operating leases as of January 1, 1994 are: In thousands Fiscal year: 1994 $ 5,862 1995 5,694 1996 4,423 1997 2,732 1998 865 Thereafter 3,573 Total $23,149 Rental expense for cancelable and noncancelable operating leases charged to operations was as follows: In thousands Fiscal year: 1993 $ 10,275 1992 9,337 1991 8,891 Rental expense includes contingent rentals based upon usage of transportation equipment under cancelable and noncancelable operating leases which totaled approximately $650,000 in 1993, $786,000 in 1992 and $868,000 in 1991. 24 (Lea, LADD Furniture, PILLIOD, Lea Lumber & Plywood Co., AMERICAN DREW, LADD TRANSPORTATION, INC., Brown Jordan logos) Note 13: Dealer Financing Arrangement The Company has a cancelable financing arrangement whereby certain notes receivable from furniture dealers are assigned with recourse to a bank. The terms of the notes receivable, which are collateralized by inventories held by the furniture dealers, range from 12 to 48 months with interest rates ranging from 6% to prime plus 1 1/4%. Upon cancelation of the financing arrangement, the bank retains the previously assigned notes receivable and, as such, the notes receivable and related obligations under the dealer financing arrangement are not recorded in the January 1, 1994 and January 2, 1993 consolidated balance sheets. Total notes receivable assigned during fiscal 1993, 1992 and 1991 were approximately $7,503,000, $5,304,000 and $9,464,000, respectively. During 1992, the Company assumed approximately $2,300,000 in notes previously assigned to the bank, and such amount is included in accrued expenses and other current liabilities at January 2, 1993. At January 1, 1994, the Company was contingently liable for approximately $8,855,000 of receivables transferred with recourse to the bank under the dealer financing arrangement for which the Company maintains a $4,000,000 letter of credit agreement to fund any liabilities which might arise under the program. In the opinion of management, adequate provision for potential losses under the dealer financing arrangement has been included in the allowances for doubtful receivables, discounts, returns and allowances in the accompanying consolidated balance sheets. Note 14: Stock Offering In May 1992, the Company sold 4,025,000 shares of common stock, realizing net proceeds of $34,019,000. The net proceeds from the offering were used to reduce outstanding borrowings under the Company's revolving credit loan. Note 15: Subsequent Event On January 31, 1994, the Company sold ownership interest in a defined pool of trade accounts receivable for $20,000,000, the proceeds of which were used to partially finance the Pilliod acquisition -- see Note 2. The sold accounts receivable will be reflected as a reduction of trade accounts receivable in the 1994 consolidated balance sheet. Under the agreement, which expires in January 1995, the maximum amount of the purchaser's investment will be $30,000,000 and is subject to change based on the level of eligible receivables and concentrations of receivables. The Company will retain substantially the same risk of credit loss as if the receivables had not been sold. A portion of the cost of the accounts receivable sale program will be based on the purchaser's level of investment and borrowing costs. 25 (AMERICAN, LADD Furniture, Inc., Lea Lumber & Plywood Co., AMERICAN DREW, LADD TRANSPORTATION, INC., PILLIOD, Lea logos) LADD Furniture, Inc. and Subsidiaries Selected Annual Data Dollar and share data in thousands, except per share amounts
Five-Year One-Year Compound Changes Growth Rates (1993 vs. 1992) Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal 1993 1992 1991 1990 1989 1988 Operating Statement Data Net sales $ 521,200 496,679 429,110 511,911 453,002 379,904 + 6.5% +4.9% Cost of sales 426,921 401,250 356,025 406,039 352,660 289,751 8.1 6.4 Gross profit 94,279 95,429 73,085 105,872 100,342 90,153 0.9 (1.2) Selling, general and administrative expenses 81,953 78,493 79,322 80,617 64,639 48,956 10.9 4.4 Manufacturing restructuring charge ---- ---- ---- 8,268 ---- ---- ---- ---- Operating income (loss) 12,326 16,936 (6,237) 16,987 35,703 41,197 (21.4) (27.2) Other deductions (income): Interest expense 5,542 7,502 10,413 14,799 8,860 3,980 6.8 (26.1) Other (net) 377 1,164 2,594 1,584 1,038 (946) N/M (67.6) Earnings (loss) before income taxes 6,407 8,270 (19,244) 604 25,805 38,163 (30.0) (22.5) Income tax expense (benefit) 2,561 3,725 (6,041) (426) 9,383 13,558 (28.3) (31.2) Net earnings (loss) $ 3,846 4,545 (13,203) 1,030 16,422 24,605 (31.0) (15.4) Depreciation $ 10,508 9,151 8,783 9,138 8,018 5,681 + 13.1% + 14.8% Amortization 2,554 2,848 5,081 2,952 1,244 274 56.3 (10.3) Cash dividends paid 2,767 ---- 4,545 5,274 5,814 4,704 (10.1) N/M Weighted average shares outstanding 23,054 21,442 18,946 18,833 18,759 18,694 4.3 7.5 Per Share Data Net sales $ 22.61 23.16 22.65 27.18 24.15 20.32 + 2.2% (2.4%) Net earnings (loss) 0.17 0.21 (0.70) 0.05 0.88 1.32 (33.6) (19.0) Cash dividends 0.12 ---- 0.24 0.28 0.31 0.25 (13.7) N/M Year-end book value 6.51 6.46 5.79 6.76 6.99 6.43 0.2 0.8 Balance Sheet Data Net working capital $ 123,004 117,693 111,583 115,960 123,968 84,724 +7.7% +4.5% Net property, plant and equipment 97,497 83,609 81,660 82,758 106,838 50,601 14.0 16.6 Total assets 335,737 315,649 308,980 320,539 407,136 172,923 14.2 6.4 Long-term debt 105,257 91,503 125,304 124,462 145,997 21,146 37.8 15.0 Shareholders' equity 150,103 148,724 110,001 127,331 131,399 120,201 4.5 0.9 Ratios, Other Gross profit margin 18.1% 19.2 17.0 20.7 22.2 23.7 Operating profit (loss) margin 2.4 3.4 (1.5) 3.3 7.9 10.8 Return (loss) on sales 0.7 0.9 (3.1) 0.2 3.6 6.5 Effective income tax rate 40.0 45.0 31.4 N/M 36.4 35.5 Dividend payout ratio 71.9 ---- N/M N/M 35.4 19.1 Return (loss) on beginning assets 1.2 1.5 (4.1) 0.3 9.5 13.5 Return (loss) on beginning equity 2.6 4.1 (10.4) 0.8 13.7 23.6 Current ratio 3.1 3.1 3.1 3.2 2.1 4.2 Inventory turnover 4.4x 4.4 4.0 4.2 4.6 5.7 Asset turnover 1.6 1.6 1.4 1.4 1.6 2.1 Long-term debt to capitalization 37.9% 35.2 49.1 46.3 49.0 14.4 Year-end employees 6,670 6,940 6,340 6,880 8,020 5,990 Sales per employee (000's) $ 77.0 75.4 66.1 67.7 62.1 62.4 Stock Data High $ 14.750 12.000 12.750 13.000 17.750 17.000 Low 7.500 6.250 5.750 4.250 11.000 11.250 Close 10.000 10.500 7.500 6.250 11.375 13.750 P/E ratios: High 86.8x 57.1 N/M N/M 20.2 12.9 Low 44.1 29.8 N/M N/M 12.5 8.5 Trading volume (shares) 24,781 19,758 11,619 12,240 11,834 10,322
NOTES: Fiscal year 1992 comprised 53 weeks; all other years comprised 52 weeks. Fiscal years 1989 - 1992 have been restated to reflect the adoption of SFAS No. 109 effective January 1, 1989. Long-term debt excludes current installments. Capitalization defined as net working capital plus noncurrent assets. Share and per share data adjusted for stock splits. P/E ratios based on yearly net earnings per share. Stock price data is for calendar years. N/M = Not meaningful. Sales per employee based on monthly employee averages. 26 (PENNSYLVANIA HOUSE, Clayton Marcus, BARCLAY, Daystrom, LADD INTERNATIONAL, Brown Jordan, FOURNIER logos) Management's Discussion and Analysis The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Results of Operations The table below sets forth the percentage relationship of net sales to certain items included in the consolidated statements of operations in each of the last three fiscal years. 1993 1992 1991 Net sales 100.0% 100.0% 100.0% Cost of sales 81.9 80.8 83.0 Gross profit 18.1 19.2 17.0 Selling, general and administrative expenses 15.7 15.8 18.5 Operating income (loss) 2.4 3.4 (1.5) Other deductions, net 1.2 1.7 3.0 Earnings (loss) before income taxes 1.2 1.7 (4.5) Income tax expense (benefit) 0.5 0.8 (1.4) Net earnings (loss) 0.7% 0.9% (3.1)% The following paragraphs provide an analysis of the changes in net sales, selected cost and expense items, and net earnings (loss) over the three-year period ended January 1, 1994. Fiscal 1993 Compared to 1992 Net sales increased $24.5 million, or 4.9%, to a record $521.2 million in 1993's 52-week fiscal year, compared to $496.7 million in 1992's 53-week year. Sales growth in 1993 occurred within a competitive selling environment which limited the Company's ability to increase product prices. The increase in net sales was primarily attributable to growth in shipments of medium and lower- priced casegoods products, upholstery products and the Company's contract business. Additionally, sales of Fournier Furniture were $15.0 million higher for the full year 1993 than for the six-month period following Fournier's acquisition by the Company in July 1992. Net sales for 1993 were negatively impacted by $11.9 million due to the non-renewal of a government contract which expired during 1992, as well as by a decrease in sales of higher-priced casegoods products. Further, as a result of a decision in the third quarter of 1993 to discontinue certain unprofitable product lines of American of Martinsville Residential Casegoods (AOM Casegoods) and merge profitable products with American Drew's product lines, 1993 sales were reduced by $2.7 million compared to 1992. The Company believes that the loss of sales volume in 1994 from the discontinuance of AOM Casegoods products totaling approximately $12.0 million will be more than offset by internal sales growth and by sales of Pilliod Furniture, which was acquired January 31, 1994 (see note 2 to the consolidated financial statements). Cost of sales as a percentage of net sales increased to 81.9% in 1993, from 80.8% in 1992. This increase was largely due to increased raw material costs, principally lumber, as well as the cost associated with the implementation of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions (see note 10 to the consolidated financial statements). The impact of higher lumber prices in 1993, which was as much as 35% for cherry lumber, was somewhat countered through selective purchasing, improved yield management and species substitution, as well as by lumber substitution in general. Additionally, as a result of the above- mentioned decision to discontinue certain products of AOM Casegoods, manufacturing capacity became available for redeployment to other operating 27 (LADD INTERNATIONAL, Daystrom, PENNSYLVANIA HOUSE, AMERICAN, Clayton Marcus, BARCLAY, FOURNIER logos) Management's Discussion and Analysis (continued) companies. Virginia manufacturing capacity of AOM Casegoods, American of Martinsville Contract (AOM Contract) and Lea Industries was realigned such that AOM Contract operations were consolidated from three plants into one expanded plant and two plants were transferred to and are being upfitted by Lea Industries to accommodate its current and anticipated sales growth. Initial inefficiencies associated with these significant manufacturing changes increased 1993 cost of sales, particularly during the fourth quarter. In addition, manufacturing disruptions associated with the implementation of certain capital projects increased 1993 cost of sales. Although 1994 cost of sales will likely continue to reflect high lumber costs, the manufacturing disruptions associated with the Virginia manufacturing realignment should end by mid-year and the Company should also begin to benefit from returns generated by 1993 capital expenditures. The gross profit margin decreased from 19.2% of net sales in 1992 to 18.1% in 1993. The decline in the gross margin was primarily attributable to the above factors which increased 1993 cost of sales, as well as discounting of selling prices due to the highly competitive industry conditions and due to the liquidation of certain AOM Casegoods products. Selling, general and administrative (SG&A) expenses were 15.7% of net sales in 1993, comparable to 1992's 15.8%. Operating income in 1993 was $2.4 million versus $3.4 million in 1992. The costs associated with the Virginia manufacturing plant realignment, the operating loss of approximately $2.5 million incurred by AOM Casegoods after the decision to discontinue its unprofitable products, and the additional $2.1 million cost in 1993 for post-retirement benefits, were factors negatively impacting 1993 operating margins. Net other deductions declined to 1.2% of net sales in 1993 from 1.7% in 1992. The decrease was largely attributable to a decline in interest expense of $2.0 million in 1993, related to a year-to- year reduction in average outstanding borrowings and lower interest rates which resulted from a new credit agreement entered into by the Company in January 1993. The difference between the Company's actual effective income tax rate for 1993 of 40.0% compared to the expected income tax rate of 34% was largely due to state income taxes net of the federal income tax benefit, as well as the non-deductibility of the amortization of intangible assets. Additionally, Congress enacted new tax legislation during the year which increased the top Federal income tax rate retroactive to January 1, 1993. The adjustment of the Company's net deferred tax liability to reflect the revised Federal income tax rate lowered net earnings by approximately $469,000, or $.02 per share, during 1993. Tax planning strategies implemented late in 1993 are expected to reduce the Company's state income taxes in the future. Fiscal 1992 Compared to 1991 Net sales increased $67.6 million, or 15.8%, to $496.7 million in 1992. The increase in net sales was primarily attributable to an increase in the volume of furniture shipments and the purchase of the assets of Fournier Furniture in July 1992. Excluding the Fournier acquisition, net sales increased approximately 11.6% over prior year levels. The extremely competitive sales environment in 1992 limited the Company's ability to increase net sales prices. Cost of sales as a percentage of net sales declined to 80.8% in 1992, from 83.0% in 1991. The reduction in the cost of sales percentage was the result of an increase in production volume resulting in better absorption of manufacturing overhead costs in 1992. Additionally, cost reduction programs begun in the fourth quarter of 28 (Brown Jordan, LADD TRANSPORTATION, INC., AMERICAN DREW, Lea Lumber & Plywood Co., PILLIOD, LADD Furniture, Inc., Lea logos) 1991 to reduce personnel impacted 1992 results. The impact of rising lumber prices in 1992 was minimized through selective purchasing, yield management and species substitution, as well as by lumber substitution in general. Further, lumber price increases were also offset by decreases in other raw material prices. The gross profit margin increased from 17.0% of net sales in 1991 to 19.2% in 1992. The improvement in the gross profit margin resulted from increased production volume and the cost reduction programs implemented by the Company. Gross profit margins in both years were negatively impacted by promotional discounting of selling prices, especially in the "hospitality" (hotel/motel) category. Selling, general and administrative (SG&A) expenses declined to 15.8% of net sales, from 18.5% in 1991. While total SG&A expense was comparable in dollar amount to 1991, the percentage decreased as a result of increased sales. Included in SG&A for 1992 was a $3.1 million provision for losses on doubtful accounts receivable, a decrease of $4.3 million from the record levels recorded in 1991 when the impact of the recession on white collar workers hit several of the Company's furniture retailers. The decrease in the provision for losses on doubtful accounts receivable in 1992 was offset by an increase in SG&A expenses associated with the Fournier acquisition. Net other deductions declined from 3.0% of net sales in 1991 to 1.7% in 1992. The decrease was largely attributable to a decline in interest expense of $2.9 million principally related to a year- to-year reduction in outstanding borrowings. Additionally, 1991 net other deductions included a one-time write-off of $1.9 million of loan fees in connection with the term and revolving credit agreement signed in January 1992. The difference between the Company's effective income tax rate for 1992 of 45.0% compared to the expected income tax rate of 34% was primarily attributable to the non-deductibility of the amortization of intangible assets and state income taxes net of the federal income tax benefit. The increased effective income tax rate for the third and fourth quarters of 1992 arose as it became apparent that net operating losses recorded in Pennsylvania during 1991 would not be available to offset 1992 taxable income due to tax law changes enacted in that state. Liquidity and Capital Resources On January 1, 1994, the Company had $103.0 million outstanding under a long-term bank credit facility, comprised of a $45.0 million term loan and borrowings of $58.0 million under an $85.0 million revolving credit line. Additionally, the Company had other long-term indebtedness outstanding at the same date, primarily fixed-rate industrial revenue bonds, aggregating $8.1 million. Excluding current installments, total long-term debt represented 37.9% of the Company's total capitalization at the end of 1993, below management's internal financial goal of keeping long-term debt to capitalization at or below 45%. Additionally, on January 1, 1994, net working capital totaled $123.0 million, $5.3 million higher than at the end of the prior year, and the Company's current ratio was 3.1:1, the same as a year earlier. On January 1, 1994, the Company had $27.0 million of unused lines of credit available under its bank credit lines. During 1993, the Company generated cash from operating activities of $8.7 million, a decrease of $17.6 million compared to 1992. Cash flows from net earnings plus depreciation and amortization of $16.9 million in 1993 were up slightly over $16.5 million in 1992. However, increases in trade accounts receivable associated with higher 1993 sales, increases in inventory levels (principally raw materials and lower-priced casegoods products) and a decrease in accrued expenses and other current liabilities, in the aggregate, used $12.5 million of cash. Operating cash flows in 1992 were positively impacted by the nonrecurring collection of $7.3 million of refundable income taxes. 29 (Lea, PILLIOD, LADD TRANSPORTATION, INC., AMERICAN DREW, Lea Lumber & Plywood Co., LADD Furniture, Inc., AMERICAN logos) Management's Discussion and Analysis (concluded) During 1993, capital spending totaled $24.7 million compared to $9.0 million during 1992. Capital expenditures were principally directed to new computerized manufacturing equipment designed to automate production, reduce manufacturing costs and improve quality. Capital expenditures during 1993 were funded largely from the operations of the Company and borrowings under the Company's existing long-term credit facility. The Company anticipates spending in excess of $25.0 million for capital improvements during 1994. The Company believes that unused short-term and long- term credit lines available under banking arrangements, as well as cash generated from operations, will be adequate to fund planned capital expenditures. As more fully discussed in note 2 to the consolidated financial statements, the Company acquired Pilliod Furniture on January 31, 1994 for $54.0 million, by retiring $29.9 million of Pilliod's debt, assuming $0.2 million of debt, and paying $23.9 million to Pilliod's shareholders. The purchase price was financed with funds from available long-term and short-term revolving bank credit lines and $20.0 million generated from the sale of trade accounts receivable (see note 15 to the consolidated financial statements). On January 28, 1994 and February 28, 1994, the Company entered into unsecured one-year revolving lines of credit with two banks of $20.0 million and $15.0 million, respectively, both of which bear interest at rates at or below the Company's long-term credit facility. The facilities are intended to provide debt capacity for the Pilliod Furniture acquisition and seasonal working capital needs. The Company intends to refinance borrowings under the short-term lines through long-term financing during 1994. New Accounting Standards In November 1992, the Financial Accounting Standards Board established new accounting standards for Postemployment Benefits (SFAS 112) that require accrual of these costs over an employee's active service rather than being accounted for on a "pay as you go" basis. Although the Company does not have severance agreements for employees at most of its companies, certain workers compensation and disability benefits are provided. The Company plans to adopt the provisions of SFAS 112 in fiscal year 1994 and believes, based upon analyses performed to date, that the impact of adoption will not be material. Impact of Inflation Although the effects of inflation on the Company cannot be accurately determined, inflation in recent years has been modest and has primarily affected the Company's manufacturing costs in the areas of labor, manufacturing overhead, and raw materials other than lumber. The price of lumber, like the prices of other commodities, is affected more by the interaction of supply and demand than by inflation. The Company's gross profit margins during the past several years have been impacted more by higher promotional selling discounts, lumber price increases, and plant downtime taken to curtail production and inventory levels rather than by inflation. Historically, the Company believes it has been able to offset the effects of inflation by improving manufacturing efficiency, increasing employee productivity, substituting raw materials and, to a lesser degree, by increasing product selling prices. 30 (FOURNIER, Brown Jordan, LADD INTERNATIONAL, Daystrom, BARCLAY, Clayton Marcus, PENNSYLVANIA HOUSE logos) LADD Furniture, Inc. and Subsidiaries Selected Quarterly Data Dollar and share data in thousands, except per share amounts
Fiscal 1993 Fiscal 1992 4th 3rd 2nd 1st 4th 3rd 2nd 1st Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Operating Statement Data Net sales $123,935 127,297 133,840 136,128 129,016 124,610 125,062 117,991 Cost of sales 103,444 104,905 107,328 111,244 103,552 102,124 100,011 95,563 Gross profit 20,491 22,392 26,512 24,884 25,464 22,486 25,051 22,428 Selling, general and admininstrative expenses 20,188 19,907 21,252 20,606 20,895 19,275 19,921 18,402 Operating income (loss) 303 2,485 5,260 4,278 4,569 3,211 5,130 4,026 Other deductions (income): Interest expense 1,398 1,379 1,374 1,391 1,631 1,543 2,033 2,295 Other (net) 562 (34) (79) (72) 116 169 597 282 Earnings (loss) before income taxes (1,657) 1,140 3,965 2,959 2,822 1,499 2,500 1,449 Income tax expense (benefit) (972) 709 1,615 1,209 1,477 722 930 596 Net earnings (loss) $ (685) 431 2,350 1,750 1,345 777 1,570 853 Depreciation $ 2,905 2,722 2,474 2,407 2,468 2,299 2,197 2,187 Amortization 655 636 638 625 545 580 1016 707 Cash dividends paid 692 692 691 692 ---- -------- ---- Weighted average shares outstanding 23,061 23,060 23,060 23,034 23,019 23,016 20,623 18,987 Per Share Data Net sales $ 5.37 5.52 5.80 5.91 5.60 5.41 6.06 6.21 Net earnings (loss) (0.03) 0.02 0.10 0.08 0.06 0.03 0.08 0.04 Cash dividends 0.03 0.03 0.03 0.03 ---- ---- ---- ---- Quarter-end book value 6.51 6.57 6.58 6.50 6.46 6.40 6.37 5.84 Balance Sheet Data Net working capital $ 123,004 129,995 135,277 135,903 117,693 105,886 101,415 101,978 Net property, plant and equipment 97,497 92,435 90,020 85,525 83,609 81,815 78,968 79,891 Total assets 335,737 334,541 337,546 335,317 315,649 312,993 302,781 303,792 Long-term debt 105,257 107,453 111,009 109,916 91,503 80,332 74,320 112,724 Shareholders' equity 150,103 151,416 151,671 149,942 148,724 147,427 146,553 110,909 Ratios Gross profit margin 16.5% 17.6 19.8 18.3 19.7 18.0 20.0 19.0 Operating profit margin 0.2 2.0 3.9 3.1 3.5 2.6 4.1 3.4 Return (loss) on sales (0.6) 0.3 1.8 1.3 1.0 0.6 1.3 0.7 Effective income tax rate 58.7 62.2 40.7 40.9 52.3 48.2 37.2 41.1 Long-term debt to capitalization 37.9 38.3 39.2 39.3 35.2 32.5 30.9 46.4 Stock Data High $ 11.000 11.250 12.000 14.750 11.250 8.750 11.250 12.000 Low 7.500 8.000 8.750 11.250 6.500 7.000 7.000 6.250 Close 10.000 8.375 9.000 11.750 10.500 7.250 7.875 11.250 Trading volume (shares) 3,980 4,955 4,925 10,921 7,358 3,602 6,232 2,566 NOTES: 1992 fourth quarter contained 14 weeks; all other quarters contained 13 weeks. The fiscal 1992 quarterly data has been restated to reflect the adoption of SFAS No. 109 effective January 1, 1989. Long-term debt excludes current installments. Fournier Furniture included in consolidated results from its July 2, 1992 acquisition by LADD. Stock price and volume data is for calendar quarters.
31 (Brown Jordan, LADD TRANSPORTATION, INC., AMERICAN DREW, Lea Lumber & Plywood Co., PILLIOD, LADD Furniture, Inc., Lea logos) Officers, Directors, Corporate Data Board of Directors Richard R. Allen Chairman, President and Chief Executive Officer William B. Cash 2 Former Chairman, Turnpike Properties, Inc. James H. Corrigan, Jr. 1 Chairman and Chief Executive Officer, Mebane Packaging Corporation O. William Fenn, Jr. 1 Retired Vice Chairman, LADD Don A. Hunziker 2 Retired Chairman, LADD Gerald R. Grubbs Vice Chairman Thomas F. Keller, Ph.D. 1,2 Dean and R.J. Reynolds Industries Professor Fuqua School of Business, Duke University Fred L. Schuermann, Jr. Executive Vice President 1 Audit Committee. 2 Compensation Committee. Corporate Officers and Operating Company Executives Daryl B. Adams Vice President and Corporate Controller-Chief Accounting Officer, LADD Richard R. Allen Chairman, President and Chief Executive Officer, LADD Kenneth E. Church Vice President, LADD; President, Clayton Marcus William S. Creekmuir Senior Vice President, Chief Financial Officer, Secretary and Treasurer, LADD Beverly C. Davis President, LADD Transportation Victor D. Dyer Vice President, Human Resources, LADD John N. Foster, Jr. Vice President, LADD; President, Lea Industries Gerald R. Grubbs Vice Chairman, LADD Lee H. Houston, Jr. President, Daystrom Furniture Robert J. Maricich Vice President, LADD; President, American Drew D. Fredric Myers President, Fournier Furniture Thomas L. Millner President, Pilliod Furniture James Mueller President, Brown Jordan Company David C. Ogren Vice President, Market Development, LADD William B. Pirtle President, Barclay Furniture Fred L. Schuermann, Jr. Executive Vice President, LADD Acting President, American of Martinsville Craig M. Shoemaker President, Pennsylvania House Bradly A. Upfield President, Lea Lumber & Plywood Corporate Headquarters One Plaza Center, Box HP-3 High Point, NC 27261-1500 Phone: (910) 889-0333 U.S. FAX: (910) 888-6344 International FAX: (910) 888-6445 Transfer Agent Wachovia Bank & Trust Company, N.A. Winston-Salem, NC Legal Counsel Petree Stockton, L.L.P. Winston-Salem, NC Independent Auditors KPMG Peat Marwick Greensboro, NC Form 10-K, Other Information For a copy of LADD's Form 10-K (annual report filed with the Securities and Exchange Commission) or other information about LADD, please contact: John J. Ong, CFA Director, Corporate Communications Stock Listing LADD's common stock is traded on the O-T-C National Market System, under the NASDAQ symbol LADF. At year-end 1993, LADD had 885 shareholders of record, representing an estimated 4,500 beneficial owners. Market Makers Bear, Stearns & Co. Cantor, Fitzgerald & Co. Davenport & Co. of Virginia Dean Witter Reynolds Dillon, Read & Co. Fechtor, Detwiler & Co., Inc. Ferris Baker Watts Inc. Herzog, Heine, Geduld, Inc. Interstate/Johnson Lane Jeffries & Company, Inc. C.L. King & Associates Kirkpatrick, Pettis, Smith Mayer & Schweitzer, Inc. MLPF&S Morgan, Keegan & Co. Nash Weiss Raymond, James & Associates Robinson Humphrey Company, Inc. Sherwood Securities Corp. Scott & Stringfellow Troster Singer Corp. Wheat, First Securities, Inc. Annual Meeting Shareholders are cordially invited to attend LADD's 1994 Annual Meeting, to be held Thursday, April 28th at 10:00 a.m. at the Radisson Hotel in High Point, NC. 32 We at LADD are proud of the fine residential furniture products manufactured by our family of companies and we invite you to see them at your nearest dealer. Ask for them by name: American Drew, American of Martinsville, Barclay, Brown Jordan, Clayton Marcus, Daystrom, Fournier, Lea Industries, Pennsylvania House and Pilliod. LADD Manufacturing Facilities (26 Total) North Carolina (9) Tennessee (2) Hickory (3) Morristown (2) Monroe (1) North Wilkesboro (3) Alabama (1) Waynesville (1) Selma (1) Windsor (1) Arkansas (1) Newport (1) Virginia (5) Chilhowie (1) California (1) Marion (1) El Monte (1) Martinsville (1) South Boston (1) Ohio (1) St. Paul (1) Swanton (1) Mississippi (2) South Carolina (1) Myrtle (1) Nichols (1) Sherman (1) Mexico (1) Pennsylvania (2) Juarez (1) Lewisburg (1) White Deer (1) Cover Design: E-Design, Winston-Salem, NC Photography: Bernard Carpenter, Rural Hall, NC (except as noted below) The LADD companies (OFC, IFC, IBC, pp. 2, 6, 7, 8); Fisher & R(umlaut)ckle, Brugg, Switzerland (p. 4); Meaux Thornton, High Point, NC (p. 7); Hix Studio, Hickory, NC (p. 8) Printing and Design: Washburn Graphics, Inc., Charlotte, NC Typography: LADD Graphic Services, High Point, NC ******************************************************************************* APPENDIX At the top of each page of exhibit 13 there appears a reversed-out strip of logos for each company that is listed on each separate page. On page 1 of exhibit 13 a photo appears with the following caption: LADD executives (left to right): vice chairman Gerald R. Grubbs, senior vice president and CFO William S. Creekmuir, chairman and CEO Richard R. Allen (seated) and executive vice president Fred L. Schuermann, Jr. On page 2 of exhibit 13 a photo appears with the following caption: Pilliod's extensive line of promotionally-priced master bedroom and occasional furniture broadens LADD's product offering at the lower price points and strengthens our position with retailers in this fast- growing market segment. Also on page 2 of exhibit 13 a graph appears with the following plot points: International Sales 1990 1991 1992 1993 Sales ($ Millions) $10.6 $12.5 $29.3 $40.6 # of Countries 16 32 41 51 On page 3 of exhibit 13 a signature of Richard R. Allen appears where indicated. On page 4 of exhibit 13 a graph appears with the following plot points: Capital Investment 1988 1989 1990 1991 1992 1993 Capital Spending ($ Millions) $4.69 $5.37 $6.54 $7.55 $8.99 $24.67 Capital Spending to Depreciation 82.6% 67.0% 71.5% 86.0% 98.2% 234.7% Also on page 4 of exhibit 13 a photo appears with the following caption: During 1993, LADD's Lea Lumber & Plywood business installed a new veneer jointing and splicing system which greatly improved the productivity of its hardwood veneer plywood manufacturing operations. On page 5 of exhibit 13 two photos appear with the following captions: (1) Computer-aided-design ("CAD") technology is being increasingly used throughout LADD's manufacturing operations. (2) During 1993, LADD's operating companies as a group invested over $5 million selectively expanding their manufacturing facilities. On page 6 of exhibit 13 three photos appear with the two following captions: (1) State-of-the-art high speed equipment is being installed throughout the LADD manufacturing organization to reduce production costs and enhance production flexibility. (2) Since Fournier's acquisition, increased automation has substantially expanded the capacity of its St. Paul plant to efficiently produce RTA furniture (lower photo). On page 7 of exhibit 13 three photos appear with the following captions: (1) American Drew's high value medium-priced line of wood bedroom, dining room and occasional furniture has been successfully broadened into new style categories in the last several years, including this striking contemporary bedroom suite. (2) Computer numerically controlled ("CNC") woodworking equipment such as this Weinig molder significantly reduces machine set-up times while improving quality. (3) "Flat line" finishing of panels and drawer components is being used by a number of LADD's casegoods companies to improve productivity and sharply reduce the emission of volatile organic compounds ("VOCs"). On page 8 of exhibit 13 five photos appear with the following 3 captions: (1) Clayton Marcus and Barclay are making use of new computer-based technology to aid the consumer product selection process, monitor manufacturing progress and inventory levels and efficiently design new product offerings. (2) Interactive manufacturing information systems are an important ingredient in LADD's overall investment program. (3) The Clayton Marcus line of fine quality, medium-priced, eight-way hand tied residential upholstery is popular with dealers and consumers alike. Through judicious investment in areas such as innovative manufacturing techniques and information systems, Clayton Marcus has improved its efficiency, product quality and customer satisfaction levels, earning it the 1993 Chairman's Award as LADD's outstanding operating unit. EX-24 11 EXHIBIT 24.1 Exhibit 24.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors LADD Furniture, Inc.: We consent to incorporation by reference in the Registration Statements (Nos. 33-2838 and 33-21816) on Form S-8 of LADD Furniture, Inc. of our reports dated February 11, 1994, relating to the consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of January 1, 1994 and January 2, 1993, and the related consolidated statements of operations, shareholders' equity and cash flows and related schedules for each of the years in the three-year period ended January 1, 1994 which reports appear or are incorporated by reference in the January 1, 1994 annual report on Form 10-K of LADD Furniture, Inc. KPMG PEAT MARWICK Greensboro, North Carolina March 31, 1994 INDEPENDENT AUDITORS' REPORT The Board of Directors LADD Furniture, Inc.: Under date of February 11, 1994, we reported on the consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of January 1, 1994 and January 2, 1993 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended January 1, 1994, as contained in the 1993 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended January 1, 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in notes 1, 10 and 11 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes," in 1993. KPMG PEAT MARWICK Greensboro, North Carolina February 11, 1994 -----END PRIVACY-ENHANCED MESSAGE-----