-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VK1wfY6KRxQokKMxOwL6V9HU5EEhlBMn6GCdn/RxqHQv2aD+U8qJUBJoQhdt9gVA knnYjtrov8a9KmOLZVlP3Q== 0000950168-97-000686.txt : 19970327 0000950168-97-000686.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950168-97-000686 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LADD FURNITURE INC CENTRAL INDEX KEY: 0000721669 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 561311320 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11577 FILM NUMBER: 97563368 BUSINESS ADDRESS: STREET 1: ONE PLZ CTR STREET 2: POST OFFICE BOX HP 3 CITY: HIGH POINT STATE: NC ZIP: 27261-1500 BUSINESS PHONE: 9198890333 10-K405 1 LADD FURNITURE, INC. 10-K405 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 December 28, 1996 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 -- $.30 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 [X] Market value of 6,337,385 shares held by nonaffiliates as of March 6, 1997, was $99,021,640. Indicate the number of shares outstanding of each of the registrant's classes of Common Stock, as of the latest practicable date. 7,719,567 shares outstanding as of March 6, 1997 DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the 1997 Annual Shareholders Meeting are incorporated by reference into Part III hereof. 1 PART I ITEM 1. BUSINESS GENERAL LADD Furniture, Inc., incorporated in 1981 under the laws of the State of North Carolina, is a leading residential furniture manufacturer which sells its products through diverse retail distribution channels, as well as to the hospitality and health care industries. The Company produces a wide range of furniture designed to appeal to a spectrum of customers seeking quality, style, and value. The Company markets its wide range of residential wood and upholstered furniture domestically under the major brand names American Drew, Barclay, Clayton Marcus, Lea, Pennsylvania House and Pilliod, and exports these same brand name products worldwide through LADD International. Under the American of Martinsville brand name, LADD is also one of the world's leading suppliers of guest room furniture to the hotel/motel industry, as well as to health care facilities, retirement homes and governmental and university dormitory markets. Based upon industry data published in the trade publication FURNITURE DESIGN AND MANUFACTURING, LADD is currently the seventh largest U.S. manufacturer of residential furniture. Unless the context otherwise indicates, "LADD" and "Company" refer to LADD Furniture, Inc., its divisions, and consolidated subsidiaries. The executive offices of LADD are located in High Point, North Carolina. INDUSTRY SEGMENTS In accordance with the instructions for this item, LADD is deemed to have been engaged in only one business segment, manufacture and sale of furniture, for the three years ended December 28, 1996. SIGNIFICANT DEVELOPMENTS IN 1996 COMPLETION OF REFINANCING -- On July 12, 1996, the Company completed a new $190 million secured financing facility underwritten by a bank group led by NationsBank, N.A. (South). The credit facility originally consisted of a $125 million three-year revolving credit facility and a $65 million term loan and is secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries. The credit facility was used to refinance the Company's existing credit facility and provide additional liquidity. On January 1, 1997, the Company reduced the availability of the revolving credit portion of the facility to $110 million. LADD'S BUSINESS GROUPS The Company has three primary operating groups: (i) residential casegoods, consisting primarily of bedroom, dining room and living room furniture, wall units and occasional tables, (ii) residential upholstery, consisting primarily of sofas, love seats, recliners and chairs, and (iii) contract sales, consisting of casegoods and upholstery sold to the hospitality and health care industries, the U.S. government and educational institutions (collectively, contract sales). The Company distributes its casegoods and upholstery products directly and through approximately 300 independent sales representatives to more than 8,000 customers, including leading department stores, furniture retailers, mass merchandisers, catalog merchandisers, major hotel chains, and various specialty stores and retail companies. The Company also sold its furniture in 1996 internationally to customers in over 50 countries. CASEGOODS GROUP American Drew manufactures and sells medium-priced wood residential furniture. The products include various types of bedroom furniture (beds, dressers, nightstands, mirrors, armoires, and dressing tables), dining room furniture (tables, chairs, buffets, chinas, and serving pieces), living room and family room occasional pieces (desks, end tables, coffee tables, entertainment units, wall units, and secretaries), and computer furniture for the home (desks, files and bookshelves). 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. Lea Industries manufactures and sells wood furniture for the youth and adult bedroom markets. Lea Industries' products include beds, dressers, nightstands, mirrors, desks, bookshelves, hutches, armoires, and correlated modular furniture in a variety of styles, including traditional, transitional and contemporary. 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" brand name primarily to national and regional furniture chains, independent furniture retailers, national general retailers and department stores. Lea Industries' products are manufactured in four plants located in Waynesville, NC, Marion, VA, and Morristown, TN. 2 Pennsylvania House manufactures solid wood residential furniture in American traditional, country and transitional styles. 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 220 independent furniture retailers in the United States, Japan and Mexico. In 1996, the distribution of Pennsylvania House products was expanded to include furniture retailers without galleries. Pennsylvania House - Casegoods operates two manufacturing plants located in Lewisburg and White Deer, PA. Pilliod Furniture manufactures and markets a wide range of promotionally-priced contemporary and traditional wood residential furniture, including master bedroom products, occasional tables, home office products, entertainment centers, wall systems, and casual dining room products. Pilliod Furniture's products are marketed under the "Pilliod" and "Symmetry" brand names. 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. UPHOLSTERY GROUP Barclay Furniture manufactures and sells moderately-priced upholstered residential furniture, including sofas, love seats, 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, membership clubs, rent-to-own stores, catalog retailers, and national general merchandisers. Barclay operates two manufacturing plants located in Sherman and Myrtle, MS. Clayton-Marcus manufactures and sells a full line of upholstered household furniture, including sofas, love seats, chairs, sleepers, rockers, and other upholstered living room furniture, which sells in the medium and upper-medium price ranges. The products are marketed under the "Clayton-Marcus", "HickoryMark", "American of Martinsville", and "Clayton House" brand names primarily to retail furniture chains, independent furniture retailers and department stores. Clayton-Marcus currently has established galleries with approximately 150 independent furniture stores in the United States, Canada, and Mexico. Clayton-Marcus operates three manufacturing plants in Hickory, NC. Pennsylvania House also manufactures a full line of upholstered residential furniture which sells in the upper-medium price range. Pennsylvania House - Upholstery operates one leased manufacturing plant located in Monroe, NC. CONTRACT SALES American of Martinsville manufactures wood and upholstered residential furniture which is marketed worldwide to the guest room (hotel/motel) industry through LADD Contract Sales Corporation. The Contract Sales Group also sells to the health care furniture market for retirement homes and extended care facilities, certain agencies of the U.S. government, and university and college markets. American of Martinsville operates two manufacturing plants located in Chilhowie and Martinsville, VA and utilizes other LADD manufacturing facilities to meet capacity constraints. OTHER LADD Transportation, Inc. operates a modern fleet of over-the-road tractors and trailers that are used to provide transportation services to LADD's casegoods companies to meet the special needs of LADD's customers. LADD Transportation, together with fleets operated by LADD's Upholstery Group, 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 300 independent sales representatives to a broad variety of customers, including department stores, furniture retailers, mass merchandisers, catalog merchandisers, major hotel chains, and various specialty stores and rental companies. The Company currently sells to more than 8,000 3 furniture customers. No single customer accounted for more than 8% of net sales in 1996. 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 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, leather, plywood, particleboard, hardware, finishing materials, glass, steel, steel springs, and high pressure laminates. The wood species include cherry, oak, maple, white pine, poplar, and other American species, and imports such as rubberwood, 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. 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 casegoods manufacturing plants have been adapted so that they 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 intellectual properties which are considered to be important to the business and which do not have a limited duration. 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 1996 fiscal year end was approximately $75.1 million, as compared to $83.1 million at 1995 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. 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 800 manufacturers of residential furniture in the United States, some of which include furniture types not manufactured by the Company. Competition within the market for wood, upholstered and metal furniture occurs principally in the areas of style or design, quality, price, and service. 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, its Pilliod Furniture subsidiary is the only operation to have 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. In 1996, the Company imported approximately $16.4 million of finished furniture and unfinished furniture parts. The Company has no facilities located outside the continental United States. GOVERNMENTAL REGULATIONS The Company is subject to a wide-range of Federal, state and local laws and regulations relating to protection of the environment, worker health and safety and the emission, discharge, storage, treatment and disposal of hazardous materials. These laws include the Clean Air Act, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act 4 and the Comprehensive Environmental, Response, Compensation and Liability Act. Certain of the Company's operations use glues and coating materials that contain chemicals that are considered hazardous under various environmental laws. Accordingly, management closely monitors the Company's environmental performance at all of its facilities. Management believes that the Company is in substantial compliance with all environmental laws. Under the provisions of the Clean Air Act, in December 1995, the Environmental Protection Agency (the "EPA") promulgated air emission standards for the wood furniture industry. These regulations, known as National Emission Standards for Hazardous Air Pollutants ("NESHAPs"), govern the levels of emission of certain designated chemicals into the air and will require that the Company reduce emissions of certain volatile hazardous air pollutants ("VHAPs") by November 1997. Management has investigated and evaluated techniques to meet these standards at all facilities to which the NESHAPs standards will apply. While the Company may be required to make capital investments at some of its facilities to ensure compliance, the Company believes that it will meet all applicable requirements in a timely fashion and that the amount of money required to meet the NESHAP requirements will not materially affect its financial condition or its results of operations. See "Legal Proceedings" regarding the status of environmental proceedings in which the Company is involved. EMPLOYEES The Company had approximately 5,900 employees as of March 1, 1997. Substantially all of the employees were employed on a full-time basis. Employees at four Company plants are represented by various labor unions. The Company considers its relations with its employees to be good. EXPORT SALES In 1996, the Company's export sales decreased to $28.4 million (approximately 5.7% of 1996 net sales), from $37.5 million in 1995 (approximately 6.3% of 1995 net sales). The Company's export sales in 1994 were $33.8 million, or approximately 5.7% of 1994 net sales. Excluding the operating companies divested in 1995 and 1996, export sales were 5.7% of net sales in each year. None of the Company's assets are dedicated solely to export sales. 5 ITEM 2. PROPERTIES The following table summarizes the real estate, both owned and leased, used in the primary business operations of the Company as of March 21, 1997. LADD FACILITIES
APPROX. OWNED LEASE FACILITY SIZE OR EXPIRATION OPERATING GROUP LOCATION USE (SQUARE FEET) LEASED DATE Casegoods........................ N. Wilkesboro, NC Manufacturing 409,000 Owned N. Wilkesboro, NC Manufacturing 414,000 Owned N. Wilkesboro, NC Manufacturing 122,500 Owned N. Wilkesboro, NC Warehouse/Office 109,500 Owned Morristown, TN Warehouse 108,000 Leased 10/31/97 Morristown, TN Manufacturing 286,380 Owned Morristown, TN Manufacturing/Office 139,200 Owned Morristown, TN Distribution 160,000 Leased 4/01/99 Morristown, TN Distribution 97,500 Leased 10/31/98 Waynesville, NC Manufacturing/Office 447,400 Owned Marion, VA Manufacturing/Office 204,900 Owned Lewisburg, PA Manufacturing/Office/Dist. 614,100 Owned White Deer, PA Manufacturing/Dist. 128,000 Owned Selma, AL Manufacturing 310,000 Owned Nichols, SC Manufacturing 350,000 Owned Swanton, OH Manufacturing 290,000 Owned Mullins, SC Warehouse 20,000 Leased mo-to-mo High Point, NC Office 11,100 Leased 4/30/98 Upholstery....................... Sherman, MS Manufacturing/Office 302,650 Owned Myrtle, MS Manufacturing 152,600 Owned Hickory, NC Manufacturing/Office/Dist. 359,600 Owned Hickory, NC Manufacturing 121,800 Owned Hickory, NC Manufacturing 152,900 Owned Monroe, NC Manufacturing 258,000 Leased 3/31/04 Contract Sales................... Chilhowie, VA Manufacturing/Office 530,000 Owned Martinsville, VA Manufacturing 850,000 Owned Martinsville, VA Office 50,000 Leased 5/31/97 Martinsville, VA Warehouse 135,000 Leased 9/30/97 Corporate........................ High Point, NC Office 38,000 Leased 11/30/97
The Company believes that its manufacturing, warehouse and office space is well maintained for its intended purposes and adequately insured. 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 manufacturing facilities on a one shift per day, five-day week basis. Increasingly, certain departments and facilities are operated on a multi-shift basis. The Company also currently maintains showrooms, the majority of which are leased, in High Point, NC, Sherman and Tupelo, MS, and Martinsville, VA. The Company owns and leases substantial quantities of woodworking, sewing and metalworking equipment located in its various plants. The Company considers its present equipment to be adequate, well-maintained, generally modern, and adequately insured. The Company currently owns and leases approximately 120 tractors and 270 trailers. 6 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 presently is involved in the following environmental proceedings: 1. The California manufacturing facility of Brown Jordan Company ("Brown Jordan"), a former subsidiary of the Company, is located in El Monte, California in the San Gabriel Valley Groundwater 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. In May 1994, the Company joined the Northwest El Monte Community Task Force, a PRP Group formed to respond to the EPA. In March 1995, the Task Force and the EPA finalized an Administrative Consent Order pursuant to which the Task Force has begun a remedial investigation and feasibility study at an approximate cost of $1.3 million. Pursuant to an interim allocation agreement, Brown Jordan is responsible for 4.86% of all shared assets of the Task Force. 2. In September 1995, Brown Jordan received a request from the California Regional Water Quality Board with respect to further assessment of two areas at the El Monte facility, the Leach Pit Area and the Clarifier Area. Both of these areas have been the subject of significant previous investigations (undertaken 1988-1993) which had concluded that it was unlikely that Brown Jordan was contributing significantly to groundwater contamination in the area. The Board's investigation program is separate from the El Monte Superfund group, although both are concerned with whether Brown Jordan is a source of groundwater contamination. There is some basis at this time for believing that the Leach Pit and Clarifier Area problems are limited to soil contamination. Under the terms of the Asset Purchase Agreement with Maytag Corporation ("Maytag") dated June 1, 1989 ("the Maytag Agreement") under which the Company acquired Brown Jordan, the Company's liabilities in El Monte matters are limited to the first $200,000 of costs for off-site liabilities and $1,000,000 of costs for on-site liabilities. Pursuant to the terms of the Stock Purchase Agreement between the Company and BJCL, Inc. (now known as Brown Jordan International, Inc.) ("BJII") dated as of November 7, 1995 under which BJII acquired Brown Jordan from the Company, BJII may assume up to $400,000 of certain post closing costs relating to Brown Jordan, including environmental costs relating to the El Monte site. Through March 1997, approximately $300,000 had been expended by the Company on the El Monte site and approximately $60,000 of other contractual indemnification claims had been incurred. Accordingly, if no other claims are made by BJII under the Brown Jordan Agreement, the next $340,000 of costs associated with Brown Jordan environmental claims will be paid by BJII. The Company has also been named as a PRP, along with numerous parties, at various hazardous waste sites undergoing cleanup or investigation for cleanup. The Company believes that at each of these sites, it has been improperly named or will be considered a "de minimis" party. Although the Company believes adequate accruals have been provided for environmental contingencies, it is possible, due to uncertainties previously noted, that additional accruals could be required in the future. However, the ultimate resolution of these contingencies, to the extent not previously provided for, should not have a material adverse effect on the Company's financial position. 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 1996. 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS STOCK TRANSFER AGENT: Wachovia Bank of North Carolina, N.A. Winston-Salem, NC Shareholder Account Information: 1-800-635-4236 STOCK LISTING: The Company's Common Stock is traded on the Nasdaq Stock Market under the Nasdaq symbol: LADF. At year end 1996, the Company had approximately 4,000 shareholders based upon approximately 640 shareholders of record at that date and an estimate of the number of individual shareholders represented by broker and nominee position listings. MAJOR MARKET MAKERS: Cantor, Fitzgerald & Co. Mayer & Schweitzer Dillon, Read & Co. Raymond, James & Associates Herzog, Heine, Geduld Robinson Humphrey Huntleigh Securities Corp. Sherwood Securities Corp. Interstate/Johnson Lane Southwest Securities, Inc. Jefferies & Company, Inc. Troster Singer Corp. Legg Mason Wood Walker Wheat First Butcher Singer
See Item 6, Selected Financial Data, for market and dividend information regarding the Company's Common Stock. 8 ITEM 6. SELECTED FINANCIAL DATA LADD FURNITURE, INC. AND SUBSIDIARIES SELECTED ANNUAL DATA DOLLAR AND SHARE DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
FISCAL FISCAL FISCAL FISCAL FISCAL 1992 1993 1994 1995 1996 OPERATING STATEMENT DATA Net sales.................................................... $483,480 507,586 576,549 599,203 497,457 Cost of sales................................................ 388,937 414,730 468,881 502,999 411,697 Gross profit............................................... 94,543 92,856 107,668 96,204 85,760 Selling, general and administrative expenses................. 78,493 81,953 93,911 101,345 74,363 Restructuring expense........................................ -- -- -- 25,120 3,431 Operating income (loss)...................................... 16,050 10,903 13,757 (30,261) 7,966 Other (income) deductions: Interest expense........................................... 7,502 5,542 8,939 11,798 12,069 Other (net)................................................ 278 (1,046) (199) 1,367 399 Earnings (loss) before income taxes.......................... 8,270 6,407 5,017 (43,426) (4,502) Income tax expense (benefit)................................. 3,725 2,561 709 (18,236) (2,032) Net earnings (loss).......................................... $ 4,545 3,846 4,308 (25,190) (2,470) Depreciation................................................. $ 9,151 10,508 14,143 12,671 10,887 Amortization................................................. 2,848 2,554 3,669 3,758 4,444 Cash dividends paid.......................................... -- 2,767 2,771 2,086 -- Weighted average shares outstanding.......................... 7,148 7,686 7,697 7,721 7,722 PER SHARE DATA Net sales.................................................... $ 67.64 66.04 74.91 77.61 64.42 Net earnings (loss).......................................... 0.64 0.50 0.56 (3.26) (0.32) Cash dividends............................................... -- 0.36 0.36 0.27 -- Year-end book value.......................................... 19.38 19.52 19.73 16.20 15.94 BALANCE SHEET DATA Net working capital.......................................... $117,693 123,004 123,685 79,528 97,916 Net property, plant and equipment............................ 83,609 97,497 109,522 82,586 74,729 Total assets................................................. 315,649 335,737 378,816 312,986 313,595 Total debt................................................... 92,573 111,072 149,271 115,944 130,952 Shareholders' equity......................................... 148,724 150,103 151,906 125,197 123,076 RATIOS, OTHER Gross profit margin.......................................... 19.6% 18.3 18.7 16.1 17.2 Operating profit (loss) margin............................... 3.3% 2.1 2.4 (5.0) 1.6 Return (loss) on sales....................................... 0.9% 0.8 0.8 (4.2) (0.5) Effective income tax rate.................................... 45.0% 40.0 14.1 42.0 45.1 Dividend payout ratio........................................ -- 71.9 64.3 N/M -- Return (loss) on beginning assets............................ 1.5% 1.2 1.3 (6.6) (0.8) Return (loss) on beginning equity............................ 4.1% 2.6 2.9 (16.6) (2.0) Total debt ratio............................................. 38.4% 42.5 49.6 48.1 51.6 Current ratio................................................ 3.1x 3.1 3.0 2.3 2.6 Inventory turnover ratio..................................... 4.6x 4.2 4.2 4.8 4.7 Asset turnover ratio......................................... 1.5x 1.6 1.6 1.7 1.6 Year-end employees (actual number)........................... 6,940 6,670 7,860 6,880 5,800 Sales per employee (000's)................................... $ 73.4 75.0 75.9 77.0 79.8 STOCK DATA High......................................................... $ 36.00 44.25 35.25 19.88 15.75 Low.......................................................... 18.75 22.50 14.63 12.25 9.50 Close........................................................ 31.50 30.00 19.50 13.13 14.63 Trading volume (shares)...................................... 6,586 8,260 6,473 9,599 8,000
NOTES: Total debt ratio is defined as total debt to total debt plus shareholders' equity. Fiscal year 1992 comprised 53 weeks; all other years comprised 52 weeks. Stock price data is for calendar years. N/M = Not meaningful. Sales per employee based on monthly employee average. Fournier Furniture is included in consolidated results from its acquisition date of July 2, 1992, and Pilliod Furniture from its acquisition date of January 31, 1994. Fiscal year 1995 reflects the sale of Brown Jordan Company and Lea Lumber & Plywood-effective December 29, 1995. Fiscal 1996 reflects the sale of Fournier Furniture-effective February 26, 1996; and the liquidation of Daystrom Furniture beginning June 28, 1996. Fiscal 1994 and 1995 reflect the Company's accounts receivable securitization program which commenced January 31, 1994 and terminated on March 28, 1996. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
1994 1995 1996 Net sales............................................................................................ 100.0% 100.0% 100.0% Cost of sales........................................................................................ 81.3 83.9 82.8 Gross profit....................................................................................... 18.7 16.1 17.2 Selling, general and administrative expenses......................................................... 16.3 16.9 14.9 Restructuring expense................................................................................ -- 4.2 0.7 Operating income (loss)............................................................................ 2.4 (5.0) 1.6 Other deductions, net................................................................................ 1.5 2.2 2.5 Earnings (loss) before income taxes................................................................ 0.9 (7.2) (0.9) Income tax expense (benefit)......................................................................... 0.1 (3.0) (0.4) Net earnings (loss)................................................................................ 0.8% (4.2)% (0.5)%
Statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature, are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended. The Company cautions readers that forward looking statements, including without limitation, those relating to sales, operating costs, working capital, liquidity, capital needs and interest costs, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements, due to several important factors herein identified, principally anticipated growth in sales and decreased interest expense, and other risks and factors identified from time to time in the Company's reports filed with the Securities Exchange Commission. 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 December 28, 1996. FISCAL 1995 AND 1996 RESTRUCTURING OF THE COMPANY During 1995, the Company recorded a net $25.1 million non-cash restructuring charge. The restructuring charge resulted from the Company's decision to divest four operating companies (businesses held for sale -- the "divestiture companies"), close four Company-owned retail stores, and reorganize the remaining companies to improve operating performance. The net restructuring charge consisted of: (a) $17.4 million to write-down businesses sold or held for sale to their estimated fair value, net of disposition expenses; (b) $3.7 million to increase reserves associated with closing the four retail stores; (c) $2.6 million to provide for severance and other expenses; and (d) $1.4 million to write-down selected machinery to estimated fair value because of changes in manufacturing processes. In December 1995, the Company sold two of the businesses held for sale for a combination of cash proceeds aggregating $28.0 million, a 12% interest (valued at $2.2 million) in the purchaser of one of the businesses, and a $1.0 million subordinated note. As part of the 1995 restructuring, the Company's operations were reorganized along its three product lines: (i) the Casegoods Group; (ii) the Upholstery Group; and (iii) the Contract Sales Group. In 1996, the Company recorded aggregate non-cash restructuring charges (net) of $3.4 million which consisted of: (i) $4.2 million in the first quarter due to the necessity to liquidate versus sell one of the remaining businesses and a shortfall in anticipated proceeds on the other business; (ii) $0.9 million in the first quarter for severance related to continued restructuring of the Company (of which $130,000 related to restricted stock awards was credited to shareholders' equity); and (iii) $1.7 million aggregate credits recorded in the second, third and fourth quarters as a result of proceeds from the liquidation of idle assets held for sale exceeding earlier estimates. In February 1996, the Company sold one of its divestiture companies for a combination of approximately $8.9 million in cash, a subordinated note totalling $1.1 million, and the purchaser's assumption of $1.9 million of Industrial Revenue Bonds. Effective June 1996, the Company closed its last 10 divestiture company and subsequently liquidated for cash substantially all the inventory, machinery and equipment. In December 1996, the Company sold the manufacturing plant of the business for cash and a note receivable. Management believes the actions represented by these charges have repositioned the Company to achieve improved operating performance within the U.S. residential furniture manufacturing industry. FISCAL 1996 COMPARED TO 1995 Consolidated net sales for fiscal 1996 decreased $101.7 million, or 17.0%, to $497.5 million from $599.2 million in 1995. On a pro forma basis, excluding the four divestiture companies and the company-owned retail stores closed in 1995, fiscal 1996 consolidated net sales would have decreased by 0.3%. Of the $481.9 million in net sales recorded during fiscal 1996 by the ongoing businesses, residential casegoods totalled approximately $277.4 million, residential upholstery totalled approximately $124.3 million, and contract sales totalled approximately $80.2 million. The Company's total residential upholstery sales for fiscal 1996 were flat with fiscal 1995, while total residential casegoods sales for the year decreased $7.0 million, or 2.5 %, from fiscal 1995's level. Net sales of the Company's contract sales business, including the sale of accessories, rose $11.7 million in 1996, or 17.1%, compared to the prior year. The Company's residential casegoods and upholstery sales trends in 1996 were below those estimated for the industry, largely due to the Company's decision to discontinue selling to certain accounts with unsatisfactory margins. The 1996 sales growth in the contract business exceeded sales trends estimated in the hospitality sector, where hotels/motels continue to refurbish rooms at an accelerated pace. The Company anticipates that the 1997 sales growth rate for its casegoods and upholstery businesses will be more in line with that of the industry, and that the sales growth rate for its contract business will exceed that of casegoods and upholstery. In 1996, the Company's export sales decreased to $28.4 million (5.7% of net sales), from $37.5 million in 1995 (6.3% of net sales). Excluding the divestiture companies and the four company-owned retail stores, export sales would have been 5.7% of net sales in both 1995 and 1996. Export sales will continue to be a focus of the Company and are expected to increase generally at a faster rate than domestic sales. Cost of sales decreased by $91.3 million, or 18.2%, in fiscal 1996 and represented 82.8% of net sales, down from 83.9% of net sales in fiscal 1995. On a pro forma basis, excluding the divestiture companies and the company-owned retail stores, cost of sales decreased to 82.1% of net sales in 1996, from 84.2% of net sales in 1995. Cost of sales in 1996 was positively impacted by the Company's decision to curtail health care benefits to retirees and to terminate its qualified defined benefit pension plan. As more fully discussed in notes 10 and 11 to the consolidated financial statements, these two actions in the aggregate resulted in a $4.4 million decrease in cost of sales. The Company estimates that, on an ongoing basis, the elimination of these two employee benefits will save the Company over $3.0 million annually. Excluding the divestiture companies and the company-owned retail stores, the above mentioned nonrecurring 1996 transactions, and non-cash charges totalling $5.3 million recorded in 1995, cost of sales was 83.1% of net sales in both 1996 and 1995. Negatively impacting margins in 1996 and 1995 were production decreases of 5.8% and 7.5%, respectively, to reduce inventory levels of the casegoods group, resulting in high amounts of unabsorbed fixed overhead costs. The Company believes that 1997 gross margins will improve over the 1996 pro forma gross margin of 16.9% as a result of new product introductions, increased sales and increased production levels. Selling, general and administrative (SG&A) expenses were 14.9% of net sales in 1996, compared to 16.9% of net sales in fiscal 1995. On a pro forma basis, excluding the divestiture companies and the company-owned retail stores, SG&A expenses were 14.8% of net sales in 1996, compared to 16.2% of net sales in 1995. This decrease was primarily attributable to the second quarter 1995 non-cash charge (totalling $2.3 million) to increase the Company's bad debt reserves and provide for other miscellaneous expenses, as well as to higher costs in 1995 associated with the Company's accounts receivable securitization program, which was in place for all of 1995 and terminated at the end of 1996's first quarter. SG&A expenses also declined during 1996 as a result of an approximate 10.0% reduction in the Company's salaried work force, consolidation of certain administrative functions, and cutbacks in advertising. The Company anticipates that 1997 SG&A expenses will be in the range of 14.0%-14.5% of net sales. Other deductions increased in the aggregate to 2.5% of fiscal 1996's net sales from 2.2% in the prior year. Interest expense, as a percent of net sales, was 2.4% in 1996 compared to 2.0% in 1995 due to higher interest rates. Other deductions in 1996 were positively impacted by a $1.7 million insurance settlement. Other deductions in 1996 and 1995 included non-cash charges totalling $0.9 million and $2.2 million, respectively, attributable to the write-off of unamortized financing costs and other noncurrent assets, and the recognition of other liabilities. The Company believes its 1997 interest expense will decrease due to lower outstanding average borrowings and an anticipated decrease in the Company's effective interest rate, both of which are directly dependent upon improved profitability and cash flow. 11 The principal reason for the increase in the Company's effective tax benefit rate to 45.1% in fiscal 1996 from 42.0% in the previous year was the realization of tax benefits from the utilization of research and experimentation tax credits. The Company's combined effective Federal and state tax rate for 1997 is expected to approximate 39.0%. FISCAL 1995 COMPARED TO 1994 Consolidated net sales for fiscal 1995 rose $22.7 million, or 3.9%, to a record $599.2 million. On a pro forma basis, assuming Pilliod Furniture had been acquired at the beginning of fiscal 1994, the fiscal 1995 consolidated net sales increase would have been 2.5%. The reported increase of $22.7 million consisted of a $22.9 million, or 5.0%, increase in net sales of the ongoing businesses, partially offset by a cumulative decline of $0.2 million, or 0.2%, in net sales of the businesses sold or being held for sale in 1995. Of the $483.4 million in net sales recorded during fiscal 1995 by the ongoing businesses, approximately $284.4 million represented residential casegoods volume, approximately $124.5 million represented residential upholstery volume, and contract volume represented approximately $68.5 million. The balance of 1995 sales, totalling approximately $6.0 million, represented "other" business, primarily revenues from the sale of home furnishings accessories. The Company's 1995 sales trends were in line with the general industry pattern of stronger upholstery sales than casegoods sales. The Company's total residential upholstery sales for fiscal 1995 rose by $18.1 million, or 17.0%, while total residential casegoods sales for the year decreased $14.1 million, or 4.7%, from fiscal 1994's level. Total fiscal 1995 net sales of the Company's contract business, including the sale of accessories, rose by $13.0 million, or 23.4%, compared to the prior year. Cost of sales increased by $34.1 million, or 7.3%, in fiscal 1995 and represented 83.9% of net sales in the most recent year, up from 81.3% in fiscal 1994. Materials, labor and overhead costs all increased as a percentage of net sales in 1995, with the labor component showing the largest year-over-year growth. The labor increase resulted largely from the casegoods companies manufacturing parts that had previously been purchased and machine setup times not being fully absorbed due to smaller cut quantities. Materials price increases, which had been a major negative factor in 1994, moderated to a degree during 1995, particularly in the areas of hardwood lumber and particleboard, although these costs remained at fairly high levels on a historical basis. Further negatively impacting 1995 margins was a 7.5% decrease in production to reduce inventory levels of the casegoods group resulting in unusually high amounts of unabsorbed fixed overhead costs. An additional depressant on the 1995 gross margin was the non-cash charge (totalling $5.3 million) incurred in the second quarter to increase reserves for slow-moving and discontinued inventories. As a result of these factors, the Company's fiscal 1995 gross margin declined to a historical yearly low of 16.1%, compared to fiscal 1994's 18.7% gross margin. Selling, general and administrative (SG&A) expenses rose to 16.9% of net sales, compared to 16.3% in fiscal 1994. This increase was primarily attributable to the second quarter non-cash charge (totalling $2.3 million) to increase the Company's bad debt reserves and provide for other miscellaneous expenses, as well as higher costs associated with the Company's accounts receivable securitization program, which was in place for all of 1995 and carried larger average balances and discount rates than in fiscal 1994. Other deductions increased in the aggregate to 2.2% of fiscal 1995's net sales from 1.5% of prior year's net sales. Interest expense rose $2.9 million, despite average outstanding borrowings for fiscal 1995 remaining approximately the same as in the prior year, due to increases in short-term interest rates and an amendment to the Company's long-term credit facility, which resulted in a significantly higher borrowing rate for the Company beginning in August 1995. The principal reasons for the increase in the Company's fiscal 1995 effective tax rate to 42.0% from 14.1% in the previous year were tax benefits realized from the utilization of capital loss carryforwards during the year and various beneficial tax credits. LIQUIDITY AND CAPITAL RESOURCES In July 1996, the Company refinanced its long-term and short-term bank credit facility with a new credit facility (the "Facility") which consisted of a $125.0 million three-year revolving credit loan and a $65.0 million term loan. On January 1, 1997, the Facility was amended to reduce the revolving credit loan to $110.0 million. The Facility is secured by substantially all the assets of the Company, including equipment, inventory, receivables and real property. Borrowings under the Facility bear interest at rates selected periodically by the Company of LIBOR plus 2.75%, or prime plus 1.75%, for the revolving credit loan, and LIBOR plus 3.00%, or prime plus 2.00%, for the term loan. The interest rate margin over LIBOR and prime can be reduced upon the Company meeting a financial ratio related to operating cash flow and debt levels. The term loan is to be repaid in forty quarterly installments of $1,625,000, of which the first installment was paid in December 1996. The 12 Facility restricts the amount of the Company's capital spending, lease obligations, borrowings, and the payment of dividends. Due to the refinancing, unamortized financing costs of $890,000 were charged to operations in 1996. In connection with the refinancing, the Company incurred fees and expenses aggregating approximately $4.0 million which will be amortized over the terms of the Facility. Effective March 28, 1996, the Company's trade accounts receivable securitization program was terminated in anticipation of the above mentioned refinancing. At December 30, 1995, the Company had generated cash of $36.0 million from the securitization program which was subsequently replaced with borrowings under the Company's long-term credit facility. On December 28, 1996, net working capital totalled $97.9 million and the current ratio was 2.6:1. Both of these financial measures increased over the prior year primarily due to the above mentioned termination of the accounts receivable securitization program, offset somewhat by a decrease in inventories and prepaid expenses aggregating approximately $12.9 million. During 1996, the Company generated net cash from operating activities of $25.5 million, an increase of $14.4 million compared to the prior year. During 1996, capital spending totalled $8.3 million (excluding the purchase of leased equipment relating to a divestiture company) down from the prior year's $11.6 million, as major capital projects initiated during years 1994 and 1995 were completed in early 1996, and a reduced capital spending program was initiated by management. Capital expenditures during 1996 and 1995 were funded from the operations of the Company and borrowings under the Company's existing long-term credit facility. Total debt as a percentage of total debt plus shareholders' equity (total debt ratio) was 51.6% at the end of 1996, compared to 48.1% a year earlier. The increase was due to termination of the previously mentioned trade accounts receivable securitization program in March 1996, offset by debt repayments in the aggregate in the second, third and fourth quarters of 1996 totalling $26.3 million. The Company anticipates spending less than $10.0 million for capital improvements during 1997, and believes that the unused revolving credit line available under the Facility ($31.0 million at December 28, 1996) and cash generated from operations, will be adequate to fund these planned investments, as well as its lease commitments. The Company anticipates that its cash flow from operations will exceed its capital expenditures in 1997, enabling the Company to further reduce its outstanding borrowings and accordingly, its total debt ratio. IMPACT OF INFLATION Although the effects of inflation on the Company cannot be accurately determined, in 1996 the impact of inflation affected the Company's manufacturing costs in the areas of 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. Although 1996 margins were impacted by inflation, the Company's gross profit margins during the past several years have, in general, been impacted more by promotional selling discounts and plant downtime taken to curtail production than by inflation. The Company believes it will be able to largely offset the effects of inflation by improving its manufacturing efficiency, increasing employee productivity, substituting raw materials, and increasing the selling prices of its products. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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 the Company's Annual Report on Form 10-K 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 LLP, 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. Fred L. Schuermann, Jr. William S. Creekmuir President & Chief Executive Officer Executive Vice President & CFO February 7, 1997 February 7, 1997
14 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 December 30, 1995 and December 28, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 28, 1996. 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 December 30, 1995 and December 28, 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 28, 1996 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Greensboro, North Carolina February 7, 1997 15 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, AND DECEMBER 28, 1996
1994 1995 1996 DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA Net sales.............................................................................. $576,549 599,203 497,457 Cost of sales.......................................................................... 468,881 502,999 411,697 Gross profit...................................................................... 107,668 96,204 85,760 Selling, general and administrative expenses........................................... 93,911 101,345 74,363 Restructuring expense.................................................................. -- 25,120 3,431 Operating income (loss)........................................................... 13,757 (30,261) 7,966 Other deductions: Interest expense..................................................................... 8,939 11,798 12,069 Other deductions (income), net....................................................... (199 ) 1,367 399 8,740 13,165 12,468 Earnings (loss) before income taxes............................................... 5,017 (43,426) (4,502) Income tax expense (benefit)........................................................... 709 (18,236) (2,032) Net earnings (loss)............................................................... $ 4,308 (25,190) (2,470) Net earnings (loss) per common share................................................... $ 0.56 (3.26) (0.32) Cash dividends per common share........................................................ $ 0.36 0.27 0.00 Weighted average number of common shares outstanding................................... 7,696,689 7,720,783 7,722,085
See accompanying notes to consolidated financial statements. 16 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 30, DECEMBER 28, 1995 1996 DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA ASSETS Current assets: Cash........................................................................................... $ 1,272 469 Trade accounts receivable, less allowances for doubtful receivables, discounts, returns and allowances of $4,057 and $3,005, respectively........................................... 38,288 66,730 Inventories.................................................................................... 89,466 84,484 Prepaid expenses and other current assets...................................................... 13,663 5,768 Total current assets...................................................................... 142,689 157,451 Property, plant and equipment, net............................................................... 82,586 74,729 Businesses held for sale, net.................................................................... 8,052 -- Intangible and other assets, net................................................................. 79,659 81,415 $312,986 313,595 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt......................................................... $ 309 5,093 Short-term bank borrowings..................................................................... 3,037 -- Trade accounts payable......................................................................... 28,419 24,358 Accrued expenses and other current liabilities................................................. 31,396 30,084 Total current liabilities................................................................. 63,161 59,535 Long-term debt, excluding current installments................................................... 112,598 125,859 Deferred and other liabilities................................................................... 12,030 5,125 Total liabilities......................................................................... 187,789 190,519 Shareholders' equity Preferred stock of $100 par value. Authorized 500,000 shares; no shares issued................. -- -- Common stock of $.30 par value. Authorized 50,000,000 shares, issued 7,726,993 shares and 7,719,567 shares, respectively.............................................................. 2,318 2,316 Additional paid-in capital..................................................................... 49,905 49,736 Retained earnings.............................................................................. 73,829 71,359 126,052 123,411 Less unamortized value of restricted stock..................................................... (855) (335) Total shareholders' equity................................................................ 125,197 123,076 Commitments and contingencies -- NOTE 13 $312,986 313,595
See accompanying notes to consolidated financial statements. 17 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, AND DECEMBER 28, 1996
1994 1995 1996 DOLLAR AMOUNTS IN THOUSANDS CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)........................................................................ $ 4,308 (25,190) (2,470) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation of property, plant and equipment............................................ 14,143 12,671 10,887 Amortization............................................................................. 3,669 3,758 4,444 Restructuring expense.................................................................... -- 25,120 3,431 Provision for losses on trade accounts receivable........................................ 1,521 2,898 3,308 Gain on sales of property, plant and equipment........................................... (89) (314) (147) Provision for deferred income taxes...................................................... (1,204) (13,419) 1,873 Increase (decrease) in deferred and other liabilities.................................... 1,388 1,297 (2,564) Change in assets and liabilities, net of effects from acquisition, divestitures and classification of businesses held for sale: (Increase) decrease in trade accounts receivable...................................... (2,517) (7,988) 5,736 (Increase) decrease in inventories.................................................... (10,709) 8,126 5,417 (Increase) decrease in prepaid expenses and other current assets...................... (1,886) (2,084) 5,648 Increase (decrease) in trade accounts payable......................................... (2,496) 3,608 (3,738) Increase (decrease) in accrued expenses and other current liabilities................. (3,313) 2,607 (6,320) Total adjustments........................................................................ (1,493) 36,280 27,975 Net cash provided by operating activities............................................. 2,815 11,090 25,505 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Pilliod Furniture, net of cash acquired................................... (23,847) -- -- Additions to property, plant and equipment............................................... (31,825) (11,560) (8,347) Purchase leased manufacturing equipment.................................................. -- -- (4,648) Proceeds from sales of property, plant and equipment..................................... 962 191 246 Proceeds from sales of idle assets....................................................... -- -- 1,570 Proceeds from sales of businesses........................................................ -- 28,004 5,284 Additions to intangible and other assets................................................. (1,150) (3,715) (2,759) Net cash provided by (used in) investing activities................................... (55,860) 12,920 (8,654) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings................................................................. 136,666 330 127,092 Proceeds from (repayments of) sales of trade accounts receivable......................... 32,485 3,515 (36,000) Proceeds from sale leaseback of equipment................................................ 14,566 6,691 3,538 Principal payments on borrowings......................................................... (130,020) (31,706) (112,103) Dividends paid........................................................................... (2,771) (2,086) -- Other.................................................................................... 1,383 8 (171) Net cash provided by (used in) financing activities................................... 52,309 (23,248) (17,644) EFFECT OF EXCHANGE RATE CHANGES ON CASH (38) (66) (10) Net increase (decrease) in cash.......................................................... (774) 696 (803) Cash at beginning of year.................................................................. 1,350 576 1,272 Cash at end of year........................................................................ $ 576 1,272 469
See accompanying notes to consolidated financial statements. 18 LADD FURNITURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, AND DECEMBER 28, 1996
UNAMORTIZED NUMBER ADDITIONAL CURRENCY VALUE OF OF SHARES COMMON PAID-IN TRANSLATION RETAINED RESTRICTED ISSUED STOCK CAPITAL ADJUSTMENT EARNINGS STOCK DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA BALANCE AT JANUARY 1, 1994...................... 7,688,719 $2,306 49,186 (170) 99,568 (787) Shares issued in connection with incentive stock option plan.......................... 782 -- 19 -- -- -- Purchase of restricted stock.................. (6,142) (1 ) (170) -- -- 170 Shares issued in connection with and amortization of employee restricted stock awards..................................... 16,792 5 481 -- -- (200) Currency translation adjustment............... -- -- -- (38) -- -- Net earnings.................................. -- -- -- -- 4,308 -- Dividends paid................................ -- -- -- -- (2,771) -- BALANCE AT DECEMBER 31, 1994.................... 7,700,151 2,310 49,516 (208) 101,105 (817) Purchase of restricted stock.................. (2,452) (1 ) (68) -- -- 68 Shares issued in connection with and amortization of employee restricted stock awards..................................... 29,294 9 457 -- -- (106) Currency translation adjustment............... -- -- -- (66) -- -- Reclassification to businesses held for sale.. -- -- -- 274 -- -- Net loss...................................... -- -- -- -- (25,190) -- Dividends paid................................ -- -- -- -- (2,086) -- BALANCE AT DECEMBER 30, 1995.................... 7,726,993 2,318 49,905 -- 73,829 (855) Purchase of restricted stock.................. (7,426) (2 ) (169) -- -- 169 Amortization of employee restricted stock awards..................................... -- -- -- -- -- 351 Net loss...................................... -- -- -- -- (2,470) -- BALANCE AT DECEMBER 28, 1996.................... 7,719,567 $2,316 49,736 -- 71,359 (335) TOTAL SHAREHOLDERS' EQUITY BALANCE AT JANUARY 1, 1994...................... 150,103 Shares issued in connection with incentive stock option plan.......................... 19 Purchase of restricted stock.................. (1) Shares issued in connection with and amortization of employee restricted stock awards..................................... 286 Currency translation adjustment............... (38) Net earnings.................................. 4,308 Dividends paid................................ (2,771) BALANCE AT DECEMBER 31, 1994.................... 151,906 Purchase of restricted stock.................. (1) Shares issued in connection with and amortization of employee restricted stock awards..................................... 360 Currency translation adjustment............... (66) Reclassification to businesses held for sale.. 274 Net loss...................................... (25,190) Dividends paid................................ (2,086) BALANCE AT DECEMBER 30, 1995.................... 125,197 Purchase of restricted stock.................. (2) Amortization of employee restricted stock awards..................................... 351 Net loss...................................... (2,470) BALANCE AT DECEMBER 28, 1996.................... 123,076
See accompanying notes to consolidated financial statements. 19 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The Company is one of the largest residential furniture manufacturers in the United States with 20 manufacturing facilities in eight states. Following a restructuring of its businesses in 1995, the Company's products consist principally of casegoods and upholstery furniture in a wide range of styles for bedrooms, family rooms, dining rooms and living rooms in the low-medium to high-medium price ranges for the residential and contract (principally hotel/motel) markets. Residential casegoods, residential upholstery and contract products comprised approximately 56%, 25% and 16%, respectively, of the Company's 1996 net sales. The Company currently sells to more than 8,000 customers, including retail furniture chains, national general retailers, department stores, independent furniture retailers, major hotel chains and others located throughout the United States and overseas. 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 1994 ended December 31, 1994; fiscal year 1995 ended December 30, 1995; and fiscal year 1996 ended December 28, 1996. REVENUE RECOGNITION 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 customers described above. 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. INVENTORIES Approximately 71% in 1995 and 74% in 1996 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 1995 and 1996 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. The Company accounts for any impairment of property, plant and equipment under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. INCOME TAXES 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, liabilities, and loss and tax credit carryforwards at income tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. 20 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED 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 acquired 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. The assessment of the recoverability of the excess of cost over the assigned value of net assets acquired will be impacted if estimated future operating cash flows are not achieved. PENSION AND OTHER POSTRETIREMENT PLANS The Company and several of its subsidiaries are participants in a defined benefit pension plan covering qualified salaried and hourly employees. The benefits are based on years of service or the employee's final average compensation before retirement. The defined benefit plan was amended on December 13, 1996 to provide that no additional benefits would accrue after December 31, 1996. The Company intends to terminate the defined benefit plan upon receiving required regulatory approvals. The Company provided certain health care benefits for certain retired employees through June 1, 1996, when these benefits were curtailed. Prior to curtailment, the Company provided for the cost of its obligation over the period the employees rendered the services necessary to earn the postretirement benefits. Prior to their termination, the cost of the above benefit plans was funded currently. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, trade accounts receivable, prepaid expenses and other current assets, trade accounts payable and accrued expenses and other current liabilities approximates fair value because of the short maturity of these financial instruments. The fair value of the Company's long-term debt is estimated by discounting the future cash flows at rates currently offered to the Company for similar debt instruments of comparable maturities. The fair value of the Company's long-term debt approximates the face value of the debt due to the variable interest rates on the majority of long-term debt at December 28, 1996. STOCK OPTION PLAN Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. TRANSPORTATION OPERATIONS The Company operates trucking fleets for its casegoods and upholstery operations for the delivery of products to customers and inbound raw materials. Beginning in the fourth quarter of 1996, the Company began accounting for the 21 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED revenues and direct operating expenses of the transportation operations as other income (net). Accordingly, revenues and direct operating expenses of $14,288,000 and $12,950,000, respectively, previously accounted for as net sales and cost of sales, were reclassified in 1996. All transportation revenues and direct operating expenses have similarly been reclassified for all prior periods included in the consolidated financial statements. FOREIGN CURRENCY TRANSLATION Assets and liabilities of a foreign subsidiary sold in February 1996 were translated at year-end rates of exchange, and revenues and expenses were translated at the average rates of exchange for the year. Gains and losses resulting from translation were accumulated in a separate component of shareholders' equity until June 1995, at which time the balance was transferred to businesses held for sale. Gains and losses resulting from foreign currency transactions are included in net earnings (loss). USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. NOTE 2: RESTRUCTURING AND DIVESTITURES In June 1995, the Company recorded a $25,696,000 non-cash restructuring charge. The restructuring charge resulted from the Company's decision to divest four operating companies (businesses held for sale), close four Company-owned retail stores and reorganize the remaining companies to improve operating performance. During the fourth quarter of 1995, the Company recorded a $576,000 net decrease in restructuring expense as a result of: (i) finalizing sales of two operating companies; (ii) revising the fair value of the remaining two operating companies; (iii) recording additional charges for executive severance; and (iv) other miscellaneous expenses. The net restructuring charge of $25,120,000 for the year ended December 30, 1995 consisted of: (a) $17,379,000 to write-down businesses sold or held for sale to their estimated fair value, net of disposition expenses; (b) $3,699,000 to increase reserves for costs associated with closing four retail stores; (c) $2,614,000 to provide for severance expense and other costs; and (d) $1,428,000 to write-down selected machinery to estimated fair value because of changes in manufacturing processes. In December 1995, the Company sold two of the businesses held for sale for cash proceeds aggregating $28,004,000, a 12% interest in the purchaser of one of the businesses valued at $2,200,000, and a $1,000,000 subordinated note. In 1996, the Company recorded aggregate non-cash restructuring charges of $3,431,000 which consisted of: (i) $4,200,000 charge in the first quarter due to the necessity to liquidate versus sell one of the remaining businesses and a shortfall in anticipated proceeds on the other business; (ii) $945,000 in the first quarter 1996 for severance related to continuing restructuring of the Company ($130,000 related to restricted stock awards was credited to shareholders' equity); and (iii) $1,714,000 aggregate credits recorded in the second, third and fourth quarters as a result of proceeds from the liquidation of idle assets held for sale exceeding earlier estimates. In February 1996, the Company sold one of its businesses for cash and a subordinated note totalling approximately $10,000,000 and the purchaser's assumption of approximately $1,900,000 of Industrial Revenue Bonds. The amount of the subordinated note totalled $1,082,000. Effective June 1996, the Company closed its last business held for sale and subsequently liquidated for cash substantially all the inventory, machinery and equipment. In December 1996, the Company sold the manufacturing plant of the business for cash and a note receivable. 22 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2: RESTRUCTURING AND DIVESTITURES -- CONTINUED The costs charged against restructuring reserves associated with the items in the footnote above include the following:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Restructuring reserve, beginning balance......................................................... $ -- 3,964 Additions........................................................................................ 6,313 815 Reclassification from businesses held for sale................................................... -- 2,390 Write-off of excess of cost over the assigned value of net assets acquired....................... (1,037) -- Payments: Lease termination costs........................................................................ (406) (758) Severance...................................................................................... (184) (2,528) Other.......................................................................................... (722) (1,542) Adjustments...................................................................................... -- (666) Restructuring reserve, ending balance............................................................ $ 3,964 1,675
The following unaudited pro forma information shows consolidated operating results for the periods presented as though the Company had divested the four operating companies and closed the four company-owned retail stores as of January 1, 1994, excluding the restructuring expense recorded during 1995 and 1996:
1994 1995 1996 IN THOUSANDS (UNAUDITED) Net sales.............................................................................. $460,579 483,449 481,911 Earnings (loss) before interest and income taxes....................................... 11,486 (3,973) 14,476
NOTE 3: ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM During fiscal year 1994 through March 28, 1996, the Company participated in a revolving accounts receivable facility which provided for the sale of a defined pool of trade accounts receivable through a wholly-owned subsidiary to a third-party purchaser. The Company and the third-party purchaser terminated the facility on March 28, 1996 in anticipation of the Company's refinancing of its then existing bank credit facility. The total cost of the program, which aggregated $1,458,000, $2,585,000 and $454,000 in 1994, 1995 and 1996, respectively, is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. At December 30, 1995, the defined pool of trade accounts receivable totalled approximately $46,430,000 and the purchaser's investment totalled $36,000,000, and the Company retained an ownership interest of approximately $10,430,000, of which approximately $9,065,000 was subordinate to that of the purchaser. The purchaser's average investment for 1994, 1995 and 1996, through termination of the facility, was approximately $28,969,000, $35,011,000 and $27,675,000, respectively. The purchaser's investment is reflected as a reduction of trade accounts receivables in the December 30, 1995 consolidated balance sheet. 23 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4: INVENTORIES A summary of inventories follows:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Inventories on the FIFO cost method: Finished goods..................................................................... $ 50,847 45,459 Work in process.................................................................... 17,165 14,093 Raw materials and supplies......................................................... 33,140 35,613 Total inventories on FIFO cost method........................................... 101,152 95,165 Less adjustments of certain inventories to the LIFO cost method...................... (11,686) (10,681) $ 89,466 84,484
NOTE 5: PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment follows:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Land and improvements................................................................ $ 4,356 4,888 Buildings and improvements........................................................... 70,780 73,690 Machinery and equipment.............................................................. 69,389 72,923 Construction in progress............................................................. 5,173 1,793 149,698 153,294 Less accumulated depreciation........................................................ (67,112) (78,565) $ 82,586 74,729
NOTE 6: INTANGIBLE AND OTHER ASSETS A summary of intangible and other assets follows:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Excess of cost over the assigned value of net assets acquired........................ $ 54,879 54,879 Trade names.......................................................................... 21,700 21,700 Furniture designs and patents........................................................ 8,815 8,815 Other................................................................................ 7,460 12,385 92,854 97,779 Less accumulated amortization........................................................ (13,195) (16,364) $ 79,659 81,415
24 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 7: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES A summary of accrued expenses and other current liabilities follows:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Payrolls, commissions and employee benefits.......................................... $ 16,775 14,281 Other................................................................................ 14,621 15,803 $ 31,396 30,084
NOTE 8: LONG-TERM DEBT AND SHORT-TERM BANK BORROWINGS Long-term debt consists of the following:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Term loan, due at various dates...................................................... $ -- 63,375 Revolving credit loan, due July 12, 1999............................................. -- 60,336 Term loan, repaid in 1996............................................................ 48,100 -- Revolving credit loan, repaid in 1996................................................ 59,000 -- Other indebtedness, primarily fixed-rate industrial revenue bonds, due through 2009............................................................................... 5,807 7,241 Total long-term debt............................................................... 112,907 130,952 Less current installments of long-term debt.......................................... 309 5,093 Long-term debt, excluding current installments..................................... $112,598 125,859
On July 12, 1996, the Company entered into a $190,000,000 long-term secured credit facility (the "Facility") which consisted of a $125,000,000 three-year revolving credit loan and a $65,000,000 term loan. The term loan portion of the Facility will be repaid in forty quarterly installments of $1,625,000 commencing January 1, 1997 of which the first installment was paid in December 1996. On January 1, 1997, the Company reduced the revolving credit loan to $110,000,000. Borrowings under the revolving credit loan and the term loan bear interest at rates selected periodically by the Company of LIBOR plus 2.75% and 3.00%, respectively, or prime plus 1.75% and 2.00%, respectively. At December 28, 1996, LIBOR was 5.6172% and the prime rate was 8.25%. Under the Facility, the Company pays a commitment fee of 1/2% per annum on the unused portion of the revolving credit facility. In connection with the refinancing, the Company incurred fees and expenses aggregating approximately $4,000,000 which will be amortized over the terms of the Facility. The interest rate margin over LIBOR and prime and the commitment fee can be reduced upon the Company meeting a financial ratio related to operating cash flow and debt levels. The Facility is secured by substantially all the existing and hereafter acquired assets of the Company. Availability on the revolving credit loan is determined by levels of eligible inventory and eligible trade accounts receivable of the Company. The Facility contains customary covenants for asset based loans which restrict future borrowings, dividends and capital spending; require maintenance of a minimum net worth; and include financial covenant ratios related to cash flow, earnings and debt. At December 28, 1996, the Company's availability for future borrowings under its revolving credit loan was approximately $31,000,000. At December 28, 1996, the Company was in compliance with all covenants under the Facility. In connection with amending in 1995 and refinancing in 1996 the Company's long and short-term bank loans, approximately $525,000 in 1995 and $890,000 in 1996 of unamortized financing fees were charged to operations. At December 30, 1995, borrowings under the previous bank term loan and bank revolving credit loan bore interest at LIBOR (5.625%) plus 2 1/8%, or prime (8.50%) plus 1 1/8%. 25 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 8: LONG-TERM DEBT AND SHORT-TERM BANK BORROWINGS -- CONTINUED Short-term bank borrowings totalled $3,037,000 at December 30, 1995. The average short-term borrowing rate in 1995 and 1996 was 6.70% and 7.62%, respectively. The facility was repaid in July 1996 in connection with refinancing the Company's then existing bank credit facility. The aggregate annual maturities of long-term debt during each of the five fiscal years subsequent to December 28, 1996 are approximately as follows: $5,093,000 in 1997; $6,826,000 in 1998; $66,926,000 in 1999; $6,590,000 in 2000; $11,267,000 in 2001; and $34,250,000 thereafter. Interest paid by the Company in 1994, 1995 and 1996 amounted to approximately $8,014,000, $12,218,000 and $12,241,000, respectively. NOTE 9: EMPLOYEE STOCK PLANS STOCK OPTION PLAN Under an incentive stock option plan, the Company grants nontransferable stock options to officers, key management employees and non-employee directors. Options are generally granted at fair market value on the dates of the grant. All optionees were employees or directors of the Company on the date of grant and throughout the term of the option except in the case of death, retirement, or disability. The Company applies APB Opinion No. 25, and related interpretations in accounting for the plan. Accordingly, no compensation expense has been recognized for its stock-based compensation plans other than for the restricted stock awards discussed below. Had compensation cost for the Company's stock option plan been determined based upon the fair value at the grant date for awards under this plan consistent with the methodology prescribed under SFAS No. 123, the Company's net losses and loss per share would have increased by approximately $38,300 or $0.00 per share, for 1995 and $378,000, or $0.05 per share, for 1996. The weighted average fair value of the options granted during 1995 is estimated as $6.32 and during 1996 is estimated as $4.90 on the date of grant using the Black-Scholes option-pricing model with the following assumptions: no dividend yield, volatility of 30.5%, risk-free interest rate of 5.5%, assumed forfeiture rate of 17.8%, and an expected life of 6 years. A total of 1,188,889 shares were reserved for option under the previous and current plans. At December 28, 1996, approximately 247,000 shares are available for future option. 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 generally 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 1994, 1995 and 1996 follows:
WEIGHTED NUMBER OF AVERAGE SHARES EXERCISE PRICE Outstanding at January 1, 1994......................................................... 197,461 $ 33.70 Granted in 1994........................................................................ 188,645 $ 19.46 Exercised in 1994...................................................................... (782) $ 24.00 Cancelled in 1994...................................................................... (46,670) $ 34.63 Outstanding at December 31, 1994....................................................... 338,654 $ 25.58 Granted in 1995........................................................................ 40,882 $ 15.49 Cancelled in 1995...................................................................... (127,358) $ 29.07 Outstanding at December 30, 1995....................................................... 252,178 $ 21.90 Granted in 1996........................................................................ 442,510 $ 11.86 Cancelled in 1996...................................................................... (98,533) $ 21.76 Outstanding at December 28, 1996....................................................... 596,155 $ 14.63 Exercisable at December 28, 1996....................................................... 92,943 $ 23.71
The Company had 111,251 and 98,871 shares exercisable at December 31, 1994 and December 30, 1995, respectively, with a weighted average exercise price totalling $32.46 and $26.31, respectively. 26 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9: EMPLOYEE STOCK PLANS -- CONTINUED The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE NUMBER WEIGHTED-AVG. NUMBER OUTSTANDING REMAINING WEIGHTED-AVG. EXERCISABLE WEIGHTED-AVG. RANGE OF AT DEC. 28, CONTRACTUAL EXERCISE AT DEC. 28, EXERCISE EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE $ 10.75-$15.75 455,876 9.2 years $ 12.04 5,847 $ 15.13 $ 17.25-$24.75 95,611 7.3 $ 18.40 55,000 $ 19.11 $ 26.25-$40.50 44,668 6.0 $ 33.03 32,096 $ 33.15 596,155 8.7 $ 14.63 92,943 $ 23.71
RESTRICTED STOCK AWARDS The Board of Directors periodically awards restricted Common Stock to key management employees. 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. During 1994 and 1995, the Board of Directors awarded and issued 16,792 and 29,294 shares, respectively. No shares were awarded during 1996. NOTE 10: EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PENSION PLAN The Company and several of its subsidiaries had noncontributory defined benefit pension plans covering qualified salaried and hourly employees which were merged into a common plan on December 31, 1996. The merged plan provides pension benefits to qualified employees based on the participant's final average salary before retirement or based on years of service. The Company's policy has been to fund normal costs and amortization of prior service costs. The defined benefit plan was amended on December 13, 1996 to provide that no additional benefits would accrue after December 31, 1996. The Company intends to terminate the defined benefit plan upon receiving required regulatory approvals. In addition to the qualified defined benefit plan, the Company has a nonqualified retirement plan covering certain salaried employees. At December 30, 1995 and December 28, 1996, the Company had approximately $538,000 and $675,000, 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 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. 27 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 10: EMPLOYEE BENEFIT PLANS -- CONTINUED The following sets forth the funded status of the plans:
DECEMBER 30, 1995 DECEMBER 28, 1996 ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EQUAL BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS IN THOUSANDS Actuarial present value of benefit obligations: Vested benefit obligation........................................... $ (21,463) (18,623) (49,280) (1,562) Accumulated benefit obligation...................................... $ (21,797) (19,037) (49,280) (1,794) Projected benefit obligation for service rendered to date............. $ (27,958) (20,901) (49,280) (2,393) Less plan assets at fair value, primarily equity and fixed income investment funds in 1995 and money market equivalents in 1996....... 25,921 17,384 49,280 -- Projected benefit obligation in excess of plan assets................. (2,037) (3,517) -- (2,393) Unrecognized net obligation (asset) at transition being amortized over 15 years............................................................ 73 (568) -- -- Unrecognized net (gain) loss.......................................... (1,214) 2,315 -- (25) Unrecognized prior service cost....................................... 1,396 644 -- 593 Adjustment required to recognize minimum liability.................... -- (527) -- -- Pension liability recognized in the consolidated balance sheets....... $ (1,782) (1,653) -- (1,825)
The accumulated benefit obligation at December 28, 1996 reflects the expected increase in benefits under the defined benefit plan to fully utilize all plan assets. Net pension expense for the plans for 1994, 1995 and 1996 included the following components:
1994 1995 1996 IN THOUSANDS Service costs -- benefits earned during the period............................................... $ 2,374 2,047 2,119 Interest cost on projected obligation............................................................ 3,101 3,186 3,440 Return on assets................................................................................. (121) (9,036) (6,133) Amortization of unrecognized net obligation (asset) at transition and net deferrals.............. (2,522) 6,038 3,032 Curtailment gain................................................................................. -- -- (738) Net pension expense.............................................................................. $ 2,832 2,235 1,720
The Company also recorded in 1995 a net curtailment gain resulting from the Brown Jordan and Lea Lumber & Plywood divestitures totalling approximately $692,000, and in 1996 a net curtailment gain resulting from the closing of Daystrom Furniture totalling approximately $279,000. These curtailment gains were included in determining restructuring expense in the 1995 and 1996 consolidated statements of operations. The projected benefit obligation at December 30, 1995 and December 28, 1996 was determined using an assumed discount rate of 7.25% and 7.50%, respectively. The plan assumes a long-term rate of salary increases of 4.50% to age 60, and 3.00% thereafter. The assumed long-term rate of return on plan assets was 8.50% for 1994, 1995 and 1996. DEFINED CONTRIBUTION PLANS The Company has savings plans for 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 $635,000 in 1994, $549,000 in 1995 and $485,000 in 1996. Effective January 1, 1997, the Company amended its defined contribution 28 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 10: EMPLOYEE BENEFIT PLANS -- CONTINUED plans. The effect of the plan amendment is to increase base Company matching contributions by approximately $900,000 annually. Further, such contributions will be in the form of the Company's Common Stock. NOTE 11: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Prior to 1996, the Company had plans which provided postretirement health care benefits for certain employees. These benefits included major medical insurance with deductible and coinsurance provisions. The Company paid all benefits on a current basis and the plans were not funded. On May 10, 1996, the Company curtailed the postretirement features of its health care benefit program, effective July 1, 1996. As a result of this curtailment, the Company had an aggregate credit of approximately $4,200,000 recognized in 1996's operating income ($3,700,000 in cost of sales and $500,000 in selling, general and administrative expenses). The components of the net postretirement benefit cost (credit) for 1994, 1995 and 1996 are as follows:
1994 1995 1996 IN THOUSANDS Service costs...................................................................................... $ 286 232 77 Interest costs of benefit obligation............................................................... 1,132 1,252 417 Amortization of transition obligation.............................................................. 759 759 253 Curtailment gain................................................................................... -- -- (4,947) $2,177 2,243 (4,200)
The plan's funded status as of December 31, 1995 was as follows:
IN THOUSANDS Accumulated postretirement benefit obligation: Retirees...................................................................................................... $(10,329) Active participants eligible to retire........................................................................ (4,191) Other active participants..................................................................................... (2,480) (17,000) Unrecognized net loss........................................................................................... 338 Unrecognized transition obligation being amortized over 20 years................................................ 12,906 Accrued postretirement benefit cost............................................................................. $ (3,756)
The postretirement benefit obligation was determined by application of the terms of the various plans using relevant actuarial assumptions. Health care costs were projected to increase at annual rates ranging from 8.00% in 1995 down to 5.50% in 1997 and thereafter. The assumed discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1994 and December 30, 1995 was 8.50% and 7.25%, respectively. 29 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12: INCOME TAXES Components of income tax expense (benefit) for 1994, 1995 and 1996 are as follows:
1994 1995 1996 IN THOUSANDS Current: Federal......................................................................................... $ 1,769 (4,650) (4,054) State........................................................................................... 144 (167) 149 1,913 (4,817) (3,905) Deferred: Federal......................................................................................... (1,034) (11,521) 1,309 State........................................................................................... (170) (1,898) 564 (1,204) (13,419) 1,873 $ 709 (18,236) (2,032)
The effective income tax rate on earnings (loss) before income taxes for 1994, 1995 and 1996 was 14.1%, 42.0% and 45.1%, respectively. The actual income tax expense (benefit) differs from the "expected" income tax expense (benefit) computed by applying the Federal income tax rate of 34% to earnings (loss) before income taxes for 1994, 1995 and 1996 as follows:
1994 1995 1996 IN THOUSANDS Computed "expected" income tax expense (benefit)................................................ $ 1,706 (14,765) (1,531) Increases (reductions) due to: Restructuring and reorganization charges...................................................... -- (1,664) 1,060 State income taxes, net of Federal income tax benefit......................................... 28 53 99 Amortization of the excess of cost over the assigned value of net assets acquired............. 463 587 451 Expenses subject to percentage limitations.................................................... 130 117 81 Utilization of capital loss carryforwards to offset income tax expense of realized capital gains.............................................................................. (913) (1,655) -- Tax credits, net.............................................................................. (230) (571) (1,316) Foreign trade income exemptions............................................................... (154) (193) (375) Restricted stock compensation................................................................. -- -- (204) Other......................................................................................... (321) (145) (297) Actual income tax expense (benefit)............................................................. $ 709 (18,236) (2,032)
During 1994, the Company paid income taxes (net of refunds received) amounting to approximately $2,030,000. During 1995 and 1996, the Company received refunds (net of taxes paid) of approximately $188,000 and $8,360,000, respectively. 30 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12: INCOME TAXES -- CONTINUED The tax effects of temporary differences and net operating loss carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Deferred tax liabilities: Inventories.................................................................................... $ (7,092) (6,463) Property, plant and equipment.................................................................. (1,882) (3,013) Intangible and other assets.................................................................... (7,201) (6,351) Lease obligations.............................................................................. (8,422) (5,372) Other.......................................................................................... (2,249) (159) Total deferred tax liabilities.............................................................. (26,846) (21,358) Deferred tax assets: Accounts receivable............................................................................ 1,854 1,081 Inventories.................................................................................... 3,145 998 Liabilities and reserves....................................................................... 10,465 6,601 Restructuring and reorganization............................................................... 8,064 337 Tax credit carryforwards....................................................................... -- 604 Net operating loss carryforwards............................................................... 1,885 8,468 Other.......................................................................................... 409 372 Gross deferred tax assets................................................................... 25,822 18,461 Valuation allowances........................................................................... (1,885) (1,885) Total deferred tax assets................................................................... 23,937 16,576 Net deferred tax liability....................................................................... $ (2,909) (4,782)
Deferred taxes are classified in the accompanying consolidated balance sheets as follows:
DECEMBER 30, DECEMBER 28, 1995 1996 IN THOUSANDS Prepaid expenses and other current assets........................................................ $ 2,528 -- Accrued expenses and other current liabilities................................................... -- (2,478) Deferred income taxes............................................................................ (5,437) (2,304) $ (2,909) (4,782)
In January 1994, a valuation allowance was provided for the deferred tax assets related to acquired subsidiary carryforward net operating loss (NOL) deductions from the stock purchase of Pilliod Furniture. The remaining NOL carryforward deductions of approximately $4,761,000 were not utilized in 1995 or 1996 and the NOL deductions can be carried forward up to 12 more years to offset future earnings, subject to normal annual limitations prescribed by tax law. A valuation allowance of $1,885,000 remains in deferred taxes for these unexpired future deductions. Tax benefits recognized subsequent to 1996 relating to the valuation allowance for deferred tax assets at December 28, 1996 will be applied to reduce the excess cost over the assigned value of Pilliod's net assets acquired. 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. 31 LADD FURNITURE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13: LEASES AND CONTINGENCIES 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 December 28, 1996 are:
IN THOUSANDS Fiscal year: 1997.................................................................................... $ 7,983 1998.................................................................................... 8,241 1999.................................................................................... 7,333 2000.................................................................................... 5,467 2001.................................................................................... 2,344 Thereafter.............................................................................. 7,991 Total................................................................................... $ 39,359
In 1994, 1995 and 1996, the Company entered into sale leaseback agreements for certain manufacturing equipment located at several of its manufacturing facilities. These transactions have been recorded as asset sales. The cash proceeds from the sales of approximately $14,566,000, $6,691,000 and $3,538,000, respectively, were used to repay long-term debt. The gains from the sales of approximately $683,000, $323,000 and $150,000, respectively, have been recorded in the accompanying consolidated balance sheets as deferred income and are being amortized into operations over the term of the leases. Under the agreements, the Company will lease the equipment over 69 months. The Company has the option to purchase the equipment at the end of the lease terms. In February 1996, the Company repurchased $4,648,000 of leased equipment utilizing long-term debt in connection with the divestiture of Fournier Furniture. Accordingly, approximately $325,000 of the previously mentioned deferred income was recognized in the 1996 consolidated statement of operations. Rental expense for cancelable and noncancelable operating leases charged to operations was as follows:
IN THOUSANDS Fiscal year: 1994.................................................................................... $ 11,459 1995.................................................................................... 14,870 1996.................................................................................... 12,203
Rental expense includes contingent rentals based upon usage of transportation equipment under cancelable and noncancelable operating leases which totalled approximately $762,000 in 1994, $618,000 in 1995, and $719,000 in 1996. At December 28, 1996, the Company was contingently liable for approximately $2,490,000 of receivables transferred with recourse under financing arrangements with two financial institutions. The Company maintains a $704,000 letter of credit agreement to fund any liabilities which might arise under one of the arrangements. NOTE 14: ACQUISITION On January 31, 1994, the Company acquired The Pilliod Cabinet Company, a manufacturer of promotionally priced casegoods furniture, by purchasing all of the Common Stock of its parent company, Pilliod Holding Company (Pilliod), for $24,259,000 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 the assigned value of net assets acquired was approximately $32,826,000 and is being amortized using the straight-line method over 40 years. The acquisition was accounted for as a purchase and accordingly, the net assets and operations of Pilliod have been included in the Company's consolidated financial statements beginning on the acquisition date. 32 LADD FURNITURE INC. AND SUBSIDIARIES SELECTED QUARTERLY DATA DOLLAR AND SHARE DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS (UNAUDITED)
FISCAL 1995 FISCAL 1996 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER OPERATING STATEMENT DATA Net sales............................. $149,386 145,168 155,313 149,336 135,260 123,483 120,447 118,267 Cost of sales......................... 123,251 130,229 127,449 122,070 116,038 100,220 99,369 96,070 Gross profit........................ 26,135 14,939 27,864 27,266 19,222 23,263 21,078 22,197 Selling, general and administrative expenses............................ 23,816 28,335 23,402 25,792 21,788 19,110 16,852 16,613 Restructuring expense................. -- 25,696 -- (576) 5,149 (279) (892) (547) Operating income (loss)............. 2,319 (39,092) 4,462 2,050 (7,715) 4,432 5,118 6,131 Other (income) deductions: Interest expense.................... 2,803 2,846 2,997 3,152 2,660 3,058 3,182 3,169 Other (net)......................... (519) 2,129 (568) 325 1,284 317 (1,343) 141 Earnings (loss) before income taxes... 35 (44,067) 2,033 (1,427) (11,659) 1,057 3,279 2,821 Income tax expense (benefit).......... 11 (16,744) 142 (1,645) (4,664) (108) 1,477 1,263 Net earnings (loss)................. $ 24 (27,323) 1,891 218 (6,995) 1,165 1,802 1,558 Depreciation.......................... $ 3,659 3,555 2,677 2,780 2,837 2,609 2,691 2,750 Amortization.......................... 895 1,304 755 804 1,607 751 1,005 1,081 Cash dividends paid................... 695 695 348 348 -- -- -- -- Weighted average shares outstanding... 7,705 7,725 7,726 7,727 7,725 7,723 7,721 7,720 PER SHARE DATA Net sales............................. $ 19.39 18.79 20.10 19.33 17.51 15.99 15.60 15.32 Net earnings (loss)................... 0.00 (3.54) 0.24 0.03 (0.91) 0.15 0.23 0.20 Cash dividends........................ 0.09 0.09 0.05 0.05 -- -- -- -- Quarter-end book value................ 19.57 16.00 16.21 16.20 15.33 15.49 15.73 15.94 BALANCE SHEET DATA Net working capital................... $133,260 89,109 84,929 79,528 123,110 116,690 110,347 97,916 Net property, plant and equipment..... 109,014 83,826 82,567 82,586 82,652 82,633 78,543 74,729 Total assets.......................... 389,056 337,075 336,868 312,986 351,829 347,061 331,845 313,595 Total debt............................ 158,784 147,855 143,190 115,944 157,250 153,148 143,370 130,952 Shareholders' equity.................. 151,176 123,578 125,224 125,197 118,426 119,637 121,486 123,076 RATIOS Gross profit margin................... 17.5% 10.3 17.9 18.3 14.2 18.8 17.5 18.8 Operating profit (loss) margin........ 1.6 (26.9) 2.9 1.4 (5.7) 3.6 4.2 5.2 Return (loss) on sales................ 0.0 (18.8) 1.2 0.1 (5.2) 0.9 1.5 1.3 Effective income tax rate............. 31.4 38.0 N/M N/M 40.0 10.2 45.0 44.8 Total debt ratio...................... 51.2 54.5 53.3 48.1 57.0 56.1 54.1 51.6 STOCK DATA High.................................. $ 19.88 16.88 14.13 13.63 14.25 12.00 13.75 15.75 Low................................... 13.88 12.25 12.88 12.88 10.88 9.50 9.75 11.50 Close................................. 14.63 13.00 13.00 13.13 10.88 10.00 13.50 14.63 Trading volume (shares)............... 4,450 2,523 1,423 1,203 2,081 3,012 1,288 1,619
NOTES: Stock price and volume data for calendar quarters. N/M = Not Meaningful. Fourth Quarter 1995 and First Quarter 1996 reflect the sale of Brown Jordan Company and Lea Lumber & Plywood-effective December 29, 1995; the sale of Fournier Furniture-effective February 26, 1996; Third Quarter 1996 reflects the liquidation of Daystrom Furniture beginning June 28, 1996. Fiscal 1995 and First Quarter 1996 reflect the Company's accounts receivable securitization program which was terminated on March 28, 1996. 33 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 1994, 1995 and 1996. 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. With the exception of the information specifically required by Items 10, 11, 12 and 13 of this Part III contained in the Company's proxy statement, the Company's proxy statement is not incorporated by reference nor deemed to be filed as a part of this report, including without limitation the Board Compensation Committee Report on Executive Compensation required by Item 402(k) of Regulation S-K and the Performance Graph required by Item 402(l) of Regulation S-K. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See reference to definitive proxy statement under Part III. See pages 4-5 and 20 in the Company's definitive proxy statement. ITEM 11. EXECUTIVE COMPENSATION See reference to definitive proxy statement under Part III. See pages 5-14 in the Company's definitive proxy statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See reference to definitive proxy statement under Part III. See pages 2-3 in the Company's definitive proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See reference to definitive proxy statement under Part III. See pages 13-14 in the Company's definitive proxy statement. 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE(S) IN THIS FORM 10-K (a) The following documents are filed as part of this report: (1) Financial Statements Consolidated Statements of Operations for the years ended December 31, 1994, December 30, 1995, and December 28, 1996.................................................................................. 16 Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996.......................... 17 Consolidated Statements of Cash Flows for the years ended December 31, 1994, December 30, 1995, and December 28, 1996.................................................................................. 18 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, December 30, 1995, and December 28, 1996........................................................................ 19 Notes to Consolidated Financial Statements......................................................... 20-32 Independent Auditors' Report....................................................................... 15 (2) Index to Financial Statement Schedule: Independent Auditors' Report....................................................................... F-1 II -- Valuation and Qualifying Accounts and Reserves............................................... F-2 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 the named executive officers of the registrant as required by Item 402(a)(2) of Regulation S-K Executive Employment Agreements with each of Fred L. Schuermann, Jr., William S. Creekmuir, Kenneth E. Church, Donald L. Mitchell, and Michael P. Haley LADD Furniture, Inc. Supplemental Retirement Income Plan LADD Furniture, Inc. Long-Term Incentive Plan (1994) LADD Furniture, Inc. Long-Term Incentive Plan (1995) LADD Furniture, Inc. Long-Term Incentive Plan (1996) LADD Furniture, Inc. Long-Term Incentive Plan (1997) LADD Furniture, Inc. 1997 Management Incentive Plan (b) Reports on Form 8-K filed in the last quarter of fiscal 1996: Current Report on Form 8-K dated October 17, 1996, filed with the Commission on November 1, 1996 reporting the Company's results of operations for the third fiscal quarter of 1996. (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 and as Exhibit 10.1 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995, filed with the Commission on August 15, 1995) 3.1 Bylaws (as amended March 5, 1996) (Previously filed as Exhibit 3.1 to Item 14 of the Company's Annual Report on Form 10-K for the year ended December 30, 1995, filed with the Commission on March 28, 1996)
35 10. LADD Furniture, Inc. 1994 Incentive Stock Option Plan (Previously filed as Exhibit 10.1 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1994, filed with the Commission on August 16, 1994) Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated February 25, 1993 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) Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated February 24, 1994 Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated February 24, 1994 (Previously filed as Exhibits 10.3 and 10.4 to the Company's Annual Report on Form 10-K for the year ended January 1, 1994, filed with the Commission on March 31, 1994) Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated March 2, 1995 Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated March 2, 1995 (Previously filed as Exhibits 10.2 and 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, filed with the Commission on March 30, 1995.) Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated February 25, 1993 Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated February 24, 1994. Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated March 2, 1995. Employee Restricted Stock Purchase Agreement between the Company and Michael P. Haley dated June 23, 1994. Employee Restricted Stock Purchase Agreement between the Company and Michael P. Haley dated March 2, 1995. (Previously filed as Exhibits 10.2-10.6 to Item 14 of the Company's Annual Report on Form 10-K for the year ended December 30, 1995, filed with the Commission on March 28, 1996) Executive Employment Agreement between the Company and Fred L. Schuermann, Jr. dated October 28, 1994. (Previously filed as Exhibit 10.2 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994, filed with the Commission on November 15, 1994) Executive Employment Agreement between the Company and William S. Creekmuir dated December 1, 1995. Executive Employment Agreement between the Company and Kenneth E. Church dated May 22, 1995. Executive Employment Agreement between the Company and Donald L. Mitchell dated January 1, 1996. Executive Employment Agreement between the Company and Michael P. Haley dated March 5, 1996. (Previously filed as Exhibits 10.7-10.10 to Item 14 of the Company's Annual Report on Form 10-K for the year ended December 30, 1995, filed with the Commission on March 28, 1996) 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 Commission on June 2, 1989)
36 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) Enclosed as Exhibit 10.1 to this Annual Report on Form 10-K for the year ended December 28, 1996 10.1 LADD Furniture, Inc. Supplemental Retirement Income Plan, as amended and restated effective January 1, 1994, and as further amended effective January 1, 1997 LADD Furniture, Inc. Long-Term Incentive Plan (1994) LADD Furniture, Inc. Long-Term Incentive Plan (1995) LADD Furniture, Inc. Long-Term Incentive Plan (1996) (Previously filed as Exhibits 10.11-10.13 to the Company's Annual Report on Form 10-K for the year ended December 30, 1995, filed with Commission on March 28, 1996) Enclosed as Exhibit 10.2 to this Annual Report on Form 10-K for the year ended December 28, 1996 10.2 LADD Furniture, Inc. Long-Term Incentive Plan (1997) Loan and Security Agreement dated as of July 12, 1996, between the Company, NationsBank, N.A. (South) as Agent, and each of the bank's signatory to the Loan and Security Agreement. (Previously filed as an Exhibit to the Company's Current Report on Form 8-K, dated July 18, 1996, filed with the Commission on July 24, 1996) Amendment No. 1 (dated as of August 15, 1996) to Loan and Security Agreement dated as of July 12, 1996 among the Company, NationsBank, N.A. (South) as Agent and each of the bank's signatory thereto. Amendment No. 2 (dated as of October 10, 1996) to Loan and Security Agreement dated as of July 12, 1996 among the Company, NationsBank, N.A. (South) as Agent, and each of the bank's signatory thereto. Equipment Leasing Agreement dated as of September 19, 1996 between BTM Financial & Leasing Corporation B-4 and the Company (Previously filed as Exhibits 10.1-10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1996, filed with the Commission on November 12, 1996) Enclosed as Exhibit 10.3 to this Annual Report on Form 10-K for the year ended December 28, 1996 10.3 Amendment No. 3 (dated December 23, 1996) to Loan and Security Agreement dated as of July 12, 1996 among the Company, NationsBank, N.A. (South), as Agent and each of the bank's signatory thereto. Equipment Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the Company Equipment Leasing Agreement dated as of December 15, 1994 between UnionBanc Leasing Corporation and the Company (Previously filed as Exhibits 10.1 and 10.2 to Item 7 of the Company's Current Report on Form 8-K, dated December 28, 1994, filed with the Commission on January 15, 1995) Amendment No. 1 dated as of June 7, 1995 to the Equipment Leasing Agreement dated as of December 15, 1994 between Unionbanc Leasing Corporation and the Company. Amendment No. 1 dated as of June 7, 1995 to the Equipment Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the Company. Amendment No. 1 dated as of June 15, 1995 amending Lease Supplement No. One to the Equipment Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the Company.
37 (Previously filed as Exhibits 10.2-10.4 to Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995, filed with the Commission on August 15, 1995) Stock Purchase Agreement dated January 5, 1996 among LADD Furniture, Inc., Fournier Furniture, Inc. and Fournier Acquisition Co. (Previously filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 30, 1995, filed with the Commission on March 28, 1996) First Amendment to Stock Purchase Agreement dated February 26, 1996 among LADD Furniture, Inc., Fournier Furniture, Inc., Fournier Acquisition Co., and Furniture Acquisition Co. (Previously filed as Exhibit 2.1 and 2.2 to the Company's Current Report on Form 8-K dated February 26, 1996, filed with the Commission on March 12, 1996) Stock Purchase Agreement dated November 7, 1995 between LADD Furniture, Inc. and BJCL, Inc. First Amendment to Stock Purchase Agreement dated December 29, 1995 among LADD Furniture, Inc., BJCL, Inc. and BJ Acquisition Corp. Agreement of Sale between BJIP, Inc. and Cherry Grove, Inc. dated December 29, 1995. Asset Purchase Agreement dated November 6, 1995 between LADD Furniture, Inc. and Lea Lumber & Plywood, L.L.C. First Amendment to Asset Purchase Agreement dated December 29, 1995 between LADD Furniture, Inc. and Lea Lumber & Plywood, L.L.C. (Previously filed as Exhibits 2.1-2.5 to the Company's Current Report on Form 8-K dated December 29, 1995 filed with the Commission on January 16, 1996) Enclosed as Exhibit 10.4 to this Annual Report on Form 10-K for the year ended December 28, 1996 10.4 1997 Management Incentive Plan 22. Subsidiaries of Registrant American Drew, Inc., a North Carolina corporation American Furniture Company, Incorporated, a Virginia corporation Barclay Furniture Co., a Mississippi corporation Clayton-Marcus Company, Inc., a North Carolina corporation Kenbridge Furniture, Inc., a North Carolina corporation LFI Capital Management, Inc., a Delaware corporation LADD Contract Sales Corporation, a North Carolina corporation LADD International Sales Corp., a Barbados corporation LADD Transportation, Inc., a North Carolina corporation Lea Industries, Inc., a Tennessee corporation Lea Industries of Virginia, Inc., a Virginia 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 December 28, 1996 24.1 Consent of KPMG Peat Marwick LLP Enclosed as Exhibit 27.1 to this Annual Report on Form 10-K for the year ended December 28, 1996 27.1 Financial Data Schedule (EDGAR version only)
38 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, thereunto duly authorized. LADD FURNITURE, INC. (Registrant) By: /s/ WILLIAM S. CREEKMUIR 3/26/97 WILLIAM S. CREEKMUIR (DATE) EXECUTIVE 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 dates indicated. /S/ DON A. HUNZIKER 3/26/97 /S/ RICHARD R. ALLEN 3/26/97 DON A. HUNZIKER (DATE) RICHARD R. ALLEN (DATE) DIRECTOR CHAIRMAN OF THE BOARD AND DIRECTOR /S/ O. WILLIAM FENN, JR. 3/26/97 /S/ DARYL B. ADAMS 3/26/97 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 3/26/97 /S/ JAMES H. CORRIGAN, JR. 3/26/97 THOMAS F. KELLER (DATE) JAMES H. CORRIGAN, JR. (DATE) DIRECTOR DIRECTOR /S/ WILLIAM B. CASH 3/26/97 /S/ L. GLENN ORR, JR. 3/26/97 WILLIAM B. CASH (DATE) L. GLENN ORR, JR. (DATE) DIRECTOR DIRECTOR /S/ FRED L. SCHUERMANN, JR. 3/26/97 /S/ WILLIAM S. CREEKMUIR 3/26/97 FRED L. SCHUERMANN, JR. (DATE) WILLIAM S. CREEKMUIR (DATE) PRESIDENT, CHIEF EXECUTIVE OFFICER AND EXECUTIVE VICE PRESIDENT, CHIEF DIRECTOR FINANCIAL OFFICER, SECRETARY, AND TREASURER (PRINCIPAL FINANCIAL OFFICER)
39 EX-10 2 EXHIBIT 10.1 EXHIBIT 10.1 SUPPLEMENTAL RETIREMENT INCOME PLAN FOR SALARIED EMPLOYEES OF LADD FURNITURE, INC. The Supplemental Retirement Income Plan for Salaried Employees of LADD Furniture, Inc. (the "Plan") was originally adopted effective January 1, 1990. The Plan is established and maintained by LADD Furniture, Inc. for the purpose of providing benefits for certain of its salaried employees who participate in the Retirement Plan of the Salaried Employees of LADD Furniture, Inc. The Plan has been amended from time to time and is now amended and restated in its entirety. Accordingly, effective January 1, 1994, LADD Furniture, Inc. hereby adopts the Plan pursuant to the terms and provisions set forth below: ARTICLE I DEFINITIONS Wherever used herein the following terms shall have the meanings hereinafter set forth: 1.1 "Average Final Compensation" means a Participant's average total compensation (including incentive pay and base salary) during the three consecutive Years of Service resulting in the highest such average. If a participant has less than three Years of Service, "Average Final Compensation" shall mean the Participant's average total compensation, computed on an annual basis, for all of his completed months of service as an Employee. Notwithstanding the above paragraph, Average Final Compensation for any Participant shall not be less than the average total compensation of the Participant during the two consecutive Years of Service prior to 1994 resulting in the highest such average. 1 1.2 "Change in Control" means the date on which the earlier of the following Events occurs: (A) The acquisition by any entity, person or group of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 30% of the outstanding capital stock of the Company entitled to vote for the election of directors ("Voting Stock"); (B) The merger or consolidation of the Company with one or more corporations as a result of which the holders of the outstanding Voting Stock of the Company immediately prior to such a merger or consolidation hold less than 80% of the Voting Stock of the surviving or resulting corporation; (C) The transfer of substantially all of the property of the Company other than to an entity of which the Company owns at least 80% of the Voting Stock; or (D) The election to the Board of Directors of the Company of three directors without the recommendation or approval of the incumbent Board of Directors of the Company. 1.3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any regulations relating thereto. 1.4 "Committee" means the Compensation Committee of the Board of Directors of the Company. 1.5 "Company" means LADD Furniture, Inc., a North Carolina corporation, or, to the extent provided in Section 8.8 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. 1.6 "Designated Beneficiary" means (a) for a Category One Participant, the Surviving Spouse; and (b) for a Category Two or Three Participant, the individual or entity designated by a Category Two or Category Three Participant to receive a Supplemental 2 Survivor Benefit pursuant to Article IV. If a Category Two or Category Three Participant does not designate a beneficiary in writing, his Designated Beneficiary shall be his surviving spouse, if any, or his estate. 1.7 "Participant" means a salaried employee or former employee of the Company who is entitled to a nonforfeitable benefit from the Qualified Plan and who is eligible to participate in the Plan. 1.8 "Plan" means the Supplemental Retirement Income Plan for salaried Employees of LADD Furniture, Inc. 1.9 "Qualified Plan" means the amended and restated Retirement Plan of the Salaried Employees of LADD Furniture, Inc. established effective January 1, 1985, each predecessor, successor or replacement salaried employees' defined benefit retirement plan, and any other qualified retirement plan designated as a Qualified Plan by the Committee and set forth on Appendix A. 1.10 "Qualified Plan Retirement Benefit" means the aggregate benefit payable to a Participant pursuant to the Qualified Plan and all annuities purchased for the Participant under the Qualified Plan (whether or not terminated) by reason of his termination of employment with the Company and all affiliates for any reason other than death. 1.11 "Qualified Plan Survivor Benefit" means the aggregate benefit payable to the Surviving Spouse of a Participant pursuant to the Qualified Plan and all annuities purchased for the Participant under the Qualified Plan (whether or not terminated) in the event of the death of the Participant at any time prior to commencement of payment of his Qualified Plan Retirement Benefit. 3 1.12 "Supplemental Retirement Benefit" means the benefit payable to a Participant pursuant to the Plan by reason of his termination of employment with the Company and all affiliates for any reason other than death. 1.13 "Supplemental Survivor Benefit" means the benefit payable to a Designated Beneficiary pursuant to the Plan. 1.14 "Surviving Spouse" means a person who is married to a Participant at the date of his death and for at least one year prior thereto. 1.15 Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings used herein are included for ease of reference only, and are not to be construed so as to alter the terms hereof. ARTICLE II ELIGIBILITY There are three categories of Participants in the Plan: (a) Category One: Category One Participants shall include all employees whose actual Qualified Retirement Plan Benefit is less than what it would have been under the Qualified Plan had the Qualified Retirement Plan Benefit been computed using the benefit formula and the salary in place on December 31, 1988, as set forth on Appendix B. (b) Category Two: Category Two Participants shall include certain executives of the Company who have contributed to the success of the Company in an extraordinary way, as designated by the Committee and set forth on Appendix C. 4 (c) Category Three: Category Three Participants shall include new members of the management team, as designated by the Committee and set forth on Appendix D. A Participant shall be eligible to receive the Supplemental Retirement Benefit provided for in Article III. A Participant may receive a benefit under more than one category. The Surviving Spouse of a Participant who dies prior to complete payment of his Qualified Plan Retirement Benefit shall be eligible to receive a Supplemental Survivor Benefit provided for in Article IV. If an Employee who has previously been designated by the Committee as a Category II Participant or a Category III Participant ceases to serve the Company in an executive capacity that would normally result in the Employee being a Participant in the Plan, but the Employee remains employed by the Company, the Committee shall designate the Employee as an "Inactive Participant." The determination of whether a Category II Participant or a Category III Participant should be designated an Inactive Participant shall be made by the Committee in its sole discretion. Any Participant designated by the Committee as an Inactive Participant pursuant to this paragraph shall have his Supplemental Retirement Benefit and Supplemental Survivor Benefit provided for under the Plan computed in accordance with Articles III and IV and, particularly, Section 3.10 and Section 4.3. ARTICLE III SUPPLEMENTAL RETIREMENT BENEFIT 3.1 Category One Benefit Amount. The Supplemental Retirement Benefit payable to an eligible Category One Participant in the form of a straight life annuity over the lifetime of the Participant only, commencing on his Normal Retirement Date, shall be a monthly amount equal to the difference between (a) and (b) below: 5 (a) the monthly amount of the Qualified Plan Retire ment Benefit to which the Participant would have been entitled under the Qualified Plan if such benefit was computed using the benefit formula and salary data in place on December 31, 1988 LESS (b) the monthly amount of the Qualified Plan Retirement Benefit actually payable to the Participant under the Qualified Plan. The amounts described in (a) and (b) shall be computed as of the date of termination of employment of the Participant with the Company and all affiliates in the form of a straight life annuity payable over the lifetime of the Participant only commencing on his Normal Retirement Date. 3.2 Category Two Benefit Amount. The Supplemental Retirement Benefit payable to an eligible Category Two Participant in the form of a 10-year certain and life thereafter annuity commencing on his Normal Retirement Date, shall be a monthly amount equal to the difference between (a) and (b) below: (a) two percent (2%) of Average Final Compensation, multiplied by a Participant's Years of Service [maximum 25 years of service]; LESS (b) the sum of a Participant's: (i) Qualified Plan Retirement Benefit; (ii) Primary Social Security benefit; (iii) Non-Qualified Deferred Compensation Agreement benefit; and (iv) Category One benefit received under this Plan. 6 The accrued benefit at any date of determination for a Category Two Participant shall equal the benefit calculated as if the Participant had reached his Normal Retirement Date on the date of determination, multiplied by the ratio of the Participant's Years of Service at the date of determination to his Years of service at his Normal Retirement Date. Years of Service shall include all years of employment with the Company or with a predecessor employer who is acquired by the Company and shall include a fraction of a year for each month worked. 3.3 Category Three Amount. The Supplemental Retirement Benefit payable to a Category Three Participant shall be determined by the Committee and shall be set forth in an Appendix added to this document by the Committee. 3.4 Form of Benefit. (a) Category One. The Supplemental Retirement Benefit payable to a Category One Participant shall be paid in the same form as the Qualified Plan Retirement Benefit is payable to the Participant. A Category One Participant's election under the Qualified Plan of any optional form of payment of his Qualified Plan Retirement Benefit (with the valid consent of his Surviving Spouse where required under the Qualified Plan) shall also be applicable to the payment of his Supplemental Retirement Benefit. (b) Category Two. The Supplemental Retirement Benefit payable to a Category Two Participant shall be paid in the form of a 10-year certain annuity. A Category Two Participant and the Company may mutually agree to an alternate method of payment prior to when the Participant becomes entitled to receive a Supplemental Retirement Benefit. (c) Category Three. The Supplemental Retirement Benefit pay able to a Category Three Participant shall be paid in the form mutually agreed to by a Participant and the Company on a date prior 7 to when the Participant becomes entitled to receive a Supplemental Retirement Benefit. If a Category Three Participant does not make this election in a timely manner, his Supplemental Retirement Benefit shall be paid in the same form as his Qualified Plan Retirement Benefit. 3.5 Commencement of Benefit. (a) Category One. Payment of the Supplemental Retirement Benefit to a Category One Participant shall commence on the same date as when payment of his Qualified Plan Retirement Benefit commences. Any election under the Qualified Plan made by the Participant with respect to the commencement of payment of his Qualified Plan Retirement Benefit shall also be applicable with respect to the commencement of payment of his Sup plemental Retirement Benefit. (b) Category Two and Category Three. Payment of the Supplemental Retirement Benefit to a Category Two or Category Three Participant shall commence on the date elected by such a Participant; provided, however, that such election must be made prior to the date the Participant becomes entitled to receive a Supplemental Retirement Benefit. If a Category Two or Category Three Partici pant does not make this election in a timely manner, his Supplemental Retirement Benefit shall commence on the same date as payment of his Qualified Plan Retirement Benefit commences. 3.6 Early Retirement. A Category Two or Category Three Participant who terminates employment after attaining age 55 may elect for his benefit under the Plan to begin within a reasonable period of time following his termination of employment, subject to Section 3.8. Any such early retirement benefit shall be the Actuarial Equivalent of the Supplemental Retirement Benefit accrued at the date of termination of employment. 3.7 Disability Retirement. If a Participant suffers disability, he may retire and may elect for his benefit under the Plan 8 to begin within a reasonable period of time following the date of his disability, retirement, subject to Section 3.8. The determination of whether a Participant is disabled shall be made by the Committee in its sole discretion. Any such disability retirement bene fit shall be the Actuarial Equivalent of the Supplemental Retirement Benefit accrued at the date of termination of employment. 3.8 Approval of Company. Notwithstanding the provisions of Sections 3.4, 3.5, 3.6 and 3.7 above, an election made by the Participant under the Qualified Plan with respect to the form of payment of his Qualified Plan Retirement Benefit (with the valid consent of his Surviving Spouse where required under the Qualified Plan), or the date for commencement of payment thereof, shall not be effective with respect to the form of payment or date for commencement of payment of his Supplemental Retirement Benefit hereunder unless such election is expressly approved in writing by the Company. If the Company shall not approve such election in writing, then the form of payment or date for commencement of payment of the Participant's Supplemental Retirement Benefit shall be selected by the Company in its sole discretion. 3.9 Actuarial Equivalent. A Supplemental Retirement Benefit which is payable (a) to a Category One Participant in a form other than a straight life annuity over the lifetime of the Participant, or (b) to a Category Two Participant in any form other than a 10-year certain annuity; or which commences at any time prior to the Participant's Normal Retirement Date, shall be the Actuarial Equivalent of the Supplemental Retirement Benefit set forth in Sections 3.1, 3.2 and 3.3 above as determined by the same actuarial adjustments as those specified in the Qualified Plan with respect to determination of the amount of the Qualified Plan Retirement Benefit on the date for commencement of payment hereunder. 9 3.10 Inactive Participants. If a Category II Participant or a Category III Participant is designated as an Inactive Participant by the Committee pursuant to Article II, such Participant shall cease to accrue additional benefits under the Plan. The Supplemental Retirement Benefit for an Inactive Participant shall be computed based on the Years of Service credited to such Participant as of the date he became an Inactive Participant. An Inactive Participant shall continue to be subject to all of the remaining provisions of the Plan, including, without limitation, the vesting provisions of Article V. ARTICLE IV SUPPLEMENTAL SURVIVOR BENEFIT 4.1 Amount. If a Participant dies prior to commencement of payment of his Qualified Plan Retirement Benefit under circum stances in which a Qualified Plan Survivor Benefit is payable to his beneficiary, then a Supplemental Survivor Benefit is payable to his Designated Beneficiary as hereinafter provided. The monthly amount of the Supplemental Survivor Benefit payable to a Designated Beneficiary shall be as follows: (a) Category One Benefit: 50% of the Supplemental Retirement Benefit accrued at the date of death shall be payable to the Surviving Spouse as a Supplemental Survivor Benefit for the life of the Surviving Spouse, reduced by the actuarial reduction factor used in determining the Qualified Joint and Survivor Annuity under the Qualified Plan. (b) Category Two Benefit: (i) Preretirement Survivor Benefit. If a Category Two Participant dies prior to the com mence ment of Supplemental Retirement Benefit pay ments, his Designated Beneficiary shall be entitled to receive a Supplemental Survivor Benefit equal to 100% of the Supplemental Retirement Benefit accrued at the date of death. 10 (ii) Post-retirement Survivor Benefit. If a Category Two Participant dies after the commence- ment of Supplemental Retirement Benefit payments, his Designated Beneficiary shall be entitled to receive a Supplemental Survivor Benefit equal to 100% of the Supplemental Retirement Benefit accrued at retirement less the amount of the Supplemental Retirement Benefit already paid to the Category Two Participant. (c) Category Three Benefit: Determined on an indi- vidual basis by the Committee. 4.2 Form and Commencement of Benefit. (a) Category One. The Supplemental Survivor Benefit shall normally be payable over the lifetime of the Surviving Spouse in monthly installments commencing on the date for commencement of payment of the Qualified Plan Survivor Benefit to the Surviving Spouse and terminating on the date of the last payment of the Qualified Plan Survivor Benefit made before the Surviving Spouse's death. (b) Category Two and Category Three. The Supplemental Survivor Benefit shall be paid in the form of a 10-year certain annuity; provided, however, a Designated Beneficiary may request payment in a different form and the Committee shall have complete discretion to grant such request, as long as the amount of payment does not exceed the Actuarial Equivalent of the benefit owed the Surviving Spouse. 4.3 Inactive Participants. The Supplemental Survivor Benefit for a Participant who has been designated an Inactive Participant by the Committee pursuant to Article II shall be computed based on the Years of Service credited to such Participant as of the date he became an Inactive Participant. An Inactive Participant shall continue to be subject to all of the remaining provisions of the Plan, including, without limitation, the vesting provisions of Article V. 11 ARTICLE V VESTING 5.1 Category One. A Category One Participant shall become vested in his Supplemental Retirement Benefit upon completion of 10 Years of Service. 5.2 Category Two. A Category Two Participant shall become vested in his Supplemental Retirement Benefit upon completion of 10 Years of Service and attainment of age 55. 5.3 Category Three. A Category Three Participant shall become vested in his Supplemental Retirement Benefit in accordance with the vesting schedule established by the Committee at the time the individual becomes a Participant in the Plan. 5.4 Vesting Upon Change in Control. Notwithstanding the other provisions of this Article V, all Participants shall become 100% vested upon a Change in Control. ARTICLE VI ADMINISTRATION OF THE PLAN 6.1 Administration by the Company. The Company shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. 6.2 General Powers of Administration. All provisions set forth in the Qualified Plan with respect to the administrative powers and duties of the Company, expenses of administration, and procedures for filing claims shall also be applicable with respect to the Plan. The Company shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan. 12 ARTICLE VII AMENDMENT OR TERMINATION 7.1 Amendment or Termination. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution. 7.2 Effect of Amendment or Termination. No amendment or termination of the Plan shall directly or indirectly deprive any current or former Participant or Surviving Spouse of all or any portion of any Supplemental Retirement Benefit or Supplemental Survivor Benefit payment of which has commenced prior to the effective date of such amendment or termination or which would be payable if the Participant terminated employment for any reason, including death, on such effective date. 7.3 Effect of Change in Control. If a Change in Control occurs and the Plan is not expressly continued by formal action of the Board of Directors of the transferee, successor or purchaser, all benefits accrued under the Plan shall become immediately due and payable. ARTICLE VIII GENERAL PROVISIONS 8.1 Funding. The Plan at all times shall be entirely unfunded as such term is defined for purposes of the Employee Retirement Income Security Act ("ERISA"). The Committee may, however, in its sole discretion at any time make provision for segregating assets of the Company for payment of any benefits her under and establishing a trust to hold such assets. No Participant, Surviving Spouse or any other person shall have any interest in any 13 particular assets of the Company by reason of the right to receive a benefit under the Plan and any such Participant, Surviving Spouse or other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. 8.2 General Conditions. Except as otherwise expressly provided herein, all terms and conditions of the Qualified Plan applicable to a Qualified Plan Retirement Benefit or a Qualified Plan Survivor Benefit shall also be applicable to a Supplemental Retire ment Benefit or a Supplemental Survivor Benefit payable hereunder. Any Qualified Plan Retirement Benefit or Qualified Plan Survivor Benefit, or any other benefit payable under the Qualified Plan, shall be paid solely in accordance with the terms and conditions of the Qualified Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Qualified Plan. 8.3 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Company or any other entity or person that the assets of the Company will be sufficient to pay any benefit hereunder. 8.4 No Enlargement of Employee Rights. No Participant or Surviving Spouse shall have any right to a benefit under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of the Company. 8.5 Spendthrift Provision. No interest of any person or entity in, or right to receive a benefit under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or 14 entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 8.6 Arbitration of Disputes. Any controversy or claim arising out of, or in any way relating to this Plan shall be settled by arbitration in the city of High Point, North Carolina, in accordance with the rules then in force of the American Arbitration Association. 8.7 Small Benefits. If the actuarial value of any Supplemental Retirement Benefit or Supplemental Survivor Benefit is less than $3,500, the Company may pay the actuarial value of such Benefit to the Participant or Surviving Spouse in a single lump sum in lieu of any further benefit payments hereunder. 8.8 Incapacity of Recipient. If any person entitled to a benefit payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor. 8.9 Corporate Successors. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the 15 transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Sections 7.2 and 7.3. 8.10 Unclaimed Benefit. Each Participant shall keep the Company informed of his current address and the current address of his spouse. The Company shall not be obligated to search for the where abouts of any person. If the location of a Participant is not made known to the Company within three (3) years after the date on which payment of the Participant's Supplemental Retirement Benefit may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Company is unable to locate any Surviving Spouse of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or Surviving Spouse or any other person and such benefit shall be irrevocable forfeited. 8.11 Discharge of Obligations. Any payment made under this Plan in good faith by the Company shall completely discharge the Company of any liability to any other individual who asserts a claim to such payment. 8.12 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, neither the Company nor any individual acting as an employee or agent of the Company shall be liable to any Participant, former Participant, Surviving Spouse or any other person for any claim, loss, liability or expense incurred in connection with the Plan. 8.13 Applicable Law. The Plan shall be construed and administered under the laws of the State of North Carolina. 16 IN WITNESS WHEREOF, this Plan has been executed this the _____ day of __________________, 19___. LADD FURNITURE, INC. By:_________________________________ Chairman of the Board and Chief Executive Officer ATTEST: - ---------------------------- Secretary [CORPORATE SEAL] 17 APPENDIX A LIST OF QUALIFIED PLANS 1. Retirement Plan for Salaried Employees of LADD Furniture, Inc. 2. Retirement Plan for Salaried Employees of Sperry & Hutchinson Furniture, Inc. 3. Retirement Plan for Employees of Pennsylvania House, Inc. 4. Retirement Plan for Salaried Employees of Brown Jordan Company Effective Date: June 23, 1994 18 EX-10 3 EXHIBIT 10.2 EXHIBIT 10.2 PROPOSED LADD FURNITURE, INC. 1997 LONG-TERM INCENTIVE PROGRAM PLAN HIGHLIGHTS 1. The Long-Term Incentive Program consists of an annual award of the following two elements: - Stock Option Grants - Performance Bonus payable in cash and stock at the end of a 3- year planning period (1997-1999). 2. Award levels are based on a percentage of the participant's base salary in effect when the award is granted as follows: a) LADD President (CEO) and Executive Vice Presidents % of Salary Stock Options 40.0% Performance Bonus 25.0% Total 65.0% b) Operating Company Presidents, VP Human Resources, VP Market Development % of Salary Stock Options 25.0% Performance Bonus 25.0% Total 50.0% 3. Valuation of Performance Bonus at the end of the 3-year planning period will be based on the following performance criteria achieved by LADD Furniture, Inc. 1 AGGREGATE EPS FOR 1997, 1998 AND 1999 Minimum Incentive $ 3.50 Target Incentive $ 4.00 Maximum Incentive $ 4.50 4. The Performance Bonus will be valued at the end of the performance period using a graduated scale ranging between 12.5% and 37.5% of base salary. Minimum performance levels are required to receive any payment. - Minimum Incentive - 12.5% of Base Salary - Target Incentive - 25.0% of Base Salary - Maximum incentive - 37.5% of Base Salary Payments for Performance Bonus earned will be made by June 1, 2000. Payments will be made 50% in cash and 50% in shares of LADD stock. 5. Stock Options will be granted at market price on the day of the grant, and, as long as the participant remains an employee of LADD, will be vested as follows: After 1 Year 25% After 2 Years 50% After 3 Years 75% After 4 Years 100% 6. The participant must be an employee at the end of the planning period to receive any payment for the Performance Bonus. If the participant changes LADD business units during the planning period, a pro-rata share of the earned Performance Bonus will be granted for the period the individual participated in the Long-Term Incentive Program in the respective business units. 7. Participants who enter the plan other than at the beginning of the planning period will receive stock options and performance bonus as recommended by management and approved by the Compensation Committee and the Board of Directors. 8. When a plan participant retires (minimum age 55), dies or becomes disabled during a three-year plan period, the Compensation Committee and the Board of Directors 2 will determine the amount and terms of payment of performance bonus earned. 9. The company has the sole right to exclude from the operating profits of each organizational unit items such as, but not limited to, extraordinary income from the sale of assets, litigation recoveries, income or expenses attributable to changes in accounting methods, bad debt charges and inventory valuations and similar items. Such determinations will be made without recourse by an Incentive Plan participant as to the effect, if any, on the incentive payment amount. 10. The earned performance bonus paid in stock will be restricted from sale for a period of 2 years from issue date. March 5, 1997 3 EX-10 4 EXHIBIT 10.3 EXHIBIT 10.3 [EXECUTION COPY] AMENDMENT NO. 3 AND CONSENT to LOAN AND SECURITY AGREEMENT dated as of July 12, 1996 THIS AMENDMENT NO. 3 AND CONSENT dated as of December 23, 1996 is made by LADD FURNITURE, INC., a North Carolina corporation, AMERICAN FURNITURE COMPANY, INCORPORATED, a Virginia corporation, BARCLAY FURNITURE CO., a Mississippi corporation, CLAYTON-MARCUS COMPANY, INC., a North Carolina corporation, LADD CONTRACT SALES CORPORATION, a North Carolina corporation, LADD INTERNATIONAL SALES CORP., a Barbados corporation, LADD TRANSPORTATION, INC., a North Carolina corporation, LEA INDUSTRIES, INC., a North Carolina corporation, PENNSYLVANIA HOUSE, INC., a North Carolina corporation, PILLIOD FURNITURE, INC., a North Carolina corporation, NATIONSBANK, N.A. (SOUTH), a national banking association ("NationsBank"), FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Fleet" and together with NationsBank, the "Co-Agents"), the financial institutions parties to the Loan Agreement (as hereinafter defined) from time to time (the "Lenders"), and NATIONSBANK as administrative agent for the Lenders (the "Administrative Agent"). Preliminary Statements The Borrowers, the Lenders, the Co-Agents and the Administrative Agent are parties to a Loan and Security Agreement dated as of July 12, 1996, as amended by Amendment No. 1 dated as of August 15, 1996 and Amendment No. 2 dated as of October 10, 1996 (said Agreement, as so amended, the "Loan Agreement"; terms defined therein and not otherwise defined herein being used herein as therein defined). LADD has informed the Lenders and the Administrative Agent of its intention to take or cause the following actions to be taken: 1. American will transfer all of the shares of Lea (NC) to LADD in a spinoff; 2. Lea (NC) will be merged with and into LADD, with LADD being the surviving corporation of such merger; 3. LADD will contribute the Lea (NC) plant located in Chilhowie, Virginia and the Equipment, Inventory and other tangible assets related to the operations of the Chilhowie plant to American; 4. Pennsylvania House will prepay $4.7 million principal amount (together with accrued and unpaid interest in the approximate amount of $168,000 (assuming -1- prepayment on or before February 28, 1997)) of unsecured industrial revenue development bonds related to its plant in Monroe, North Carolina; 5. Pennsylvania House will sell the Monroe plant to the entity identified, substantially on the terms summarized in Annex A hereto; 6. Clayton-Marcus will lease the Monroe plant from the entity identified, substantially on the terms summarized in Annex A hereto; 7. Pennsylvania House will transfer to Clayton-Marcus the Equipment, Inventory and other tangible assets related to the operations of the Monroe plant in exchange for common stock of Clayton-Marcus; and 8. Pennsylvania House will distribute all Clayton-Marcus stock so received by it to LADD as a dividend distribution to its sole shareholder. All of the transactions summarized at points 1 through 3 (the "Lea Transaction") above will occur substantially simultaneously; all of the transactions summarized at points 4, 7 and 8 (the "PH Debt Transaction") will occur substantially simultaneously; and all of the transactions summarized at points 5 and 6 (the "Monroe Sale-Leaseback") will occur substantially simultaneously. The Borrowers have requested the consent of the Lenders and the Administrative Agent to such of the transactions summarized above as would otherwise constitute a breach or violation of one or more provisions of the Loan Agreement and to agree to certain amendments to the Loan Agreement and other Loan Documents to recognize and give effect to the corporate restructuring and asset transfers effected by such transactions and to permit the permanent reduction of the Revolving Credit Facility. Accordingly, in consideration of the Loan Agreement, the Loans made by the Lenders and outstanding thereunder, the mutual promises hereinafter set forth and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Amendments to Loan Agreement. The Loan Agreement is hereby amended, subject to the provisions of Section 3, by amending Section 1.1 Definitions by deleting from the definition "Borrower" the phrase "Lea (NC)." Section 2. Consent and Waiver. The Lenders hereby consent, subject to the provisions of Section 3, to (a) the consummation by the relevant Borrowers of the Lea Transaction, the PH Debt Transaction and the Monroe Sale-Leaseback and waive compliance and the effects of non-compliance by the Borrowers with the provisions of Sections 12.4, 12.6, 12.7 and 12.8 of the Loan Agreement, to the extent that any transaction included in the Lea Transaction, the PH Debt Transaction or the Monroe Sale-Leaseback would violate or constitute a breach thereof, PROVIDED, that, as to each of the Lea Transaction, the PH Debt -2- Transaction and the Monroe Sale-Leaseback, none of the transactions included therein shall be consummated unless and until all the related transactions are consummated and the Lea Transaction and the PH Debt Transaction may occur without any other transactions being consummated, but the Monroe Sale-Leaseback may not occur unless the PH Debt Transaction is also consummated substantially simultaneously, and, PROVIDED FURTHER, that, the sale proceeds in respect of the Monroe plant received by Pennsylvania House arising out of the Monroe Sale-Leaseback, net of commissions and other costs of sale, shall be applied to the Term Loan in accordance with the provisions of Section 5.9 as if such net proceeds were "Net Proceeds" of an Asset Disposition and (b) the permanent reduction of the Revolving Credit Facility by $15,000,000 (from $125,000,000 to $110,000,000) as of January 1, 1997. Section 3. Effectiveness of Amendment. (a) Sections 1 and 2(a) of this Amendment shall become effective on the date (the "Amendment Effective Date") on which the Administrative Agent shall have received each of the following documents (and sufficient copies for each Lender) and other deliveries: (i) this Amendment duly executed and delivered by the Borrower and the Lenders, (ii) a certificate of the Secretary of each Borrower having attached thereto the articles or certificate of incorporation and bylaws of such Borrower as in effect on the Amendment Effective Date attached thereto (or containing the certification of such Secretary that no amendment or modification of such articles or certificate or bylaws has become effective since the last date on which such documents were delivered to the Administrative Agent pursuant to the Loan Agreement), having attached thereto a copy of the corporate action of LADD and the other relevant Borrowers authorizing the Lea Transaction, the PH Debt Transaction and the Monroe Sale-Leaseback, and to the further effect that the incumbency certificate and corporate action delivered in connection with the occurrence of the Effective Date remain in effect, unchanged, (iii) a certificate of the President of LADD or the Financial Officer to the effect that, after giving effect to this Amendment, (A) the representations and warranties of the Borrowers contained in the Loan Documents are true and correct in all material respects on and as of the Amendment Effective Date as if made on and as of such date, having attached thereto any revised Schedules necessary to permit such certification, including but not limited to Schedules 7.1(a), (b), (c), (f), (h), (i), (j), (t), (u), (v) and (w) to the Loan Agreement, and (B) no Default or Event of Default has occurred and is continuing, and such statements shall be true; -3- (iv) such additional Financing Statements as are necessary or desirable to maintain the Security Interest in compliance with the provisions of Article 8 of the Loan Agreement, or as the Administrative Agent may request, duly executed and delivered by the relevant Borrower(s), and evidence satisfactory to the Administrative Agent that the said Financing Statements have been filed in each jurisdiction where such filing may be necessary or appropriate; (v) evidence satisfactory to the Administrative Agent that the Lea Transaction has been consummated in accordance with the summary thereof appearing in the Preliminary Statements above; (vi) evidence satisfactory to the Administrative Agent, which shall include paid endorsements (or commitments to issue the same, satisfactory to the Administrative Agent in its sole discretion) to the existing policies of mortgagee title insurance in respect of the Chilhowie plant and the plant owned by Lea (NC) located in Marion, Virginia, that fee title to such Real Estate is held by a Borrower, that such Real Estate continues to be subject to the Lien of the Mortgage affecting such Real Estate and to no other Lien or exception to title that the Administrative Agent has not approved in writing, with priority from the date of recording of the relevant Mortgage; (vii) such other documents, certificates and instruments in connection with the effectiveness of this Amendment as the Administrative Agent or any Lender may reasonably request. (b) Section 2(b) of this Amendment shall become effective on or after the Amendment Effective Date upon receipt by the Administrative Agent of an amount equal to $18,750, for the account of the Lenders, in consideration of the early reduction of the Revolving Credit Facility. Section 4. Additional Covenant of Borrowers. Contemporaneously with the execution and delivery of the lease between Clayton-Marcus and the owner of the Monroe plant as part of the Monroe Sale-Leaseback, the Borrowers will deliver to the Administrative Agent a landlord's waiver and consent agreement, in form and substance satisfactory to the Administrative Agent and duly executed on behalf of the owner of the Monroe plant. Section 5. Effect of Amendment. From and after the effectiveness of this Amendment: (a) Lea Industries, Inc., a North Carolina corporation, shall no longer be a "Borrower." Each of the Borrowers expressly acknowledges, consistent with the provisions of Sections 5.19, 5.20 and 5.21 of the Loan Agreement, that the merger of Lea (NC) with and into LADD does not impair or otherwise affect such Borrower's liability in respect of the Secured Obligations, and -4- (b) all references in the Loan Agreement and in any other Loan Document to "this Agreement," "the Loan Agreement," "hereunder," "hereof" and words of like import referring to the Loan Agreement, shall mean and be references to the Loan Agreement as amended by this Amendment. Except as expressly amended hereby, the Loan Agreement and all terms, conditions and provisions thereof remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. Section 6. Counterpart Execution; Governing Law. (a) Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. (b) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. -5- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWERS: LADD FURNITURE, INC. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Executive Vice President AMERICAN FURNITURE COMPANY, INCORPORATED By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President BARCLAY FURNITURE CO. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President CLAYTON-MARCUS COMPANY, INC. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President LADD CONTRACT SALES CORP. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President -6- LEA INDUSTRIES, INC. (a North Carolina corporation) By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President PENNSYLVANIA HOUSE, INC. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President PILLIOD FURNITURE, INC. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President LADD TRANSPORTATION, INC. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President LADD INTERNATIONAL SALES CORP. By: /s/ William S. Creekmuir ___________________________ William S. Creekmuir Vice President -7- AGENTS/LENDERS: NATIONSBANK, N.A. (SOUTH), as Administrative Agent, a Co-Agent and as a Lender By: /S/ David J. Sapp ___________________________ David J. Sapp Vice President FLEET CAPITAL CORPORATION, as a Co- Agent and as a Lender By: /s/ John W. Getz _________________________ Name: John W. Getz Title: SVP BANKAMERICA BUSINESS CREDIT, INC., as a Lender By:___________________________ Name: Title: THE CIT GROUP/BUSINESS CREDIT, INC., as a Lender By:/s/ Robert Bernill ___________________________ Name: Robert Bernill Title: VP SANWA BUSINESS CREDIT CORPORATION, as a Lender By:___________________________ Name: Title: -8- THE FIRST NATIONAL BANK OF BOSTON, as a Lender By: /s/ John C. Todd ___________________________ Name: John C. Todd Title: Director CREDITANSTALT CORPORATE FINANCE, INC., as a Lender By: Robert M. Biringer ___________________________ Name: Robert M. Biringer Title: Executive Vice President BRANCH BANKING AND TRUST COMPANY, as a Lender By: /s/ Michael Cox ___________________________ Name: Michael Cox Title: Vice President -9- EX-10 5 EXHIBIT 10.4 LADD FURNITURE, INC. 1997 MANAGEMENT INCENTIVE PLAN PLAN HIGHLIGHTS 1. Incentive payments based on financial performance and individual performance as follows: For Corporate Participants o achievement of PAT target o achievement of ROAE target (selected management) o achievement of individual objectives For Operating Group and Company Participants o achievement of PBT targets o achievement of ROIC targets (presidents only) o 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 achieve minimum PBT or PAT targets. Incentive payment expense will be accrued in results before calculation of profit. 3. Total of 142 officers and key managers to participate in the plan (Exhibit I). Maximum incentives range from 10% to 100% of January 1, 1997 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 $2.9 million. 6. Incentives earned in 1997 will be paid in cash after completion of annual audit (not later than March 31, 1998). 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, 1998 for any reason other than death, disability or retirement (over age 55). 10. The 1997 Management Incentive Plan only applies to fiscal year 1997. EX-24 6 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. 33-53341, 333-3129, 333-19565, and 333-19539) on Form S-8 of LADD Furniture, Inc. of our reports dated February 7, 1997, relating to the consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of December 30, 1995 and December 28, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows and related schedule for each of the years in the three-year period ended December 28, 1996 which reports appear in the December 28, 1996 annual report on Form 10- K of LADD Furniture, Inc. contained in the Appendix to the Proxy Statement for the 1997 Annual Shareholders Meeting. KPMG Peat Marwick LLP Greensboro, North Carolina March 26, 1997 EX-27 7 EXHIBIT 27.1
5 12-MOS DEC-28-1996 DEC-28-1996 469 0 66,730 3,005 84,484 157,451 74,729 78,565 313,595 59,535 125,859 0 0 2,316 120,760 313,595 497,457 497,457 411,697 411,697 90,262 3,308 12,069 (4,502) (2,032) (2,470) 0 0 0 (2,470) (.32) (.32)
EX-99 8 EXHIBIT 99 INDEPENDENT AUDITORS' REPORT The Board of Directors LADD Furniture, Inc.: Under date of February 7, 1997, we reported on the consolidated balance sheets of LADD Furniture, Inc. and subsidiaries as of December 30, 1995 and December 28, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 28, 1996, as contained in the Appendix to the Proxy Statement for the 1997 Annual Shareholders Meeting. These consolidated financial statements and our report thereon are included in the annual report on Form 10-K for the year ended December 28, 1996, also contained in the Appendix to the Proxy Statement for the 1997 Annual Shareholders Meeting. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Greensboro, North Carolina February 7, 1997 F-1 LADD FURNITURE, INC. AND SUBSIDIARIES Schedule II ------------------ Valuation and Qualifying Accounts and Reserves (dollar amounts in thousands)
Charged Balance at (credited) Balance at beginning of to costs and Charged to Deductions end of Description year expenses other accounts (c) year - ------------------------------ --------- ---------- ------------ ------------- ------------ Year ended December 28, 1996 Doubtful receivables $2,553 3,308 (540)(a) (3,696) 1,625 Discounts 123 (40)(d) - - 83 Returns and allowances 1,381 (84)(d) - - 1,297 --------- ---------- ------------ ------------- ------------ $4,057 3,184 (540) (3,696) 3,005 ========= ========== ============ ============= ============ Year ended December 30, 1995 Doubtful receivables $2,832 2,898 (1,085)(a) (2,091) 2,553 Discounts 0 123 (d) - - 123 Returns and allowances 1,462 (36)(d) (45)(a) - 1,381 --------- ---------- ------------ ------------- ------------ $4,294 2,985 (1,130) (2,091) 4,057 ========= ========== ============ ============= ============ Year ended December 31, 1994 Doubtful receivables $3,316 1,521 338 (b) (2,343) 2,832 Returns and Allowances 862 294 (d) 306 (b) - 1,462 --------- ---------- ------------ ------------- ------------ $4,178 1,815 644 (2,343) 4,294 ========= ========== ============ ============= ============
Notes (a) Represents businesses divested or reclassified to businesses held for sale. (b) Represents initial reserves of acquired business. (c) Represents uncollectible receivables written-off, net of recoveries. (d) Represents net increase (decrease) in required reserve. F-2 -----END PRIVACY-ENHANCED MESSAGE-----