Furniture Brands seeks bankruptcy protection
Furniture Brands International filed for bankruptcy protection Monday and announced it has reached a preliminary agreement to sell most of its business to an investment firm that specializes in buying assets of bankrupt companies.
Oaktree Capital Management, which has agreed to all of Furniture Brands' assets except for the Lane Venture brand, will provide $140 million to allow Furniture Brands to continue to pay employees and service customers' orders during the bankruptcy process. Furniture Brands said it may sell Lane and has received some indications of interest.
It was not clear Monday how the filing will affect the company’s operations in Caldwell County in the long term. Those operations employ more than 1,200 people and include manufacturing for Broyhill Furniture, Thomasville Furniture and Drexel Heritage as well as a distribution center.
A Chapter 11 bankruptcy may affect the pension or health plans of the employees and retirees, according to the U.S. Employee Benefits Security Administration. In some cases, plans continue to exist throughout the reorganization process. Generally, pension assets should not be at risk when a business declares bankruptcy, and some pension benefits may be insured by the federal government. The agency recommends employees or retirees contact the administrator of each plan to request an explanation of the status of the plan or benefits.
Furniture Brands notified the Mississippi Employment Security Commission on Monday that more than 1,400 employees may be laid off from its Lane Furniture operations in Lee County, TV station WCBI reported. But a spokesman for the company told Furniture Today that the Worker Adjustment and Retraining Notification Act required the notice as part of the bankruptcy process, and a final decision on whether layoffs will be needed hasn't been made yet.
CEO Ralph Scozzafava said in a statement: "After careful consideration of a range of alternatives, we firmly believe that our Chapter 11 process represents the best long-term solution for Furniture Brands to address liquidity challenges, strengthen its operations and continue to provide our customers with the highest-quality products and service that that have come to expect from us."
Under a Chapter 11 filing, a debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. It is the most expensive and complicated type of bankruptcy reorganization, according to the website Investopedia.
In its bankruptcy filing, Furniture Brands said it had $547 million in total assets and $550 million in total debt at the end of June.
Under the agreement with Oaktree, the bankruptcy court would supervise an auction process. Oaktree's bid would serve as a starting point for a sale, and other companies could bid to buy Furniture Brands.
Furniture Brands, based in St. Louis, first entered Caldwell County as Interco in 1980 when that company – formerly focused on apparel, footwear and retailing – acquired Broyhill Furniture Industries. Over the next 21 years, the company built up its furniture presence, including the purchase of Thomasville Furniture Industries in 1995. In 1996 Interco became Furniture Brands.
In recent years, after the furniture industry was battered by cheap imports, the company closed a number of plants and consolidated operations, including moving several operations to Caldwell County from Taylorsville and Hickory.
Furniture Brands has struggled more than other manufacturers to recover from the recession and reported a $40 million loss in the second quarter of 2013, prompting analyst John Baugh of the firm Stifel Nicolaus to predict that the company could soon start selling off pieces or file for bankruptcy protection. On Aug. 28 the company moved its stock to the over-the-counter market from the New York Stock Exchange.
The company is also facing at least two class-action lawsuits by investors, alleging that the company issued false and misleading statements about its financial health.
At the end of last year, Furniture Brands employed 5,600 full-time workers in the U.S. and about 3,500 employees abroad.
Furniture Brands was the largest U.S. furniture manufacturer at $2.2 billion in annual sales in the early 2000s, primarily from divisions based in North Carolina — Broyhill, Thomasville and HDM Furniture Industries. But it now represents only 3 percent of the household furniture manufacturing industry, which is forecast to have revenue totaling $24.5 billion this year.
Furniture Brands has 10 separate brands. Natalie Everett, a furniture industry analyst with IBIS World, an independent publisher of U.S. industry research, said in a recent interview that some of them, including Thomasville, have strong, positive recognition among consumers that could entice potential buyers.
But even if there are buyers interested in one or more of the company’s brands, there’s no telling whether new owners would maintain, downsize or close facilities.
Generally when companies are bought, with or without a bankruptcy declaration, downsizing follows, said Gerald T. Fox, a professor of economics at High Point University who has studied the economic impacts of the furniture manufacturing industry in North Carolina.