LADD Furniture, Inc.

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LADD Furniture, Inc.

One Plaza Center
Box HP-3
High Point, North Carolina 27261
(910) 889-0333
Fax: (910) 888-6344

Public Company
Employees: 7,900
Sales: $592 million
Stock Exchanges: NASDAQ
SICs: 2511 Wood Household Furniture; 2512 Upholstered
Wood Household Furniture; 2514 Metal Household
Furniture; 2435 Hardwood Veneer and Plywood; 4213

LADD Furniture, Inc., one of the largest residential furniture manufacturers in the United States, designs, manufactures, and sells furniture through its ten furniture manufacturing subsidiaries. In the mid-1990s, LADD owned 26 manufacturing facilities, including nine in North Carolina, five in Virginia, and one in Mexico. The company also leased and maintained two retail stores in Kansas, as well as showrooms in nine cities, and transported some of its merchandise through its trucking subsidiary, LADD Transportation Inc.. In 1994, LADD products were reaching about 4,000 stores through independent sales representatives.

Although LADD was not created until 1981, the four furniture companies from which it was built (and whose initials made up the acronym LADD) go back much further. LADDs home base of High Point has long been regarded as the furniture capital of the South. In the late 1880s the first furniture factory in North Carolina was built at High Point, a town that offered excellent undepleted hardwood stands, year-round waterpower potential, rail transportation, and low-cost, dependable labor from neighboring rural areas. And for a region short of capital, the furniture industry was ideal, because the production process was relatively simple and required little investment. In 1902, 24 High Point factories were making furniture and related products.

Early in the twentieth century, High Point firms concentrated on producing inexpensive household furniture, which they sold only in the South. By 1921, however, High Point furniture factories were capable of producing lines in the medium-price range that resembled goods from northern manufacturers and were considerably cheaper. That year the Southern Furniture Exposition Building opened in the heart of the city and became the third largest furniture mart in the United States. New plants moved into the area, and the population of High Point more than doubled in the 1920s.

Between 1969 and 1971 Sperry & Hutchinson Co., best known for its green trading stamps, acquired four furniture companies: David M. Lea & Co., American Furniture Co., Drew Furniture Co., and the Daystrom division of Schlumberger, Ltd. David M. Lea & Co., a privately held Richmond, Virginia, firm was 100 years old when it was purchased in August 1969. Lea got its start manufacturing packing boxes and had expanded into the furniture business, manufacturing low- and medium-priced bedroom and dining room furniture by the time it was acquired by Sperry & Hutchinson. Leas sales came to $17.5 million in 1968, and the company had five plants in North Carolina, Virginia, and Tennessee.

American Furniture Co. and Drew Furniture Co., both of North Wilkesboro, North Carolina, were purchased in 1970 and merged into one unit called American Drew. The two affiliated firms made bedroom and dining room furniture in four plants in North Wilkesboro and had combined sales of about $15 million. The other company, Daystrom of South Boston, Virginia, got its start in 1934 making ashtrays but was mainly a producer of electronic instruments when it was sold in 1962 to Schlumberger, Ltd., a firm that provided services and equipment for oil drilling. By 1971, when Sperry & Hutchinson purchased it, the Daystrom division was manufacturing wood, metal, plastic, and plastic-laminate furniture for dining rooms and kitchens. Net sales for Daystrom were about $16 million in 1970.

David Lea, Daystrom, and American Drew were consolidated into a newly formed Sperry & Hutchinson furnishings division in 1974, with headquarters in Richmond, Virginia. This unit also included five more furniture companies acquired by Sperry & Hutchinson: Gunlocke Co., Homecrest Industries, Interlock Furniture, Paragon Design, and Pontiac Furniture Industries, along with its Bigelow-Sanford carpeting subsidiary and Buck Creek Industries, a synthetic-yarn processor. Gunlocke made commercial and industrial furniture; Homecrest, metal patio pieces; Pontiac, upholstered swivel rockers and recliners; and Interlock, modular wall systems. The furniture units accounted for $155 million of the divisions record $344 million in revenues in 1976. By then American Drew, Daystrom, and Lea comprised a separate division, S&H Furniture, with headquarters in High Point.

In 1981, executives of S&H Furniture and other investors acquired the division in a leveraged buyout from Sperry & Hutchinson for $70.2 million, and a new entity, LADD Holding Co., was incorporated on August 14, 1981. The companys headquarters remained in High Point, and the separate product lines and sales and marketing offices of the companies remained unaffected. At the time, Lea had gained renown for its Walt Disney Magic Kingdom collection, and Daystrom for its dining room products. American Drew, believed to be the most profitable of the three, was respected for its excellent manufacturing facilities for case goodsthe trade term for wooden bedroom and living room furniture. The company went public on May 28, 1983, under the name of LADD Furniture, Inc.

Every year through 1985 profits at LADD increased. The companys annual sales grew by 75 percent to $248 million in this period, and profits increased by an average 42 percent annually. At the end of 1985, LADD could boast debt of less than 20 percent of equity. During this time, about half of the companys sales were generated from case goods, mostly medium-priced bedroom pieces such as bureaus, vanities, and buffets. Such pieces, available in a variety of stylescolonial, traditional, country, and contemporarywere produced by the companys American Drew and Lea Industries units under such brand names as Cherry Grove, American Independence, and Vineyard Oaks.

In early 1984 LADD acquired Clayton-Marcus Co., a maker of upholstered furniture, for $14.7 million, and, by the close of the following year, about 40 percent of LADDs sales were coming from sofas, chairs, and other upholstered furniture, which were produced by the Clayton-Marcus subsidiary and by another recent acquisition, Barclay Furniture Co. The rest of the companys sales came from kitchen, dinette, and dining room furniture produced by its Daystrom division; plywood and similar products from its Lea Lumber & Plywood Co. subsidiary, and LADD Transportation, Inc.s fleet of trucks, which delivered LADD furniture to distributors and served other manufacturers as well.

Company chairman Don A. Hunziker credited LADDs good standing to decentralized management and its diverse array of products, which allowed the company to react speedily to changing customer tastes. The company also increased its productivity by ordering data processing equipment and computer-controlled machine tools. In 1985 LADDs sales reached $248 million, a 75 percent increase in five years. Profits, $18.4 million in 1985, had averaged an increase of 42 percent a year.

By the end of the decade, LADDs stock was at a high of nearly $18 per share. Speculating that the companys stock was actually worth about $26 a share, given its increasing cash flow and low debt, Wall Street analysts suggested that the company was undervalued and that management might take the company private again. At this time LADDs customer base was broad and diversified, with its leading client in 1985 accounting for only eight percent of sales and its leading five for only 12 percent.

However, an aggressive acquisition program and an unfavorable industry climate brought on by economic recession presented LADD with several challenges in the late 1980s and early 1990s. Seeking to acquire other well-managed furniture makers capable of making an immediate contribution to aggregate profits, LADD had purchased the American Furniture Co. of Martinsville, Virginia, in 1986 for nearly $40 million, thereby moving up to fourth place among the nations residential furniture makers. And on July 7, 1989, LADD acquired a package of six furniture businesses (Pennsylvania House, Inc., The Gunlocke Co., Brown Jordan Co., The Kittinger Co., The McGuire Furniture Co., and Charter Furniture Inc.) from Maytag Corp. for $201.1 million in cash and the assumption of a debt of $41.5 million. Gunlocke, McGuire, and Kittinger were sold off, pursuant to LADDs pre-acquisition plan, while Charter was consolidated with LADDs American of Martinsville subsidiary.

However, the two remaining Maytag companies proved a drag on earnings during the subsequent recession, and reportedly fell far short of expectations. The company remained committed to expanding its holdings, purchasing the Fournier Furniture Corp. for $11 million in July 1992. However, no dividend was paid to shareholders that year, and one analyst even described the company as a fallen angel that has bedeviled shareholders since its ill-timed, but strategically important acquisition. Indeed, LADD common stock, which peaked at nearly $25 a share in 1987, dropped to $4.50 a share in 1990.

Responding to adverse economic conditions, which included declining sales, particularly in the higher-priced furniture segment, LADD initiated a program designed to improve productivity and quality, as well as to reduce operating costs. The unprofitable lines of the American Furniture Co. of Martinsville were discontinued, while other manufacturing facilities were merged, reconfigured, and automated.

Despite disappointing earnings, largely attributed to such restructurings, investment analyst Wallace Jerry Epperson, known as Mr. Furniture for his wide contacts in the industry, pronounced himself bullish on the company in late 1993. They allow you to participate in all the major sectors of the industry, Epperson told a Barrons writer, referring to LADDs Fournier division in the ready-to-assemble field, American Drew in the middle sector, and Pennsylvania House for higher-priced traditional American furniture.

As LADD moved into the mid-1990s, its profit picture improved considerably. In the second quarter of 1994, the company posted sales of $153.2 million, its best quarterly record, with profits of $2.7 million. For the first nine months of 1994, LADD sales reached $445.4 million, an increase of 12 percent over the same 1993 period. Moreover, net earnings were $6.6 million, up 46 percent from the figure in the comparable 1993 period.

In January 1994, LADD acquired the Pilliod Cabinet Co., a High Point-based manufacturer of promotional-priced bedroom and occasional furniture, in a transaction valued at $54 million. The company, which was renamed Pilliod Furniture, Inc. following the acquisition, had annual sales of more than $85 million and factories in Ohio, Alabama, and South Carolina.

In the mid-1990s, LADD maintained a total of 12 operating subsidiaries. Lea Industries produced wood bedroom furniture in several styles, including colonial, traditional, and contemporary, and American Drew offered wood bedroom, dining room, and living room furniture in traditional, country, and contemporary styles. Daystrom manufactured kitchen, dinette, dining room, and bar furniture in contemporary styles incorporating metal, glass, and wicker, as well as wood, while Clayton-Marcus and Barclay Furniture were engaged in the production of upholstered household furniture. Pennsylvania House offered traditional and country style wooden and upholstered furniture in the upper-middle price range.

Following the consolidation and phasing out of some of American of Martinsvilles residential furniture lines, that subsidiary focused on producing guest room furniture for the institutional market, including hotels, motels, colleges, and certain federal agencies. Fournier Furniture, bolstered by factory expansions and automation, produced ready-to-assemble furniture, while Brown Jordan was a design leader in outdoor furniture and accessories wrought from aluminum and iron. Finally, the companys Lea Lumber & Plywood subsidiary made cut-to-size plywood, veneer, and wood laminated parts, primarily for other manufacturers.

Beginning in the late 1980s, LADD also began focusing on developing its presence in the international market. LADD International was founded in 1992 to oversee international cross-marketing of products from all the LADD operating companies. The following year, LADD made shipments totaling more than $40 million to 51 countries, and management was exploring the possibility of entering into joint ventures with various overseas partners.

Principal Subsidiaries

American Drew, Inc.; Barclay Furniture Co.; Brown Jordan Co.; Clayton-Marcus Co., Inc.; Fournier Furniture, Inc.; LADD Transportation, Inc.; Pennsylvania House, Inc.; Pilliod Furniture, Inc.

Further Reading

Bary, Andrew, Comfy Again, Barrons, November 8, 1993, pp. 1415.

Bary, Andrew, Uncomfortable Seats, Barrons, August 1, 1994, p. 14.

Bugatch, Budd, What the Analysts Say, Washington Post, November 15, 1993, Bus. Sec. p. 39.

Engardio, Pete, Whats Rearranging Americas Furniture Industry, Business Week, September 29, 1986, pp. 86D-86F.

Gordon, Mitchell, Not Knocking Wood, Barrons, January 20, 1986, pp. 4849.

Marks, Robert, S&H Sells Its Furniture Unit to Execs, HFD, September 7, 1981, pp. 1, 14.

Sitting Pretty at LADD, Business Week, June 12, 1986, p. 96.

Robert Halasz