River Oaks Furniture, Inc.

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River Oaks Furniture, Inc.

1014 North Gloster Street
Tupelo, Mississippi 38801
U.S.A.
Telephone: (662) 680-5585
Fax: (662) 680-4334
Web site:http://www.riveroaksfurn.com

Private Company
Incorporated: 1987
Employees: 1,800
Sales: $126.3 million (1999 est.)
NAIC: 337121 Upholstered Household Furniture Manufacturing

As its current CEO Thomas A. Dieterich maintains, River Oaks Furniture, Inc., is virtually a new company, one that in April 1999 emerged from the bankrupt ashes of its predecessor of the same name. Although restructured as a private company and reorganized with new personnel, it is in the same business as its forerunner—the design and manufacture of leather, upholstered, and reclining furniture under River Oaks, River Crest, and Gaines brand names. The company sells its furniture to a range of stores, including chain outlets and independent retailers. Its largest customer is Sam’s Club, Wal-Mart Stores’ wholesale club division. Dieterich and other board members now own part of the company.

1987-89: River Oaks Is Successfully Established

In some ways, a history of River Oaks Furniture involves an account of two different businesses, that of the River Oaks company founded by Stephen L. Simons in 1987, and that of a company with the same name that emerged in 1999 from the bankrupt remains of the first company.

Simons, a former executive with Finger Furniture, incorporated the first business with the River Oaks name in August 1987. He headed a group of six investors, five of whom, including Simons and Thomas Keenum, had previously invested in BenchCraft, a furniture manufacturer located in Blue Mountain, Mississippi, that was later acquired by Masco Corporation and became part of LifeStyle Furnishings International, Ltd. The sixth investor was Lawrence (Larry) Ansin, CEO and sole proprietor of Joan Fabrics, a Massachusetts’ fabric manufacturer. He had met Simons in the mid-1970s, when Simons was a furniture buyer for a Texas retailer, and had eventually befriended him.

Simons was CEO of the new company, and Keenum was its secretary and treasurer. Both were on the firm’s three-member board of directors. The president was John Nail, a veteran Mississippi furniture manufacturer. River Oaks, then based in an old muffler shop in Fulton, Mississippi, began manufacturing mid-priced leather and upholstered furniture. Its line included chairs, love seats, and sofas, using River Oaks and River Crest trade names.

In March 1988, the company’s investors established R-O Realty, Inc., another Mississippi corporation. It was set up to purchase real estate that it would then lease to River Oaks. In that same year, Larry Ansin decided to sell Joan Fabrics. Assuming that its sale would require a noncompetition agreement, he arranged to sell his share of River Oaks’ stock to his father, Harold Ansin, for the amount of his original investment.

From the outset, Simons, Keenum, and Nail used their industry contacts to quickly build the company’s business. Within just a couple of years, its brands were carried by regional and national furniture chains as well as independent retailers. Expansion inevitably followed.

1990-95: Period of Rapid Growth in Sales Brings River Oaks National Recognition

In 1990, the company opened a new plant in Baldwyn, Mississippi, and within a year, because of booming sales, had to move ahead its plans to increase the size of the facility from 50,000 to 100,000 square feet, more than doubling its sales volume and work force.

Two years later, the company initiated a “Sofas and More” merchandising program. To independent retail outlets and furniture chains, it offered room packages consisting of furniture from its own lines as well as accessories made by other companies. Included in the accessories were lamps, small tables, rugs, and wall hangings.

In 1993, the company went public and made a successful IPO, but not without some attendant bad press. In that year, Larry Ansin died of an inoperable brain tumor. Harold Ansin and trustees of the Ansin Foundation, established by Larry, filed a complaint against both River Oaks and Simons and Keenum in a U.S. District Court in Massachusetts. In their suit, the plaintiffs claimed that Simons and Keenum had fraudulently induced Harold Ansin to sell his shares in the company ten months before they completed plans to take the company public and make an initial stock offering. The suit maintained that the men had kept their intention to take River Oaks public hidden in a successful effort to encourage Harold Ansin to sell his stock in the company for far less than it would have been worth after the company’s IPO. It would take three years for the case to come to trial.

Meanwhile, River Oaks was otherwise faring very well. It got a major helping hand in 1993 when it was named an official supplier to 83 military post exchanges in the United States and at bases overseas. That, with reasonably good market conditions, boosted its revenue from $46.2 million in 1992 to $70.1 million, a 52 percent increase. In fact, River Oaks had recorded very strong revenue gains each year since it started, and was averaging a healthy 50 percent increase each year. It was also adding new accounts at an enviable rate, totaling over 650 active clients by 1993. Its performance that year earned it 69th place in Business Week magazine’s list of the top small-cap companies in America.

Because of its previous performance, River Oaks put its projected sales for 1994 in the $88 million to $90 million range. In actuality, it revenues rose to $107.8 million, netting the company a $4.5 million profit. It was the company’s best year, and one that seemed to justify the expanding steps it had taken, including its 1994 purchase of Gaines Furniture Manufacturing, Inc., located in McKenzie, Tennessee, and the opening of a plant in Compton, California.

Founded in 1952, Gaines was one of the Southeast’s leading designers and manufacturers of low- to medium-priced leather and upholstered furniture, including sofas, love seats, chairs, and sectional sofas. Its specialty was leather pieces. Under its CEO, Andrew W. Byrd, Gaines had recorded sales of $33 million in 1993. After acquiring the company, River Oaks added the Gaines line to its own, but it moved that line’s production site to Belden, Mississippi.

At its 1994 peak, River Oaks had four plants in Mississippi (River Oaks East) and one in California (River Oaks West), and all were staying busy. There was a downside, however; the company’s interest and SG&A (selling, general, and administrative) expenses rose higher than were projected, primarily as a result of phasing out the start-up costs of River Oaks West, incurring sizable goodwill expenses in taking over the Gaines line, and adding new travel and product development costs. Because the industry was about to slump, it was a bad time for River Oaks to increase its debt service.

Initially, the downturn that hit the furniture industry in 1995 did not seem to phase the company. Its sales reached a new high of $143.1 million. However, its debt interest and other increasing costs led to a net profit of just $1.1 million. The company was also beginning to experience some further difficulties that would finally lead to its dissolution. Some of the problems were not recognized at the time, including errant accounting that had led to misstatements in the company’s reports filed with the Securities Exchange Commission.

1996-98: Struggling Under Chapter 11 and Reorganizing

In 1996, River Oaks’ revenue dropped off by $16.8 million, resulting in a net loss of $1.2 million, the company’s first loss since 1990. Moreover, on March 26, 1996, the Ansin suit finally reached the trial phase, and within two weeks the federal district court awarded the complainants compensatory damages of $2.3 million, a judgment affirmed on appeal in 1997. It was not good timing for Simons and River Oaks, for despite the fact Upholstery Design & Manufacturer still listed River Oaks as a Top 50 company, the firm was sinking into the red. In 1997, its third-quarter net loss reached $3.9 million, compelling the company to take some drastic steps to stem the flow. It idled its plant in Fulton, consolidated its production with its plant in New Albany, and laid off 100 employees, which cut the company’s total workforce to less than 1,500. By then it was clear the company’s explosive growth had simply been too incautious, and necessary downsizing had begun.

Company Perspectives:

By improving customer service, consolidating our manufacturing capacity, enhancing our delivery capabilities and our product quality, we have strengthened customer relationships which had suffered as a result of the Company’s financial difficulties. As we move forward in the new season, we are pleased to report that the tough decisions are now behind us, putting River Oaks well on track to emerge from the reorganization process as a streamlined, efficient manufacturer tightly focused on servicing our valued customers. Through our renewed commitment to customer service, our customers can rest assured that River Oaks will be here to serve them for many years to come.

River Oaks had to turn its focus to its corporate earnings in 1997. It engaged Home CPA Group of Jackson, Mississippi, to unravel account discrepancies from prior years, discovering in the process that in 1995 its former auditors, Chicago-based BDO Seidman, had made misstatements in company reports. The company then brought a $30 million suit against BDO Seidman for that firm’s alleged improprieties. The damage was irreparable, however. Because of the company’s liquidity problems and financial and legal entanglements, NASDAQ delisted River Oaks’ stock. In March 1998, after further profit margins declines added to the company’s woes, River Oaks filed for Chapter 11 protection from creditors in order to reorganize under an acting CEO. The job fell to Len York of New York and Charlotte, North Carolina-based OSNOS & Company, the consulting firm that River Oaks engaged to assist in its reorganization and streamlining. In April 1998, the company received bankruptcy court approval of $32.9 million in debtor-in-possession (DIP) financing, provided by New York-headquartered BNY Financial Corp.

Over the remainder of 1998, River Oaks took some severe measures to complete its downsizing and consolidate its operations. It reduced its plants in Baldwyn, Mississippi, and Compton, California, to one each, cutting its work force by another 600. According to York, it also “made dramatic progress in streamlining its operations, reducing operating costs and enhancing operating efficiencies.” Among the fatalities were Simons and Nail, who were required to resign and leave the company as a condition of its restructuring.

1999-2001: New Leadership

At the beginning of 1999, Ashley Furniture executive Thomas A. Dieterich was appointed permanent CEO to replace York and head up River Oaks’ recovery. Dieterich brought 25 years of experience to the task. At the time of his selection, he was Ashley’s vice-president of sales for its upholstery division and had the principal responsibilities of overseeing sales and developing merchandising and marketing strategies. Prior to that he had been a partner in Southern Traditions Furniture Company, and before that had been a sales manager with Jackson Manufacturing Company, an independent sales representative, and a retail furniture store manager.

Dieterich took the view that the “old company” was made “history” as of April 1, 1998, when the interim executives began River Oaks’ emergence from its Chapter 11 ashes. By the time he took the reins, Dieterich claimed that River Oaks had become “an entirely different company with different employees.” The old company was simply replaced. The new one, organized as a private Mississippi corporation, was partly owned by Dieterich and existing board members Thomas Keenum, Douglas Jumper, and Don Murphy. In March 1999, it bought the operational assets of the old company, which, for the sell-off, had been restyled as the River Oaks Distribution Company. Included, along with its properties, were its River Oaks name, logos, sign marks, trademarks, unexpired leases, and various executory contracts. Before the sale, Dieterich announced, “We, along with our creditors, believe the proposed sale is in the best interests of all parties, and ensures that River Oaks will emerge from Chapter 11 as a stronger, more competitive company poised to meet the demands of the upholstered furniture market.” To insure that it would be leaner and tougher, it continued streamlining its organization, improving its product quality, cutting costs, and improving some of its profit margins. It also relocated its corporate headquarters, moving from Fulton to Tupelo, Mississippi.

Dieterich oversaw several operational upgrades. These included the standardization of two of the company’s factories in Mississippi and California, a measure that both cut corporate office expenses and inaugurated systems that used new technology not previously employed. Future plans also called for the implementation of an Internet-based factory and dealer system. About other future directions and prospects, Dieterich remained somewhat guarded, perhaps because the new company still had to deal with past problems, including criminal proceedings against a former executive who, in 2000, was sent to federal prison for embezzling about $1 million from the old company.

Principal Competitors

Furniture Brands International; Klaussner Furniture; La-Z-Boy.

Key Dates:

1987:: Company is founded by Stephen L. Simons and five other investors.
1992:: Company initiates its Sofas and More merchandising program.
1993:: River Oaks goes public; trustees of the Ansin Foundation file complaint against the company and two officers in U.S. District Court.
1994:: Company acquires Gaines Manufacturing.
1996:: Ansin trustees win compensatory damages of $2.3 million.
1998:: Simons resigns as CEO; company files voluntary petition under Chapter 11 and retains OSNOS & Company to assist its restructuring as a private entity with the same name.
1999:: Thomas A. Dieterich is appointed River Oaks CEO and CFO.