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Analyst Bugatch questions Furniture Brands International bonuses

ST. LOUIS — Industry analyst Budd Bugatch has filed a personal letter with the court handling bankrupt Furniture Brands International's Chapter 11 case, alleging the company distorted its fourth-quarter sales last year.

Bugatch said that he wasn't writing the letter in his capacity as an equity analyst with Raymond James Financial, but as an individual.

The letter objects to a Furniture Brands motion in the bankruptcy case to approve millions of dollars in bonuses that would be awarded to insiders for completing the sale of company assets in the bankruptcy case and maintaining the company's liquidity.

A hearing is set for Oct. 2. The motion proposes more than $3 million in bonuses to seven insiders. Not uncommon in Chapter 11 cases, such bonuses are offered to incentivize successful restructuring and recovery of money for creditors.

Bugatch said in his letter that rewarding poor numbers is a "recurring theme of the company's current leadership" and cites two examples.

One is bonus for executives that coincided with the termination of about 1,400 employees. For the other example, he writes that last year FBI management "stuffed the channel" to increase its fourth quarter sales to meet targets for a short-term incentive bonus.

A Furniture Brands spokesman was unavailable for comment.

The company's 2012 threshold for the bonus was $1.066 billion and annual sales came to $1.072 billion.

"As we read it, management likely used some heroic effort to ‘make' the sales threshold target by the paltry $6 million it reported. We leave it to the court to decide whether to investigate this issue further and to reach its own conclusion about management behavior," Bugatch wrote.

To back up his claims, Bugatch filed four documents with the court, including a Furniture Brands proxy statement from March, a fourth quarter 2012 and first quarter 2013 earnings release and an edited transcript of a conference call and comments made by CEO Ralph Scozzafava.

According to this year's proxy statement, FBI paid out a short-term incentive bonuses in 2012 totaling more than $660,000, including $308,775 to CEO Ralph Scozzafava. Besides sales, to meet that short-term incentive bonus, FBI executives needed a net loss not to exceed $35 million - which it met with a net loss of $30.4 million.

Some industry sources say that sales "adjustments" to meet bonus numbers are not uncommon, especially in the fourth quarter.

Bugatch earlier this month announced he was dropping coverage of the bankrupt company. His coverage of FBI and its predecessor, Interco, started in the 1980s.


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