Palliser, a major residential and contract furniture producer announced plans to divide the company into 4 separate but related and co-operative residential furniture companies plus one in the contract furniture field.

Palliser will continue as an important player in the furniture industry but its identity, ownership and management style will take a major shift in coming months.

Art DeFehr, President of Palliser Furniture, noted that, “The world around us is changing, our family is reaching a transition point and we need to make important decisions to reflect the changing world in which we live and to fully engage the energy and abilities of the next generation of family members.”

Palliser has been impacted by the same global changes experienced by every other furniture company in North America with the added complication of a 40% increase in the value of the Canadian currency. DeFehr observed that in the past many of the leading companies in the industry were conglomerates like Palliser with a broad footprint. He commented that this strategy may still work for some – but becomes increasingly complicated as companies move to professional management or subsequent generations of ownership. Given that many of the emerging competitors faced by Palliser are very focused companies in terms of strategy and product range – Palliser will re-structure itself to reflect the nature of this new competition.

Palliser will continue the process of creating more focused furniture companies in line with the successful sale of the DeFehr Furniture plant to several members of the third generation in 2004.

Each company will be substantial in its own part of the industry but be focused and specialized. DeFehr added that creating a cluster of smaller, more focused companies also creates opportunity for third generation family members to again become entrepreneurs.

The Casegoods Import Business, leadership will pass to a group of senior management rather than a family member.

Given the history, relationships and shared locations, the ‘new’ companies will have the opportunity and freedom to co-operate where that is in their interest but to be flexible and creative where that is required.

Palliser will continue as 5 different companies in the furniture business plus real estate (220 Elm and other holdings) and some industrial products. DeFehr family members also operate a particleboard plant and packaging facilities. The operating companies will be the following:

1. Palliser Furniture – The Palliser name will be used by the upholstered furniture division known for its leather products. This new company will have several plants in Canada, 4 factories in Mexico and will import finished upholstered products from Asia.

Art DeFehr will continue as President with Carsten Diercks, currently the Senior Vice-President, as the Senior manager. Sales will be led by the Executive VP of Sales, John Philips and Palliser veteran Adrian Price as VP in charge of Canadian Sales and Sales administration. James DeFehr, eldest son of Dave DeFehr (brother of Art), will remain the the senior manager of Palliser operations in Mexico.

Canadian production will increasingly be directed to Canadian retailers, while Mexican production will seve the Mexican and US markets. The company also announced an important initiative to add Asian capability to this mix.

2. DeFehr Furniture – Palliser sold its solid wood Division consisting of a 400,000 square foot facility to a group from the third generation in 2004.

This new company is led by Andrew DeFehr, 38, son of Frank DeFehr, eldest brother of Art DeFehr. The third and youngest brother, Dave DeFehr lives in North Carolina. Andrew has 16 years of wood manufacturing experience and has adjusted the product and customer base to permit this important domestic wood facility to remain profitable in the face of imports and a more valuable Canadian currency.

Palliser has a second wood facility known as LOGIC, also located in Winnipeg and with facilities of over 500,000 square feet. The enlarged “DeFehr” will consist of 1,000,000 square feet of domestic wood manufacturing and over 1000 employees.

3. Imported Casegoods – Palliser has been importing for two decades but only began importing bedroom and dining room in the past few years. A focused venture with the name “Blend Furniture Company” will be formed. It will be led by Sales and Marketing veteran Roger Friesen as President. Philip Klassen with both domestic manufacturing and Asian sourcing experience will be VP of Operations and Ben Horch, 35 year Palliser veteran will join this new venture as VP Sales. The new company will continue to operate out of Winnipeg.

4. EQ3 – This is the concept retail business established by Palliser in 2001 under the leadership of Peter Tielmann, 34, the son-in –law of Art DeFehr. Tielmann was the inspiration for this idea based on his European background and has developed the concept to allow for a full range of merchandise in all categories for a 10,000 square foot retail outlet.

EQ3 supplies both franchise stores that are exclusively dedicated to EQ3 merchandise as well as galleries in more traditional furniture outlets that seek to attract a younger customer. EQ3 sources most of its wood product in Asia but produces its own upholstered products in plants in Winnipeg and Mexico.

5. Arconas – This is a specialty contract furniture company unknown to most customers of Palliser. Arconas specializes in ‘public seating’ and has recently furnished the seating at the new Dallas International Terminal, Boston Airport, Abu Dhabi and many others. The company has been purchased by Dan Nussbaum, son-in-law of Art DeFehr and is based in Toronto.

Palliser or its shareholders will continue to own and manage the ‘220 Elm’ showroom facility in High Point plus other investments.