FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 or
--------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number I-91
----
INTERCO INCORPORATED
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0337683
---------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 863-1100
--------------
-------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement
for the past 90 days.
Yes X No
--------- --------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes X No
--------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
50,119,791 Shares as of April 30, 1995
--------------------------------------<PAGE>
PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended March 31,
1995.
Consolidated Balance Sheet
Consolidated Statement of Operations:
Three Months Ended March 31, 1995
Three Months Ended March 31, 1994
Consolidated Statement of Cash Flows:
Three Months Ended March 31, 1995
Three Months Ended March 31, 1994
Notes to Consolidated Financial Statements
Separate financial statements and other disclosures with respect to
the Company's subsidiaries are omitted as such separate financial
statements and other disclosures are not deemed material to
investors.
The financial statements are unaudited, but include all adjustments
(consisting of normal recurring adjustments) which the management
of the Company considers necessary for a fair presentation of the
results of the period. The results for the three months ended
March 31, 1995 are not necessarily indicative of the results to be
expected for the full year.<PAGE>
<TABLE>
<CAPTION>
INTERCO INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
March 31, December 31,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 32,159 $ 32,145
Receivables, less allowances of $6,098
($5,062 at December 31, 1994)................. 212,444 202,270
Inventories...........................(Note 1).. 160,948 155,031
Prepaid expenses and other current assets....... 15,375 15,122
----------- -----------
Total current assets.......................... 420,926 404,568
----------- -----------
Property, plant and equipment..................... 242,785 238,416
Less accumulated depreciation................... 64,466 57,023
----------- -----------
Net property, plant and equipment............. 178,319 181,393
----------- -----------
Reorganization value in excess of amounts
allocable to identifiable assets, net........... 126,588 128,414
Trademarks and trade names, net................... 146,373 147,353
Other assets...................................... 30,887 30,150
----------- -----------
$ 903,093 $ 891,878
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............ $ 19,090 $ 16,574
Accrued interest expense........................ 3,029 1,652
Accounts payable and other accrued expenses..... 92,688 85,507
Income taxes.................................... 281 (6,152)
----------- ------------
Total current liabilities..................... 115,088 97,581
----------- ------------
Long-term debt, less current maturities........... 398,675 409,679
Other long-term liabilities....................... 107,993 109,224
Shareholders' equity:
Preferred stock, authorized 10,000,000
shares, no par value - issued none............ - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 50,119,777
shares at March 31, 1995 and 50,076,515
shares at December 31, 1994................... 50,120 50,076
Paid-in capital................................. 218,961 220,788
Retained earnings............................... 12,256 4,530
----------- -----------
Total shareholders' equity.................... 281,337 275,394
----------- -----------
$ 903,093 $ 891,878
=========== ===========
/TABLE
<PAGE>
<TABLE>
<CAPTION>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1995 1994
------------ ------------
<S> <C> <C>
Net sales...................................... $ 285,904 $ 268,753
Costs and expenses:
Cost of operations........................... 203,235 188,501
Selling, general and administrative expenses. 51,550 50,686
Depreciation and amortization................ 9,838 9,787
------------ ------------
Earnings from operations....................... 21,281 19,779
Interest expense............................... 8,763 9,282
Other income, net.............................. 674 367
------------ ------------
Earnings before income tax expense and
discontinued operations...................... 13,192 10,864
Income tax expense............................. 5,449 4,956
------------ ------------
Net earnings before discontinued operations.... 7,743 5,908
Discontinued operations:
Earnings from operations, net of taxes....... - 9,769
------------ ------------
Net earnings................................... $ 7,743 $ 15,677
============ ============
Net earnings per common share -
primary and fully diluted:
Net earnings before discontinued operations.. $ 0.15 $ 0.11
Discontinued operations...................... - 0.19
------ ------
Net earnings per common share................ $ 0.15 $ 0.30
====== ======
Weighted average common and common
equivalent shares outstanding:
Primary...................................... 50,626,060 51,788,883
========== ==========
Fully diluted................................ 50,626,841 51,814,255
========== ==========
/TABLE
<PAGE>
<TABLE>
<CAPTION>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings......................................... $ 7,743 $ 15,677
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Net earnings from discontinued operations........ - (9,769)
Depreciation of property, plant and equipment.... 7,405 7,249
Amortization of intangible assets................ 2,433 2,538
Noncash interest expense......................... 711 -
Increase in receivables.......................... (10,174) (16,717)
Increase in inventories.......................... (5,917) (19,782)
Increase in prepaid expenses and other assets.... (1,374) (1,991)
Increase in accounts payable, accrued interest
expense and other accrued expenses............. 8,558 20,186
Increase (decrease) in income taxes.............. 6,433 (209)
Decrease in net deferred tax liabilities......... (1,249) (1,500)
Increase (decrease) in other long-term
liabilities.................................... 47 (21)
------------- --------------
Net cash provided (used) by continuing operations.... 14,616 (4,339)
Net cash used by discontinued operations............. - (4,623)
------------- --------------
Net cash provided (used) by operating activities..... 14,616 (8,962)
------------- --------------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets................. 1 -
Additions to property, plant and equipment........... (4,332) (4,795)
------------- --------------
Net cash used by investing activities................ (4,331) (4,795)
------------- --------------
Cash Flows from Financing Activities:
Net change in notes and loans payable................ - 5,000
Addition to long-term debt........................... - 8,000
Payments of long-term debt........................... (8,488) (8,894)
Proceeds from the issuance of common stock........... 198 230
Payments for the repurchase of common stock warrants. (1,981) -
------------- -------------
Net cash provided (used) by financing activities..... (10,271) 4,336
------------- -------------
Net increase (decrease) in cash and cash equivalents... 14 (9,421)
Cash and cash equivalents at beginning of period....... 32,145 34,809
------------- -------------
Cash and cash equivalents at end of period............. $ 32,159 $ 25,388
============= =============
Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 227 $ 9,908
============= =============
Cash payments for interest expense................... $ 6,675 $ 5,019
============= =============
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Inventories are summarized as follows, in thousands:
March 31, December 31,
1995 1994
----------- -----------
Finished products $ 69,468 $ 66,445
Work-in-process 34,900 36,365
Raw materials 56,580 52,221
----------- -----------
$ 160,948 $ 155,031
=========== ===========
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
INTERCO INCORPORATED (the "Company") is a major manufacturer of
residential furniture. The Company has two primary operating
subsidiaries, Broyhill Furniture Industries, Inc. and The Lane
Company, Incorporated.
On November 17, 1994, the Company simultaneously refinanced the
majority of its outstanding indebtedness and distributed to holders
of its common stock the common stock of The Florsheim Shoe Company
and the common stock of Converse Inc. (which, in aggregate,
represented the Company's footwear segment). Upon completion of
this restructuring, the Company retained no ownership interest or
management control of the footwear businesses. Accordingly, the
financial results of the footwear businesses have been reflected as
discontinued operations for all periods presented, and the
Company's financial results of prior years have been restated.
Comparison of Three Months Ended March 31, 1995 and 1994
--------------------------------------------------------
Selected financial information for the three months ended March 31,
1995 and 1994 is presented below:
($ in millions, except per share data)
Three Months Ended
--------------------------------------
March 31, 1995 March 31, 1994
---------------- -----------------
$ % of sales $ % of sales
----- ---------- ----------------
Net sales 285.9 100.0% 268.8 100.0%
Earnings from operations 21.3 7.4% 19.8 7.4%
Interest expense 8.8 3.1% 9.3 3.5%
Income tax expense 5.5 1.9% 5.0 1.8%
Net earnings from continuing
operations 7.7 2.7% 5.9 2.2%
Net earnings per common share from
continuing operations 0.15 - 0.11 -
For the three months ended March 31, 1995, net sales increased by
$17.1 million, or 6.4%, compared to an increase for the three
months ended March 31, 1994 of 9.1%. The improved sales
performance was achieved by both operating divisions and resulted
from continued customer acceptance of product offerings and
marketing programs.
Earnings from operations for the three months ended March 31, 1995
increased by $1.5 million or 7.6% over the same period of the prior
year. Earnings from operations were 7.4% of net sales for both
periods. The improvement in operating earnings is a result of the
favorable sales performance, management emphasis on gross profit
improvement and the absence of start-up costs incurred last year at
a new motion upholstery manufacturing facility and state-of-the-art
finishing system, partially offset by lower utilization rates at
certain of the Company's manufacturing facilities and raw material
price increases.
Interest expense totaled $8.8 million for the three months ended
March 31, 1995, compared to $9.3 million for the same period last
year. The reduction in interest expense reflects the change in the
Company's debt structure as a result of the November 17, 1994 long-
term debt refinancing and shareholder distribution.
For the three months ended March 31, 1995, the Company provided for
income taxes of $5.5 million on pretax earnings of $13.2 million
resulting in an effective income tax rate of 41.3%. The Company
provided for income taxes of $5.0 million on pretax earnings of
$10.9 million for the three months ended March 31, 1994 which
represented an effective tax rate of 45.6%. The effective tax
rates for each period were adversely impacted by certain
nondeductible expenses incurred and provisions for state and local
taxes.
<PAGE>
Net earnings per common share from continuing operations on both a
primary and fully diluted basis were $0.15 for the three months
ended March 31, 1995, compared with $0.11 for the same period last
year. Average common and common equivalent shares outstanding used
in the calculation of net earnings per common share on a primary
and fully diluted basis were 50,626,060 and 50,626,841,
respectively, for the three months ended March 31, 1995 and
51,788,883 and 51,814,255, respectively, for the three months ended
March 31, 1994.
FINANCIAL CONDITION
Working Capital
---------------
Cash and cash equivalents at March 31, 1995 amounted to $32.1
million, unchanged from December 31, 1994. During the three months
ended March 31, 1995, net cash provided by operating activities
totaled $14.6 million, net cash used by investing activities
totaled $4.3 million and net cash used by financing activities
totaled $10.3 million.
Working capital was $305.8 million at March 31, 1995, compared to
$307.0 million at December 31, 1994. The current ratio was 3.7 to
1 at March 31, 1995, compared to 4.1 to 1 at December 31, 1994.
Financing Arrangements
----------------------
As of March 31, 1995, long-term debt, including current maturities,
consisted of the following, in millions:
Secured credit agreement 277.5
Receivables securitization
facility 130.0
Industrial revenue bonds 7.2
Federal tax obligation 3.1
-----
417.8
=====
To meet short-term working capital and other financial
requirements, the Company maintains a $75 million revolving credit
facility as part of its Secured Credit Agreement with a group of
banks. The revolving credit facility allows for both issuance of
letters of credit and cash borrowings. Letter of credit
outstandings are limited to no more than $35 million for the first
year of the facility, with $5 million annual increases up to a
maximum limitation of $50 million. Cash borrowings are limited
only by the facility's maximum availability less letters of credit
outstanding. At March 31, 1995, there were no cash borrowings
outstanding under the revolving credit facility; however, there
were $20.7 million in letters of credit outstanding.
In addition to the revolving credit facility, the Company also had
$20 million of excess availability under its Receivables
Securitization Facility as of March 31, 1995.
The Company believes its revolving credit facility, together with
cash generated from operations, will be adequate to meet liquidity
requirements for the foreseeable future.
<PAGE>
PART II OTHER INFORMATION
-------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) 4. First Amendment, dated as of March 14, 1995, to the
Credit Agreement, dated as of November 17, 1994,
among the Company, Broyhill Furniture Industries,
Inc., The Lane Company Incorporated, Various Banks,
and Bankers Trust Company, as Agent.
11. Statement re Computation of Net Earnings Per Common
Share.
27. Financial Data Schedule.
(b) A form 8-K was filed on January 24, 1995 summarizing the
Company's credit agreements and filing the agreements as
exhibits thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERCO INCORPORATED
(Registrant)
By Steven W. Alstadt
------------------------
Steven W. Alstadt
Controller and
Chief Accounting Officer
Date: May 11, 1995<PAGE>
Exhibit 4
FIRST AMENDMENT
FIRST AMENDMENT (the "Amendment"), dated as of March 14,
1995, among INTERCO INCORPORATED ("INTERCO"), BROYHILL FURNITURE
INDUSTRIES, INC. ("Broyhill"), THE LANE COMPANY, INCORPORATED
("Lane" and together with INTERCO and Broyhill, each a
"Borrower," and collectively, the "Borrowers"), the financial
institutions party to the Credit Agreement referred to below (the
"Banks") and Bankers Trust Company, as Agent. All capitalized
terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrowers, the Banks and the Agents are parties
to a Credit Agreement, dated as of November 17, 1994, as amended,
modified or supplemented through the date hereof (as so amended,
modified or supplemented, the "Credit Agreement"); and
WHEREAS, the parties hereof wish to amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. On and after the First Amendment Effective Date,
Section 4.01 of the Credit Agreement shall be amended by
inserting the following provision at the end thereof:
"; provided that, any voluntary prepayment of Term Loans
made pursuant to this Section 4.01 prior to the last
Business Day in March, 1995 shall first be applied to the
Scheduled Repayment required to be made on the last Business
Day in March, 1995 pursuant to Section 4.02(b), with the
remainder thereof (if any) to be applied as required above
by clause (vii) without giving effect to this provision"
2. In order to induce the Bank to enter into this
Amendment, each of the Borrowers hereby represents and warrants
that (i) the representations, warranties and agreements contained
in Section 7 of the Credit Agreement are true and correct in all
material respects on and as of the First Amendment Effective Date
(except with respect to any representations and warranties
limited by their terms to a specific date, which shall be true
and correct in all material respects as of such date) and (ii)
there exists no Default or Event of Default on the First
Amendment Effective Date in each case both before and after
giving effect to this Amendment.
3. This Amendment is limited as specified and shall not
constitute a motivation, acceptance or waiver of any other
provision of the Credit Agreement or any other Credit Document.<PAGE>
4. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and
delivered shall be an original, but all of which shall together
constitute one and the same instrument. A complete set of
counterparts shall be lodged with each of the Borrowers and the
Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
6. This Amendment shall become effective on the date (the
"First Amendment Effective Date") when each of the Borrowers and
the Required Banks shall have signed a copy hereof (whether the
same or different copies) and shall have delivered (including by
way of facsimile) the same to the Agent at the Notice Office.
7. From and after the First Amendment Effective Date, all
references in the Credit Agreement and the other Credit Documents
to the Credit Agreement shall be deemed to be references to such
Credit Agreement as modified hereby.<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their
duly authorized officers to execute and deliver this Amendment as
of the date first above written.
INTERCO INCORPORATED
By: David P. Howard
Title: Vice President
BROYHILL FURNITURE INDUSTRIES,
INC.
By: David P. Howard
Title: Vice President
THE LANE COMPANY, INCORPORATED
By: David P. Howard
Title: Vice President
BANKERS TRUST COMPANY,
Individually and as Agent
By: Dana Klein
Title: Vice President
BANK OF MONTREAL
By: Erin M. Keyser
Title: Director
THE BANK OF NEW YORK
By: Natalie Egleston
Title: Vice President
BANK OF SCOTLAND
By: Elizabeth Wilson
Title: Vice President and
Branch Manager<PAGE>
BANQUE PARIBAS
By: Ann C. Pifer
Title: Assistant Vice President
By: Richard G. Burrows
Title: Vice President
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By: Patricia M. Watson
Title: Vice President
CAISSE NATIONALE DE CREDIT
AGRICOLE
By: David Bouhl, F.V.P.
Title: Head of Corporate
Banking Chicago
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: Raymond Whiteman
Title: Authorized Signature
CREDIT LYONNAIS CHICAGO BRANCH
By: Mary Ann Klemm
Title: Vice President and
Group Head
DRESDNER BANK AG
Chicago Branch and Grand Cayman
Branch
By: E. Ronald Holder/Brian Brodeur
Titles: Sr. Vice President/
Vice President<PAGE>
FIRST AMERICAN NATIONAL BANK
By: Kelli H. Ernst
Title: Corporate Bank Officer
THE FUJI BANK LIMITED
By: Peter L. Chinnici
Title: Joint General Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By: Hiroaki Nakamura
Title: Joint General Manager
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By: Armund Schoen, Jr.
Title: Vice President and
Deputy General Manager
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By:________________________________
Title:
NATIONAL CITY BANK
By: Robert Rowe
Title: Assistant Vice President
NATWEST BANK N.A.
By: Gerard Painter
Title: Vice President<PAGE>
NBD BANK, N.A.
By: Robert Lawrence
Title: Vice President
THE SANWA BANK, LIMITED
By: Kenneth G. Eichwald
Title: Vice President and
Manager
SHAWMUT BANK CONNECTICUT, N.A.
By: Peter Sampson
Title: Assistant Vice President<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
INTERCO INCORPORATED
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
Three Months Three Months
Ended Ended
March 31, March 31,
1995 1994
------------- -----------
<S> <C> <C>
Primary:
Weighted average common shares outstanding during the period............... 50,096,435 50,016,038
Common shares issuable on exercise of stock options (1).................... 529,625 912,079
Common shares issuable on exercise of warrants (2)......................... - 860,766
------------ -----------
Weighted average common and common equivalent shares outstanding for
primary calculation...................................................... 50,626,060 51,788,883
============ ===========
Fully diluted:
Weighted average common and common equivalent shares outstanding for
primary calculation...................................................... 50,626,060 51,788,883
Common shares issuable on exercise of stock options (3).................... 781 25,372
Common shares issuable on exercise of warrants (4)......................... - -
------------ -----------
Weighted average common and common equivalent shares outstanding for
fully diluted calculation................................................ 50,626,841 51,814,255
============ ===========
</TABLE>
INTERCO INCORPORATED
NOTES TO STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
(1) Includes common stock options, the exercise of which would result
in dilution of net earnings per common share. Such common stock
options have been considered as exercised and the proceeds therefrom
were used to purchase common stock at the average common stock market
price, if the average common stock market price was higher than the
common stock option exercise price during the period.
(2) Includes common stock warrants, the exercise of which would result
in dilution of net earnings per common share. Such common stock
warrants have been considered as exercised and the proceeds therefrom
were used to purchase common stock at the average common stock market
price, if the average common stock market price was higher than the
common stock warrant exercise price during the period.
(3) Additional common shares issuable resulting from the application of
the same Note (1), except that the proceeds from assumed common stock
options exercised were used to purchase common stock at the month end
common stock market price, if the month end common stock market price
was higher than the average common stock market price during the
period.
(4) Additional common shares issuable resulting from the application of the
of the same principles described in Note (2), except that the proceeds
from assumed common stock warrants exercised were used to purchase
common stock at the month end common stock market price, if the month
end common stock market price was higher than the average common stock
market price during the period.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 32,159
<SECURITIES> 0
<RECEIVABLES> 218,542
<ALLOWANCES> 6,098
<INVENTORY> 160,948
<CURRENT-ASSETS> 420,926
<PP&E> 242,785
<DEPRECIATION> 64,466
<TOTAL-ASSETS> 903,093
<CURRENT-LIABILITIES> 115,088
<BONDS> 398,675
<COMMON> 50,120
0
0
<OTHER-SE> 218,961
<TOTAL-LIABILITY-AND-EQUITY> 903,093
<SALES> 285,904
<TOTAL-REVENUES> 285,904
<CGS> 203,235
<TOTAL-COSTS> 203,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 932
<INTEREST-EXPENSE> 8,763
<INCOME-PRETAX> 13,192
<INCOME-TAX> 5,449
<INCOME-CONTINUING> 7,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,743
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
