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 September 30, 1995 or
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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
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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
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_________________________________________________________________________
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
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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.
50,120,079 Shares as of October 31, 1995
-----------------------------------------<PAGE>
PART I FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended September 30, 1995.
Consolidated Balance Sheet
Consolidated Statement of Operations:
Three Months Ended September 30, 1995
Three Months Ended September 30, 1994
Nine Months Ended September 30, 1995
Nine Months Ended September 30, 1994
Consolidated Statement of Cash Flows:
Nine Months Ended September 30, 1995
Nine Months Ended September 30, 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 and nine months ended September 30,
1995 are not necessarily indicative of the results to be expected for the full
year.<PAGE>
<TABLE>
INTERCO INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
<CAPTION>
<C> <C> <C> <C>
September 30, December 31,
1995 1994
ASSETS ------------- -------------
Current assets:
Cash and cash equivalents...................... $ 61,375 $ 32,145
Receivables, less allowances of $7,597
($5,062 at December 31, 1994)................ 206,355 202,270
Inventories...........................(Note 1). 157,417 155,031
Prepaid expenses and other current assets...... 12,727 14,325
------------ -----------
Total current assets......................... 437,874 403,771
------------ -----------
Property, plant and equipment.................... 250,516 238,416
Less accumulated depreciation.................. 78,046 57,023
------------ -----------
Net property, plant and equipment............ 172,470 181,393
------------ -----------
Reorganization value in excess of amounts
allocable to identifiable assets, net.......... 122,936 128,414
Trademarks and trade names, net.................. 144,412 147,353
Other assets..................................... 18,752 20,804
------------ -----------
$ 896,444 $ 881,735
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt..(Note 2). $ 21,066 $ 16,574
Accrued interest expense....................... 2,843 1,652
Accounts payable and other accrued expenses.... 97,413 83,374
Income taxes................................... 3,868 (6,152)
------------ ------------
Total current liabilities.................... 125,190 95,448
------------ ------------
Long-term debt, less current maturities.(Note 2). 381,312 409,679
Other long-term liabilities...................... 97,748 101,214
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 50,119,816
shares at September 30, 1995 and 50,076,515
shares at December 31, 1994.................. 50,120 50,076
Paid-in capital................................ 218,154 220,788
Retained earnings.............................. 23,920 4,530
------------ -----------
Total shareholders' equity................... 292,194 275,394
------------ -----------
$ 896,444 $ 881,735
------------ -----------<PAGE>
</TABLE>
<TABLE>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share)
(Unaudited)
<CAPTION>
<S> <C> <C> <C>
Three Months Three Months
Ended Ended
September 30, September 30,
1995 1994
------------ ------------
Net sales...................................... $ 258,626 $ 254,496
Costs and expenses:
Cost of operations........................... 182,349 177,631
Selling, general and administrative expenses. 49,721 48,215
Depreciation and amortization................ 9,049 8,737
------------ ------------
Earnings from operations....................... 17,507 19,913
Interest expense............................... 8,212 9,859
Other income, net.............................. 1,081 345
------------ ------------
Earnings before income tax expense and
discontinued operations...................... 10,376 10,399
Income tax expense............................. 4,180 5,033
------------ ------------
Net earnings before discontinued operations.... 6,196 5,366
Discontinued operations:
Earnings from operations, net of taxes....... - 7,042
------------ ------------
Net earnings................................... $ 6,196 $ 12,408
------------ ------------
Net earnings per common share -
primary and fully diluted:
Net earnings before discontinued operations.. $ 0.12 $ 0.10
Discontinued operations...................... - 0.14
------------ -----------
Net earnings per common share................ $ 0.12 $ 0.24
------------ -----------
Weighted average common and common
equivalent shares outstanding:
Primary...................................... 50,597,623 51,619,706
------------ ------------
Fully diluted................................ 51,403,855 51,665,149
------------ ------------
</TABLE>
<PAGE>
<TABLE>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share)
(Unaudited)
<CAPTION>
<S> <C> <C> <C>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
------------ ------------
Net sales...................................... $ 794,866 $ 795,452
Costs and expenses:
Cost of operations........................... 562,479 556,768
Selling, general and administrative expenses. 149,101 150,871
Depreciation and amortization................ 28,387 27,825
------------ ------------
Earnings from operations....................... 54,899 59,988
Interest expense............................... 25,409 28,952
Other income, net.............................. 3,352 900
------------ ------------
Earnings before income tax expense and
discontinued operations...................... 32,842 31,936
Income tax expense............................. 13,416 14,799
------------ ------------
Net earnings before discontinued operations.... 19,426 17,137
Discontinued operations:
Earnings from operations, net of taxes....... - 22,291
------------ ------------
Net earnings................................... $ 19,426 $ 39,428
------------ ------------
Net earnings per common share -
primary and fully diluted:
Net earnings before discontinued operations.. $ 0.38 $ 0.33
Discontinued operations...................... - 0.43
------------ ------------
Net earnings per common share................ $ 0.38 $ 0.76
------------ ------------
Weighted average common and common
equivalent shares outstanding:
Primary...................................... 50,597,623 51,619,706
------------ ------------
Fully diluted................................ 51,403,855 51,665,149
------------ ------------
</TABLE>
<PAGE>
<TABLE>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
------------ ------------
Cash Flows from Operating Activities:
Net earnings......................................... $ 19,426 $ 39,428
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net earnings from discontinued operations........ - (22,291)
Depreciation of property, plant and equipment.... 21,087 20,212
Amortization of intangible assets................ 7,300 7,613
Noncash interest expense......................... 1,670 -
Increase in receivables.......................... (4,085) (20,973)
Increase in inventories.......................... (2,386) (27,036)
Decrease in prepaid expenses and other assets.... 2,783 4,366
Increase in accounts payable, accrued interest
expense and other accrued expenses............. 15,230 31,831
Increase (decrease) in income taxes.............. 10,020 (9,962)
Decrease in net deferred tax liabilities......... (3,173) (2,862)
Decrease in other long-term liabilities.......... (13) (46)
----------- -----------
Net cash provided by continuing operations........... 67,859 20,280
Net cash used by discontinued operations............. - (14,131)
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Net cash provided by operating activities............ 67,859 6,149
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Cash Flows from Investing Activities:
Proceeds from the disposal of assets................. 147 294
Additions to property, plant and equipment........... (12,311) (14,478)
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Net cash used by investing activities................ (12,164) (14,184)
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Cash Flows from Financing Activities:
Addition to long-term debt........................... - 8,000
Payments of long-term debt........................... (23,875) (12,677)
Proceeds from the issuance of common stock........... 199 558
Payments for the repurchase of common stock warrants. (2,789) -
------------- -------------
Net cash used by financing activities................ (26,465) (4,119)
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Net increase (decrease) in cash and cash equivalents... 29,230 (12,154)
Cash and cash equivalents at beginning of period....... 32,145 34,809
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Cash and cash equivalents at end of period............. $ 61,375 $ 22,655
------------- -------------<PAGE>
Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 6,549 $ 36,535
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Cash payments for interest expense................... $ 22,548 $ 24,417
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</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(1) Inventories are summarized as follows:
September 30, December 31,
1995 1994
------------ -----------
Finished products $ 71,132 $ 66,445
Work-in-process 35,669 36,365
Raw materials 50,616 52,221
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$ 157,417 $ 155,031
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(2) On May 12, 1995, the Company made a $15,000 optional prepayment on the
Secured Credit Agreement. Fifty percent of the optional prepayment was
applied to scheduled repayments due within one year, with the balance
applied pro-rata based upon the then remaining scheduled repayments.
(3) Certain December 31, 1994 amounts have been reclassified to conform to
the September 30, 1995 presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
INTERCO INCORPORATED (the "Company") is a major manufacturer of residential
furniture. The Company has two primary operating subsidiaries, Broyhill
Furniture Industries, Inc. and The Lane Company, Incorporated.
On November 17, 1994, the Company simultaneously refinanced the majority of
its outstanding indebtedness and distributed to holders of its common stock
the common stock of The Florsheim Shoe Company and the common stock of
Converse Inc. (which, in aggregate, represented the Company's footwear
segment). Upon completion of this restructuring, the Company retained no
ownership interest or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all periods presented, and the
Company's financial results of prior years have been restated.
Comparison of Three Months and Nine Months Ended September 30, 1995 and 1994
- ----------------------------------------------------------------------------
Selected financial information for the three months and nine months ended
September 30, 1995 and 1994 is presented below:
($ in millions, except per share)
Three Months Ended
----------------------------------------
September 30, 1995 September 30, 1994
------------------ ------------------
$ % of net sales $ % of net sales
--- -------------- --- --------------
Net sales 258.6 100.0% 254.5 100.0%
Earnings from operations 17.5 6.8% 19.9 7.8%
Interest expense 8.2 3.2% 9.9 3.9%
Income tax expense 4.2 1.6% 5.0 2.0%
Net earnings from continuing
operations 6.2 2.4% 5.3 2.1%
Net earnings per common share
(fully diluted) from continuing
operations 0.12 - 0.10 -
Nine Months Ended
-----------------------------------------
September 30, 1995 September 30, 1994
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$ % of net sales $ % of net sales
--- -------------- --- --------------
Net sales 794.8 100.0% 795.5 100.0%
Earnings from operations 54.9 6.9% 60.0 7.5%
Interest expense 25.4 3.2% 29.0 3.6%
Income tax expense 13.4 1.7% 14.8 1.9%
Net earnings from continuing
operations 19.4 2.4% 17.1 2.2%
Net earnings per common share
(fully diluted) from continuing
operations 0.38 - 0.33 -
For the three months ended September 30, 1995, net sales increased by $4.1
million, or 1.6%, compared to an increase for the three months ended September
30, 1994 of 5.9%. For the nine months ended September 30, 1995, net sales
decreased by $0.7 million, or 0.1%, compared to an increase for the nine
months ended September 30, 1994 of 9.2%. The sales performance for the three
months and nine months ended September 30, 1995 reflected a weak U.S. economy
and soft, but improving, industry conditions.
<PAGE>
Earnings from operations for the three months ended September 30, 1995
decreased by $2.4 million or 12.1% from the comparable prior year period.
Earnings from operations for the three months ended September 30, 1995 and
September 30, 1994 were 6.8% and 7.8% of net sales, respectively. For the
nine months ended September 30, 1995, earnings from operations decreased by
$5.1 million, or 8.5%, compared to an increase of 9.8% for the nine months
ended September 30, 1994. As a percent of net sales, earnings from operations
for the nine months ended September 30, 1995 and September 30, 1994 were 6.9%
and 7.5%, respectively. The decline in operating earnings for the three
months and nine months ended September 30, 1995 is a result of lower
utilization rates at certain of the Company's manufacturing facilities to
balance inventories with incoming orders.
Interest expense totaled $8.2 million and $25.4 million for the three months
and nine months ended September 30, 1995, respectively, compared to $9.9
million and $29.0 million in the prior year comparable periods. 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.
The effective income tax rates were 40.3% and 40.9% for the three months and
nine months ended September 30, 1995, respectively, compared to 48.4% and
46.3% for the prior year periods, respectively. The effective income tax
rates for each period were adversely impacted by certain nondeductible
expenses incurred and provisions for state and local taxes. The effective
income tax rates for 1995 were favorably impacted by special state income tax
incentives granted in connection with the issuance of certain industrial
revenue bonds.
Net earnings per common share from continuing operations on both a primary and
fully diluted basis were $0.12 and $0.38 for the three months and nine months
ended September 30, 1995, respectively, compared with $0.10 and $0.33 for the
same periods last year, respectively. 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 50,597,623 and 51,403,855,
respectively, for the three months and nine months ended September 30, 1995
and 51,619,706 and 51,665,149, respectively, for the three months and nine
months ended September 30, 1994.
FINANCIAL CONDITION
Working Capital
- ---------------
Cash and cash equivalents at September 30, 1995 totaled $61.4 million,
compared to $32.1 million at December 31, 1994. During the nine months ended
September 30, 1995, net cash provided by operating activities totaled $67.9
million, net cash used by investing activities totaled $12.1 million and net
cash used by financing activities totaled $26.5 million.
Working capital was $312.7 million at September 30, 1995, compared to $308.3
million at December 31, 1994. The current ratio was 3.5 to 1 at September 30,
1995, compared to 4.2 to 1 at December 31, 1994.
Financing Arrangements
- ----------------------
As of September 30, 1995, long-term debt, including current maturities,
consisted of the following, in millions:
Secured credit agreement 262.5
Receivables securitization facility 130.0
Industrial revenue bonds 7.2
Federal tax obligation 2.7
-----
402.4
-----
<PAGE>
On May 12, 1995, the Company made a $15.0 million optional prepayment on the
Secured Credit Agreement. Fifty percent of the optional prepayment was
applied to scheduled repayments due within one year, with the balance applied
pro-rata based upon the then remaining scheduled repayments.
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 September 30, 1995, there
were no cash borrowings outstanding under the revolving credit facility;
however, there were $15.2 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
September 30, 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) 11. Statement re Computation of Net Earnings Per Common Share.
27. Financial Data Schedule.
(b) A form 8-K was not required to be filed during the quarter ended
September 30, 1995.
<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: November 10, 1995
<PAGE>
EXHIBIT 11
<TABLE>
INTERCO INCORPORATED
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
---------------------------------------------------------
<CAPTION>
<S> <C>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
Primary: ------------ ------------
Weighted average common shares outstanding during the period............... 50,112,020 50,027,681
Common shares issuable on exercise of stock options (1).................... 485,603 840,021
Common shares issuable on exercise of warrants (2)......................... - 752,004
------------ ------------
Weighted average common and common equivalent shares outstanding for
primary calculation...................................................... 50,597,623 51,619,706
------------ ------------
Fully diluted:
Weighted average common and common equivalent shares outstanding for
primary calculation...................................................... 50,597,623 51,619,706
Common shares issuable on exercise of stock options (3).................... 152,764 8,193
Common shares issuable on exercise of warrants (4)......................... 653,468 37,250
------------ ------------
Weighted average common and common equivalent shares outstanding for
fully diluted calculation................................................ 51,403,855 51,665,149
------------ ------------<PAGE>
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 principles described in 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 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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 61,375
<SECURITIES> 0
<RECEIVABLES> 213,952
<ALLOWANCES> 7,597
<INVENTORY> 157,417
<CURRENT-ASSETS> 437,874
<PP&E> 250,516
<DEPRECIATION> 78,046
<TOTAL-ASSETS> 896,444
<CURRENT-LIABILITIES> 124,190
<BONDS> 381,312
<COMMON> 50,120
0
0
<OTHER-SE> 218,154
<TOTAL-LIABILITY-AND-EQUITY> 896,444
<SALES> 794,866
<TOTAL-REVENUES> 794,866
<CGS> 562,479
<TOTAL-COSTS> 562,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,417
<INTEREST-EXPENSE> 25,409
<INCOME-PRETAX> 32,842
<INCOME-TAX> 13,416
<INCOME-CONTINUING> 19,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,426
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
