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 June 30, 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
(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.
50,119,816 Shares as of July 31, 1995
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended June 30,
1995.
Consolidated Balance Sheet
Consolidated Statement of Operations:
Three Months Ended June 30, 1995
Three Months Ended June 30, 1994
Six Months Ended June 30, 1995
Six Months Ended June 30, 1994
Consolidated Statement of Cash Flows:
Six Months Ended June 30, 1995
Six Months Ended June 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 six months ended June 30, 1995 are not
necessarily indicative of the results to be expected for the full
year.
<TABLE>
<CAPTION>
INTERCO INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
June 30, December 31,
1995 1994
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 35,553 $ 32,145
Receivables, less allowances of $6,963
($5,062 at December 31, 1994)................. 197,267 202,270
Inventories...........................(Note 1).. 157,159 155,031
Prepaid expenses and other current assets....... 14,810 15,122
----------- -----------
Total current assets.......................... 404,789 404,568
----------- -----------
Property, plant and equipment..................... 246,605 238,416
Less accumulated depreciation................... 71,476 57,023
----------- -----------
Net property, plant and equipment............. 175,129 181,393
----------- -----------
Reorganization value in excess of amounts
allocable to identifiable assets, net........... 124,762 128,414
Trademarks and trade names, net................... 145,393 147,353
Other assets...................................... 30,272 30,150
----------- -----------
$ 880,345 $ 891,878
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt..(Note 2).. $ 11,328 $ 16,574
Accrued interest expense........................ 3,049 1,652
Accounts payable and other accrued expenses..... 82,693 85,507
Income taxes.................................... (1,353) (6,152)
----------- -----------
Total current liabilities..................... 95,717 97,581
----------- -----------
Long-term debt, less current maturities.(Note 2).. 391,246 409,679
Other long-term liabilities....................... 106,571 109,224
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 50,119,816
shares at June 30, 1995 and 50,076,515
shares at December 31, 1994................... 50,120 50,076
Paid-in capital................................. 218,962 220,788
Retained earnings............................... 17,729 4,530
----------- -----------
Total shareholders' equity.................... 286,811 275,394
----------- -----------
$ 880,345 $ 891,878
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share)
(Unaudited)
Three Months Three Months
Ended Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Net sales...................................... $ 250,336 $ 272,203
Costs and expenses:
Cost of operations........................... 176,895 190,636
Selling, general and administrative expenses. 47,830 51,970
Depreciation and amortization................ 9,500 9,301
------------ ------------
Earnings from operations....................... 16,111 20,296
Interest expense............................... 8,434 9,811
Other income, net.............................. 1,597 188
------------ ------------
Earnings before income tax expense and
discontinued operations...................... 9,274 10,673
Income tax expense............................. 3,787 4,810
------------ ------------
Net earnings before discontinued operations.... 5,487 5,863
Discontinued operations:
Earnings from operations, net of taxes....... - 5,480
------------ ------------
Net earnings................................... $ 5,487 $ 11,343
============ ============
Net earnings per common share -
primary and fully diluted:
Net earnings before discontinued operations.. $ 0.11 $ 0.12
Discontinued operations...................... - 0.10
------ ------
Net earnings per common share................ $ 0.11 $ 0.22
====== ======
Weighted average common and common
equivalent shares outstanding:
Primary...................................... 50,594,863 51,576,218
========== ==========
Fully diluted................................ 50,639,977 51,910,818
========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share)
(Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Net sales...................................... $ 536,240 $ 540,956
Costs and expenses:
Cost of operations........................... 380,130 379,137
Selling, general and administrative expenses. 99,380 102,656
Depreciation and amortization................ 19,338 19,088
---------- ----------
Earnings from operations....................... 37,392 40,075
Interest expense............................... 17,197 19,093
Other income, net.............................. 2,271 555
---------- ----------
Earnings before income tax expense and
discontinued operations...................... 22,466 21,537
Income tax expense............................. 9,236 9,766
---------- ----------
Net earnings before discontinued operations.... 13,230 11,771
Discontinued operations:
Earnings from operations, net of taxes....... - 15,249
---------- ----------
Net earnings................................... $ 13,230 $ 27,020
========== ==========
Net earnings per common share -
primary and fully diluted:
Net earnings before discontinued operations.. $ 0.26 $ 0.23
Discontinued operations...................... - 0.29
------ ------
Net earnings per common share................ $ 0.26 $ 0.52
====== ======
Weighted average common and common
equivalent shares outstanding:
Primary...................................... 50,594,863 51,576,218
========== ==========
Fully diluted................................ 50,639,977 51,910,818
========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings......................................... $ 13,230 $ 27,020
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Net earnings from discontinued operations........ - (15,249)
Depreciation of property, plant and equipment.... 14,471 14,013
Amortization of intangible assets................ 4,867 5,075
Noncash interest expense......................... 1,191 -
(Increase) decrease in receivables............... 5,003 (24,114)
Increase in inventories.......................... (2,128) (19,900)
Increase in prepaid expenses and other assets.... (1,059) (1,732)
Increase (decrease) in accounts payable, accrued
interest expense and other accrued expenses.... (1,417) 15,042
Increase (decrease) in income taxes.............. 4,799 (8,200)
Decrease in net deferred tax liabilities......... (1,566) (1,512)
Decrease in other long-term liabilities.......... (315) (134)
---------- ----------
Net cash provided (used) by continuing operations.... 37,076 (9,691)
Net cash provided by discontinued operations......... - 8,117
---------- ----------
Net cash provided (used) by operating activities..... 37,076 (1,574)
---------- ----------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets................. 107 186
Additions to property, plant and equipment........... (8,314) (9,663)
---------- ----------
Net cash used by investing activities................ (8,207) (9,477)
---------- ----------
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........................... (23,679) (10,809)
Proceeds from the issuance of common stock........... 199 231
Payments for the repurchase of common stock warrants. (1,981) -
---------- ----------
Net cash provided (used) by financing activities..... (25,461) 2,422
---------- ----------
Net increase (decrease) in cash and cash equivalents... 3,408 (8,629)
Cash and cash equivalents at beginning of period....... 32,145 34,809
---------- ----------
Cash and cash equivalents at end of period............. $ 35,553 $ 26,180
========== ==========
Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 5,972 $ 25,535
========== ==========
Cash payments for interest expense................... $ 14,609 $ 18,786 <PAGE>
========== ==========
</TABLE>
<TABLE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(1) Inventories are summarized as follows:
June 30, December 31,
1995 1994
<S> <C> <C>
Finished products $ 72,024 $ 66,445
Work-in-process 33,849 36,365
Raw materials 51,286 52,221
----------- -----------
$ 157,159 $ 155,031
=========== ===========
</TABLE>
(2) On May 12, 1995, the Company made a $15,000 optional prepayment on the
Secured Credit Agreement. Fifty percent of the optional prepayment was
applied to scheduled repayments due within one year, with the balance
applied pro-rata based upon the then remaining scheduled repayments.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
INTERCO INCORPORATED (the "Company") is a major manufacturer of residential
furniture. The Company has two primary operating subsidiaries, Broyhill
Furniture Industries, Inc. and The Lane Company, Incorporated.
On November 17, 1994, the Company simultaneously refinanced the majority of
its outstanding indebtedness and distributed to holders of its common stock
the common stock of The Florsheim Shoe Company and the common stock of
Converse Inc. (which, in aggregate, represented the Company's footwear
segment). Upon completion of this restructuring, the Company retained no
ownership interest or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all periods presented, and the
Company's financial results of prior years have been restated.
Comparison of Three Months and Six Months Ended June 30, 1995 and 1994
Selected financial information for the three months and six months ended June
30, 1995 and 1994 is presented below:
($ in millions, except per share)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1995 June 30, 1994
$ % of net sales $ % of net sales
<S> <C> <C> <C> <C>
Net sales 250.3 100.0% 272.2 100.0%
Earnings from operations 16.1 6.4% 20.3 7.5%
Interest expense 8.4 3.4% 9.8 3.6%
Income tax expense 3.7 1.5% 4.8 1.8%
Net earnings from continuing
operations 5.5 2.2% 5.9 2.2%
Net earnings per common share from
continuing operations 0.11 - 0.12 -
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995 June 30, 1994
$ % of net sales $ % of net sales
<S> <C> <C> <C> <C>
Net sales 536.2 100.0% 541.0 100.0%
Earnings from operations 37.4 7.0% 40.1 7.4%
Interest expense 17.2 3.2% 19.1 3.5%
Income tax expense 9.2 1.7% 9.8 1.8%
Net earnings from continuing
operations 13.2 2.5% 11.8 2.2%
Net earnings per common share from
continuing operations 0.26 - 0.23 -<PAGE>
</TABLE>
For the three months ended June 30, 1995, net sales decreased by $21.9
million, or 8.0%, compared to an increase for the three months ended June 30,
1994 of 12.4%. For the six months ended June 30, 1995, net sales decreased by
$4.8 million, or 0.9%, compared to an increase for the six months ended June
30, 1994 of 10.8%. The decreased sales reflect a weakened U.S. economy and
difficult industry conditions.
Earnings from operations for the three months ended June 30, 1995 decreased by
$4.2 million or 20.6% from the comparable prior year period. Earnings from
operations for the three months ended June 30, 1995 and June 30, 1994 were
6.4% and 7.5% of net sales, respectively. For the six months ended June 30,
1995, earnings from operations decreased by $2.7 million, or 6.7%, compared to
an increase of 10.1% for the six months ended June 30, 1994. As a percent of
net sales, earnings from operations for the six months ended June 30, 1995 and
June 30, 1994 were 7.0% and 7.4%, respectively. The decline in operating
earnings for the three months ended June 30, 1995 is a result of the
unfavorable sales performance as well as lower utilization rates at certain of
the Company's manufacturing facilities to balance inventories with incoming
orders.
Interest expense totaled $8.4 million and $17.2 million for the three months
and six months ended June 30, 1995, respectively, compared to $9.8 million and
$19.1 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 40.8% and 41.1% for the three months and
six months ended June 30, 1995, respectively, compared to 45.1% and 45.3% 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 $0.11 and $0.26 for the three months and six months
ended June 30, 1995, respectively, compared with $0.12 and $0.23 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 50,594,863 and 50,639,977, respectively,
for the three months and six months ended June 30, 1995 and 51,576,218 and
51,910,818, respectively, for the three months and six months ended June 30,
1994.
FINANCIAL CONDITION
Working Capital
Cash and cash equivalents at June 30, 1995 amounted to $35.5 million, compared
to $32.1 million at December 31, 1994. During the six months ended June 30,
1995, net cash provided by operating activities totaled $37.1 million, net
cash used by investing activities totaled $8.2 million and net cash used by
financing activities totaled $25.5 million.
Working capital was $309.1 million at June 30, 1995, compared to $307.0
million at December 31, 1994. The current ratio was 4.2 to 1 at June 30,
1995, compared to 4.1 to 1 at December 31, 1994.
Financing Arrangements
As of June 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 2.9
-----
402.6
=====
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.
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 June 30, 1995, there were
no cash borrowings outstanding under the revolving credit facility; however,
there were $17.1 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
June 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.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) April 27, 1995 Annual Meeting of Stockholders.
(c) Proposal to ratify the selection of independent auditors.
Affirmative votes 47,080,129
Negative votes 18,405
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
June 30, 1995.
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: August 9, 1995
<TABLE>
<CAPTION>
EXHIBIT 11
INTERCO INCORPORATED
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
Six Months Six Months
Ended Ended
June 30, June 30,
1995 1994
Primary:
<S> <C> <C>
Weighted average common shares outstanding during the period............... 50,108,121 50,021,904
Common shares issuable on exercise of stock options (1).................... 486,742 861,414
Common shares issuable on exercise of warrants (2)......................... - 692,900
---------- ----------
Weighted average common and common equivalent shares outstanding for
primary calculation...................................................... 50,594,863 51,576,218
========== ==========
Fully diluted:
Weighted average common and common equivalent shares outstanding for
primary calculation...................................................... 50,594,863 51,576,218
Common shares issuable on exercise of stock options (3).................... 45,114 61,338
Common shares issuable on exercise of warrants (4)......................... - 273,262
---------- ----------
Weighted average common and common equivalent shares outstanding for
fully diluted calculation................................................ 50,639,977 51,910,818
========== ==========
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 35,553
<SECURITIES> 0
<RECEIVABLES> 204,230
<ALLOWANCES> 6,963
<INVENTORY> 157,159
<CURRENT-ASSETS> 404,789
<PP&E> 246,605
<DEPRECIATION> 71,476
<TOTAL-ASSETS> 880,345
<CURRENT-LIABILITIES> 95,717
<BONDS> 391,246
<COMMON> 50,120
0
0
<OTHER-SE> 218,962
<TOTAL-LIABILITY-AND-EQUITY> 880,345
<SALES> 536,240
<TOTAL-REVENUES> 536,240
<CGS> 380,130
<TOTAL-COSTS> 380,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,797
<INTEREST-EXPENSE> 17,197
<INCOME-PRETAX> 22,466
<INCOME-TAX> 9,236
<INCOME-CONTINUING> 13,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,230
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
