SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 1994 or
-----------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from _______________________ to
_______________________
Commission file number I-91
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INTERCO INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 43-0337683
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(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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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock - $1.00 Stated Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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(Title of Class)
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, and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 28, 1995, was approximately $105,641,500.
APPLICABLE ONLY TO REGISTRANTS 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 Section 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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Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
50,084,764 shares as of February 28, 1995
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on April 27, 1995 .................... Part III
PART I
Item 1. Business
-----------------
(a) General development of business
On November 17, 1994 the Company spun off to its
shareholders the common stock of its wholly-owned
subsidiaries, Converse Inc. and The Florsheim Shoe Company.
The Company continues to operate its furniture businesses,
Broyhill Furniture Industries, Inc. and The Lane Company,
Incorporated as a single industry segment.
(c) Narrative Description of Business:
(1) The Company is a major manufacturer of residential
furniture through its two primary operating
subsidiaries, Broyhill Furniture Industries, Inc. and
The Lane Company, Incorporated.
Broyhill Furniture Industries, Inc.
----------------------------------
Broyhill began in 1926 as The Lenoir Chair Company and has
grown through acquisitions of local furniture factories and
internally generated expansion. Broyhill was acquired by
the Company in 1980 and employs approximately 6,900 people.
Products
--------
Broyhill produces medium-priced bedroom, dining room, living
room, occasional and stationary and reclining upholstered
furniture aimed at the middle-income consumer. Its
residential furniture divisions produce a wide range of
furnishings in colonial, country, traditional and
contemporary styles. The widely recognized Broyhill
trademarks include Broyhill, Broyhill Premier, Highland
House and Broyhill Showcase Gallery. Broyhill considers
these trademarks and trade names to be material to its
business.
The flagship Broyhill product line concentrates on bedroom,
dining room and living room furniture, as well as
upholstered and occasional furniture.
The Broyhill Premier product line enjoys an excellent
reputation for classically styled, complete furniture
collections in the upper-medium price range.
Highland House, a division of Broyhill, operates in an
upper-medium to high niche with premium bench-made
upholstered products.
The Broyhill Showcase Gallery program provides selected
dealers with a merchandise stocking program, advertising and
marketing support and educational opportunities.
Marketing and Distribution
--------------------------
Broyhill's management has been innovative in designing new
programs to promote the Broyhill line. Key elements of the
marketing program include a focused effort on Broyhill's
department store and national and regional chain accounts,
expansion of the Broyhill Showcase Gallery dealer network
and expansion of the Independent Dealer Program.
Broyhill furniture products are sold primarily through
approximately 4,000 retail furniture dealers. Broyhill
maintains showrooms in High Point, North Carolina and
Chicago, Illinois.
The corporate effort with national and regional chains has
resulted in increased business from major regional and
national accounts. New merchandise assortments and
selective distribution commitments have generated
promotional and advertising activities with this retailer
group which have resulted in improved rates of sales.
Initiatives to profile the Broyhill consumer and identify
their needs, wants, lifestyles and product use habits are
providing insight into activities ranging from product
development to channels of distribution to communication
methods. Broyhill communicates with its targeted consumers
through an extensive print media campaign.
Through its Consumer Assistance Center 800 number, Broyhill
provides assistance to almost 100,000 consumers annually by
answering product questions, supplying literature and making
referrals to retailers for product presentations.
The Broyhill Showcase Gallery program has over 325
participating dealer locations. A showcase gallery, which
averages over 6,000 square feet, displays Broyhill furniture
in complete, fully-accessorized room settings. This program
incorporates a core merchandise stocking program,
advertising material support, in-store merchandising events
and educational opportunities for the retail store sales and
management personnel. New retailers are attracted to the
program because it provides for continuity of product and
service. Broyhill believes retailers can substantially
increase their sales per square foot by conversion to a
gallery format. Inventory stock turns for galleries are
also normally higher than those for non-gallery programs
because more complete room settings are sold from fully-
accessorized displays.
For the smaller Broyhill dealer unable to make a gallery
commitment, the Independent Dealer Program was developed.
This concept was designed to overcome some of the
significant difficulties in running a small independent
furniture business and to provide smaller dealers with many
of the same advantages of product and service continuity
available to larger competitors. Participating retailers
commit to a minimum preselected lineup of Broyhill
merchandise and receive a detailed advertising and
merchandising plan. The program includes three major sales
events per year and monthly promotional themes.
Professionally-prepared advertising and promotional
materials are provided to the dealer at nominal cost to help
attract consumer attention at the local level. The program
currently has more than 650 retail locations enrolled. In
1992, Broyhill launched an upgraded version of the
Independent Dealer Program called the Broyhill Furniture
Center. This program includes all the benefits of the
Independent Dealer Program plus additional marketing,
designing, advertising and financing assistance provided the
dealer agrees to commit at least 2,000 square feet of retail
floor space to displaying Broyhill products.
Broyhill also offers a complete line of hospitality
furnishings to the hotel, motel and health care industries.
Many of Broyhill's large retail customers have reduced the
level of furniture inventory they hold and now look to
manufacturers to provide short turnaround delivery
availability. Broyhill has developed a customer sales
forecasting system that is designed to enhance customer
service while addressing the need for aggressive inventory
management. Broyhill's business is not highly seasonal by
nature.
Competition
-----------
Based on published industry information, management believes
Broyhill is one of the largest and best known brands in the
furniture industry. The majority of furniture manufacturers
in the United States are small specialty firms with limited
market identity.
The furniture manufacturing business is highly competitive
and furniture industry sales have historically been cyclical
in nature. Broyhill products compete with products made by
a number of furniture manufacturers, including Masco
Corporation's furniture divisions, Thomasville Furniture
Industries, Inc. (a subsidiary of Armstrong World
Industries, Inc.), La-Z-Boy Chair Company, Ladd Furniture,
Inc., Bassett Furniture Industries, Inc. and Singer
Furniture, as well as numerous smaller producers. The
elements of competition include pricing, styling, quality
and marketing. Broyhill furniture products are priced in a
popular price range and styled to appeal to the growing
young to middle-aged adult population. Product quality is
monitored carefully through the use of quality assurance
programs and customer feedback. Broyhill designers follow
the marketplace closely to detect trends in product design.
Broyhill believes it is a major manufacturer in the mid-
price range in terms of sales volume and product selection
offered.
Manufacturing
-------------
Broyhill is a leader in automated furniture manufacturing.
To meet the demand for affordable quality products, Broyhill
has emphasized the use of mass production techniques.
Modern facilities, state-of-the-art technology and economies
of scale make Broyhill an efficient producer. The mid-price
range products in which it specializes are well suited to
automated assembly line techniques. Short set-up times and
flexible manufacturing test runs have reduced both
manufacturing costs and overhead.
Broyhill believes it is one of the lowest-cost producers in
the industry and the most efficient producer in the medium-
priced segment of the industry in which it competes because
of the degree of automation in its manufacturing facilities,
the close proximity of its manufacturing facilities to each
other and the size of the company. Its large size enables
it to negotiate more favorable agreements with suppliers for
raw materials and to achieve economies of scale by utilizing
longer productions runs. The high degree of automation also
results in additional capacity which can be utilized by
adding labor to the present shift and by implementing
selected second or third shifts.
In addition to the Broyhill brand products, Broyhill also
manufactures furniture-related products such as
particleboard, drawer sides and veneer for internal use and
limited sale within the furniture industry.
Broyhill operates 16 finished goods production and warehouse
facilities totalling over 4.9 million square feet of
manufacturing and warehouse space. Several supply factories
are also maintained for parts production. All but one of
the plants are located within 60 miles of Broyhill's Lenoir,
North Carolina headquarters, which coordinates centralized
accounting, purchasing, credit, traffic and data processing
services.
Broyhill's major raw materials include lumber products,
glass, finishing materials, adhesive and upholstered goods,
such as foam and fabrics. Raw materials are generally
abundant and available from many suppliers.
The Lane Company, Incorporated
------------------------------
Lane was founded by E.H. Lane in 1912 as a cedar chest maker
and has grown internally and by acquiring other furniture
companies. Lane was acquired by the Company in 1987. It
employs approximately 6,900 people.
Lane designs and produces furniture through seven operating
divisions -- Action Industries, Inc. ("Action Industries"),
Lane Division, Hickory Chair Company ("Hickory Chair"), The
Pearson Company, Lane Upholstery, Venture Furniture Company
("Venture") and Hickory Business Furniture ("HBF"). All
divisions benefit from Lane's management systems, marketing
expertise and well-known corporate name. Management
believes this decentralized strategy allows the divisions to
focus on their competitive strengths and has been a key
source of Lane's historical success.
Products
--------
Lane manufactures and sells wood, metal and upholstered
(both stationary and reclining) furniture and related
furniture components. The collections of related groups of
furniture and other products currently include more than
3,000 different items. Lane's product mix is approximately
25% wood furniture and 75% upholstered furniture and other
items. Products are sold under the Lane name and other
trademarks. Lane considers the Lane, Action, Hickory Chair
and James River Collection trademarks and trade names to be
material to its business.
Action Industries manufactures and markets reclining chairs
and other motion furniture in the medium price range. Based
on published industry information, management believes it is
the second largest manufacturer of reclining chairs in the
United States, with an approximate 20% share of the market.
Action Industries' line of "motion furniture", which
incorporates a recliner within a sofa or loveseat, has
produced strong sales since its introduction in early 1991.
Management believes it is now the largest producer of motion
furniture in the industry. To meet the increasing demand
for its motion furniture, Action Industries completed
construction of an approximately 400,000 square foot
manufacturing facility in 1993. Lane's Royal Development
Company designs and manufactures the mechanisms used in
Action Industries' reclining furniture products. In 1994,
Action introduced the Comfort Max sleep sofa which
management believes, by use of a new exclusive mechanism and
other features, will address the deficiencies consumers have
noted over the years about sleep sofas, in general. Regular
shipments of this product began in late 1994.
Lane Division manufactures and sells cedar chests,
occasional living room tables, bedroom and dining room
furniture, wall systems, desks, console tables and mirrors
and other occasional wood pieces. Lane Division furniture
is sold in the medium to higher price ranges. In 1993, Lane
Division positioned itself for future growth with the
installation of a state-of-the-art finishing system that
will produce excellent product quality at attractive prices.
Products using this new technology were introduced in 1994
and were well received by the consumer.
Hickory Chair manufactures and sells traditional styles of
upholstered furniture, dining room chairs and occasional
tables, principally in the higher price range. Hickory
Chair has been crafting fine 18th century-style furniture
for the past 80 years, including its James River Collection
of dining room, bedroom and occasional furniture, consisting
of reproductions inspired by heirlooms from historical James
River plantation homes in Virginia. It also manufactures
and markets the Mark Hampton Collection of fine home
furnishings. In 1993, Hickory Chair was selected as the
licensee for furniture reproductions from George
Washington's Mount Vernon home. Hickory Chair has recently
expanded its product line to other traditional styles to
appeal to a broader market.
The Pearson Company for over 50 years has been manufacturing
and selling contemporary and traditional styles of
upholstered furniture including sofas, love seats, chairs
and ottomans in the upper-medium price range. The Viceroy
Collection, by designer Victoria Moreland, has been a
successful product line for the company which is known for
its hand tailoring and use of fashion fabrics.
Lane Upholstery includes two product lines, one of which is
composed of contemporary and modern upholstered furniture
and metal and glass occasional and dining tables, and the
other of which is composed of traditional and contemporary
upholstered furniture, primarily sofas, love seats, chairs
and ottomans. Lane Upholstery sells in the medium price
range.
Venture markets a product line composed of upholstered
furniture made from wicker, rattan and bamboo, together with
tables, occasional wood pieces and other home furnishing
accessories. Venture manufactures and sells an exclusive
line of premium all-weather wicker and upholstered outdoor
furniture under the WeatherMaster trademark.
HBF manufactures and sells a line of office chairs, tables,
desks and credenzas in the upper-medium price range.
Marketing and Distribution
--------------------------
Lane's furniture products are distributed nationally,
principally to retail outlets, including department stores,
leading chain stores, individual retail furniture stores and
decorating studios. Lane generally manufactures to order,
so that large inventory build-ups are avoided. Lane serves
a broad-based clientele of over 12,000 active accounts.
Lane's sales force, which is organized by division, is
comprised of approximately 220 straight-commission salesmen,
most of whom represent Lane exclusively. Lane maintains
showrooms for the national furniture market in High Point,
North Carolina. Lane operates Lane Group Showrooms for the
design trade in Chicago, Illinois; Atlanta, Georgia; and San
Francisco, California.
Lane has a growing gallery program in which selected dealers
commit floor space to a Lane furniture gallery. The dealers
own the galleries and the Lane furniture inventory, while
Lane is responsible for decorating the gallery and charges
dealers for this service. Approximately 150 dealers
currently participate in Lane's gallery program.
Lane advertises heavily in national magazines. Lane
believes its long-standing Lane "Keepsake" promotional
program has made the Lane cedar chest one of the best-known
furniture products in the industry and contributes to the
high level of consumer recognition which Lane enjoys.
Lane's business is not highly seasonal in nature except for
some seasonality in the retailing of recliner products with
peaks in June (Father's Day) and December (Christmas).
Competition
-----------
Lane competes in the medium to high price range, where
styling and quality considerations are more important
competitive factors than price. Lane maintains a policy of
providing its customers with high quality and current
styles. To meet changing consumer tastes, Lane updates its
product offerings on a continuous basis, combining its line
of traditional models with up-to-date styles. Lane's
primary competitors are other manufacturers of furniture,
including La-Z-Boy Chair Company, Thomasville Furniture
Industries, Inc. (a subsidiary of Armstrong World
Industries, Inc.), Masco Corporation's furniture divisions,
Century Furniture Co. and Ladd Furniture, Inc.
Manufacturing
-------------
Lane operates 15 production and warehouse facilities
totaling over 5.0 million square feet. Recent investment in
advanced technology manufacturing equipment has increased
factory productivity. Lane's company headquarters is
located in Altavista, Virginia, with major plants located
there and in Rocky Mount, Virginia and Hickory and High
Point, North Carolina. Action Industries' main plant and
headquarters is located in Verona, Mississippi with three
other plants in Tupelo, Pontotoc and Saltillo, Mississippi.
Lane's major raw materials include lumber products, glass,
paints and stains, adhesives and upholstery components, such
as foam and fabrics. In addition, Lane purchases finished
furniture goods made to its specifications, which are then
sold to Lane customers. Raw materials are generally
abundant and available from many suppliers.
Backlog
-------
The combined order backlog of the operating companies at the
end of December, 1994 aggregated approximately $150 million,
compared to approximately $152 million at the end of
December, 1993.
Trademarks and Trade Names
--------------------------
Each of the operating companies utilizes trademarks and
trade names extensively to promote brand loyalty among
consumers. The Company aggressively protects its trademarks
and trade names by taking appropriate legal action against
anyone who infringes upon or misuses them.
Governmental Regulations
------------------------
The Company does not believe compliance by it with federal,
state and local provisions which have been enacted or
adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, will have a material effect upon capital
expenditures, earnings or competitive position. See -
"Legal Proceedings".
Employees
---------
As of December 31, 1994, the Company and its subsidiaries
employed approximately 13,800 people, of which approximately
40 are located at Company headquarters in St. Louis,
Missouri.
Item 2. Properties
-------------------
The Company owns or leases the following principal plants,
offices and warehouses:
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
-------- -------- -------- --------- ------
INTERCO St. Louis, MO Headquarters 26,800 Leased
Broyhill Lenoir, NC Headquarters 136,000 Leased
Broyhill Lenoir, NC Plant/Warehouse 312,632 Owned
Broyhill Newton, NC Plant/Warehouse 382,626 Owned
Broyhill Lenoir, NC Plant/Warehouse 628,000 Owned
Broyhill Rutherfordton, NC Plant/Warehouse 575,656 Owned
Broyhill Lenoir, NC Plant/Warehouse 419,000 Owned
Broyhill Lenoir, NC Plant/Warehouse 364,000 Owned
Broyhill Conover, NC Plant/Warehouse 316,542 Owned
Broyhill Lenoir, NC Plant 345,439 Owned
Broyhill Lenoir, NC Plant 165,640 Owned
Broyhill Lenoir, NC Plant/Warehouse 252,380 Owned
Broyhill Taylorsville, NC Plant/Warehouse 212,754 Owned
Broyhill Lenoir, NC Plant 124,700 Leased
Broyhill Hickory, NC Plant/Warehouse 215,500 Leased
Broyhill Marion, NC Plant 22,712 Owned
Broyhill Lenoir, NC Warehouse 96,000 Owned
Broyhill Lenoir, NC Warehouse 503,250 Leased
Lane Altavista, VA Plant/Warehouse1,091,600 Owned
Lane Altavista, VA Headquarters 62,000 Owned
Lane Conover, NC Plant/Warehouse 212,000 Owned
Lane Conover, NC Plant/Warehouse 348,180 Owned
Lane Conover, NC Plant 150,130 Owned
Lane Hickory, NC Plant/Warehouse 641,214 Owned
Lane Hickory, NC Plant/Warehouse 169,902 Owned
Lane High Point, NC Plant 187,162 Owned
Lane High Point, NC Plant/Warehouse 156,000 Owned
<PAGE>
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
-------- -------- -------- --------- ------
Lane Pontotoc, MS Plant/Warehouse 352,740 Owned
Lane Rocky Mount, VA Plant/Warehouse 598,962 Owned
Lane Verona, MS Plant/Warehouse 395,050 Owned
Lane Saltillo, MS Plant/Warehouse 567,500 Owned
Lane Tupelo, MS Plant/Warehouse 396,175 Owned
Lane Rocky Mount, VA Plant 50,300 Owned
Lane Smyrna, TN Plant 28,300 Owned
_______________
Substantially all of the owned properties listed above are
encumbered by a first priority lien and mortgage pursuant to the
Company's Secured Credit Agreement with Bankers Trust Company, as
Agent, and the banks named therein, dated as of November 17,
1994. In addition, the Tupelo, Mississippi facility is
encumbered by a mortgage and first lien securing industrial
revenue bonds.
The Company believes its properties are generally well
maintained, suitable for its present operations and adequate for
current production requirements. Productive capacity and extent
of utilization of the Company's facilities are difficult to
quantify with certainty because in any one facility maximum
capacity and utilization varies periodically depending upon the
product that is being manufactured, the degree of automation and
the utilization of the labor force in the facility. In this
context, the Company estimates that overall its production
facilities were effectively utilized during calendar 1994 at
moderate to high levels of productive capacity and believes that
in general its facilities have the capacity, if necessary, to
expand production to meet anticipated product requirements.
Item 3. Legal Proceedings
--------------------------
Notwithstanding the confirmation and effectiveness of the
Company's Amended Joint Plan of Reorganization under Chapter
11 (the "Plan"), the Court continues to have jurisdiction
to, among other things, resolve disputed pre-petition claims
against the Company, resolve matters related to the
assumption, assumption and assignment, or rejection of
executory contracts pursuant to the Plan, and to resolve
other matters that may arise in connection with or relate to
the Plan. Pursuant to the Plan, the Company, on the
effective date, paid into a Disputed Claims Trust the face
amount of certain claims still to be resolved. Since those
unresolved claims were funded at their face amounts, the
Company has no further financial exposure with respect to
those claims.
The Company is or may become a defendant in a number of
pending or threatened legal proceedings in the ordinary
course of business. In the opinion of management, the
ultimate liability, if any, of the Company from all such
proceedings will not have a material adverse effect upon the
consolidated financial position or results of operations of
the Company and its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable.
PART II
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Item 5. Market for The Registrant's Common Equity and Related
--------------------------------------------------------------
Stockholder Matters
-------------------
As of February 28, 1995, there were approximately 3,015
holders of record of Common Stock.
Shares of the Company's Common Stock are traded on the New
York Stock Exchange. The reported high and low sale prices
for the Company's Common Stock on the New York Stock
Exchange is included in Note 16 to the consolidated
financial statements of the Company.
The Company has not paid cash dividends on its Common Stock
during the two years ended December 31, 1993 and December
31, 1994.
A discussion of restrictions on the Company's ability to pay
cash dividends is included in Note 10 to the consolidated
financial statements of the Company.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
--------------------------------
<CAPTION>
FIVE YEAR CONSOLIDATED FINANCIAL REVIEW
--------------------------------------------------------------------------------
----------------------------------
(Dollars in thousands except per Year Ended Year Ended Five
Months Ended <F1> Fiscal Years Ended
share data) ---------- ----------
----------------------- -------------------------
Dec. 31, Dec. 31, Dec. 31,/
Aug. 2, Feb. 29, Feb. 23,
1994 1993 1992 /
1992 1992 1991
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----------------------------------
<S> <C> <C> <C> /
<C> <C> <C>
Summary of Operations: /
Net sales $1,072,696 $ 980,532 $ 394,873 /
$ 356,705 $ 819,359 $ 786,556
Gross profit 298,712 275,323 108,858 /
96,849 229,219 221,570
Interest expense 37,886 38,621 16,358 /
29,689 88,310 241,083
Earnings (loss) before income tax /
expense (benefit), discontinued /
operations, extraordinary item /
and cumulative effect of /
accounting change 48,841 37,266 18,045 /
247,716 (39,087) (200,871)
Income tax expense (benefit) 20,908 15,924 6,807 /
(1,206) (3,589) (65,241)
Net earnings (loss) before /
discontinued operations, /
extraordinary item and /
cumulative effect of /
accounting change 27,933 21,342 11,238 /
248,922 (35,498) (135,630)
Discontinued operations 10,339 24,026 10,088 /
(136,347) (13,394) (40,706)
Extraordinary item - - - /
1,075,466 - -
Cumulative effect of accounting /
change - - - /
(1,719) - -
Net earnings (loss) applicable to /
<F2>
common stock $ 38,272 $ 45,368 $ 21,326 /
$1,186,322 $ (48,892) $ (272,097)
/
Per share of common stock - /
primary and fully diluted: /
Net earnings (loss) before /
discontinued operations, /
extraordinary item and /
cumulative effect of /
<F2>
accounting change $ 0.54 $ 0.41 $ 0.23 /
$ 6.42 $ (0.92) $ (5.98)
Discontinued operations 0.20 0.47 0.20 /
(3.52) (0.34) (1.05)
Extraordinary item - - - /
27.72 - -
Cumulative effect of accounting /
change - - - /
(0.04) - -
Net earnings (loss) applicable /
to common stock $ 0.74 $ 0.88 $ 0.43 /
$ 30.58 $ (1.26) $ (7.03)
/
<F2>
Weighted average common and common /
equivalent shares outstanding -
fully diluted (in thousands) 51,506 51,397 50,000 /
38,796 38,731 38,720
/
Other Information (continuing /
operations): /
Working capital $ 306,987 $ 271,588 $ 261,967 /
$ 261,357 $ 426,852 $ 380,834
Property, plant and equipment, net 181,393 191,581 186,046 /
189,039<F3> 114,239 112,325
Capital expenditures 21,108 30,197 8,850 /
7,041 20,099 14,255
Total assets 891,878 858,163 870,115 /
893,012 800,840 652,738
Long-term debt 409,679 403,255 407,898 /
443,165 -<F4> -<F4>
Shareholders' equity (deficit) $ 275,394 $ 338,557 $ 293,114 /
$ 275,400 $(1,186,522) $(1,135,211)
-------------------------------------------------------------------------/------
-----------------------------------
<FN>
<F1> As discussed in Note 2 to the Consolidated Financial Statements, the
Company changed its fiscal year to end on December 31.
As also discussed in Note 2, the Company's adoption of fresh-start
reporting required reporting calendar 1992 results in two
22 week periods.
<F2> As discussed in Note 2 to the Consolidated Financial Statements,
the Company stopped providing for preferred
dividend requirements in fiscal 1992.
<F3> In connection with the adoption of fresh-start reporting, property,
plant and equipment was adjusted to fair value resulting
in an increase of approximately $77,500 as of August 2, 1992.
<F4> Long-term debt (including debt pertaining to discontinued operations)
totaling $1,055,132 and $1,007,882 was reclassified
to liabilities subject to compromise as of February 29, 1992 and February
23, 1991, respectively.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
-----------------------------------------------------------------
Condition and Results of Operations
-----------------------------------
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.
Effective December 31, 1992, the Company changed its
fiscal year end to December 31. For purposes of this
discussion, calendar 1994 refers to the 12 month period
ended December 31, 1994, calendar 1993 refers to the 12
month period ended December 31, 1993 and calendar 1992
refers to the two five month periods ended December 31, 1992
and August 2, 1992.
On January 24, 1991, INTERCO INCORPORATED and its
domestic subsidiaries filed petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Eastern District of
Missouri (the "Court"). The Company emerged from Chapter 11
effective with the beginning of business on August 3, 1992.
In general, the Plan of Reorganization (the "Plan") provided
for resolution of all claims against the Company as of
January 24, 1991, the Chapter 11 filing date, as well as
resolution of certain legal disputes, in exchange for cash,
new indebtedness and/or new common equity securities. The
Plan provided for no distributions to the holders of the
Company's Series D Preferred Stock, Series E Preferred Stock
or common stock, and all outstanding shares of those equity
securities were cancelled as of the effective date of the
Plan.
As of August 2, 1992, in accordance with AICPA
Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code", the Company
was required to adopt "fresh-start" reporting and reflect
the effects of such adoption in the financial statements as
of August 2, 1992. Accordingly, a vertical black line is
shown to separate post-emergence operations from those prior
to August 3, 1992 in the consolidated financial statements
since they have not been prepared on a comparable basis.
<PAGE>
<TABLE>
Selected financial information for the last three years is
presented below:
<CAPTION>
--------------------------------------------------------------------------------
(In millions except per share data)
Calendar 1992
------------------------
Calendar 1994 Calendar 1993 Five
Months /Five Months
Year Ended Year Ended
Ended / Ended
December 31, December 31, December
31,/ August 2,
1994 1993
1992 / 1992
--------------------------------------------------------------------/-----------
<S> <C> <C> <C>
/ <C>
Net sales $1,072.7 $980.5
$394.9 / $ 356.7
Gross profit 298.7 275.3
108.9 / 96.8
Selling, general and
/
administrative expenses 213.6 201.2
77.0 / 76.4
Earnings from operations 85.1 74.1
31.9 / 20.4
Interest expense 37.9 38.6
16.4 / 29.7
Other income, net 1.7 1.8
2.5 / 0.4
Reorganization items -- -- --
/ 256.7
Income tax expense (benefit) 20.9 15.9
6.8 / (1.2)
Extraordinary item - gain on
/
extinguishment of debt -- -- --
/ 1,075.5
Cumulative effect of accounting
/
changes -- -- --
/ (1.7)
Net earnings per common share:
/
Continuing operations $ 0.54 $ 0.41 $
0.23 / $ --
Total $ 0.74 $ 0.88 $
0.43 / $ --
====================================================================/===========
</TABLE>
<PAGE>
Net Sales
Sales for calendar 1994 were $1.07 billion, an increase of 9.4%
over calendar 1993 which had sales of $0.98 billion. Calendar 1993
sales represented an increase of 10.3% over the comparable (12 month)
period in 1992. For calendar 1992 (ten month period), sales increased
10.2% over the same period in the prior year. The sales performance
for all periods reflects an improving U.S. economy, favorable industry
conditions and product offerings and marketing programs that were well
received by customers.
Gross Profit
Gross profit for calendar 1994 was $298.7 million, compared to
$275.3 million for calendar 1993, an increase of 8.5%. The increase
in gross profit resulted from an increase in sales, partially offset
by a reduction in gross profit margin. The reduction in gross profit
margin, from 28.1% in calendar 1993 to 27.8% in calendar 1994, was
primarily a result of start-up costs at a new $10 million motion
upholstery manufacturing facility, the testing of an $8 million state-
of-the-art finishing facility and the impact of an explosion and fire
that destroyed a particleboard plant in November 1994, partially
offset by favorable factory utilization rates.
Gross profit for calendar 1993 increased 13.4% over the comparable
(12 month) period in 1992. The increase resulted from increases in
sales and gross profit margin. The increase in gross profit margin,
to 28.1% in calendar 1993 from 27.3% for the comparable (12 month)
period in 1992, was a result of favorable factory utilization and
sales of higher margin products resulting from internal profit
improvement programs, partially offset by increased depreciation
expense related to fair value adjustments recorded at August 2, 1992.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $213.6
million in calendar 1994 from $201.2 million in calendar 1993, an
increase of 6.2%. As a percent of net sales, selling, general and
administrative expenses decreased to 19.9% in calendar 1994 from 20.5%
in calendar 1993. The reduction in selling, general and
administrative expenses as a percent of net sales is attributable to
the Company's continuing emphasis on control and reduction of
operating expenses, as well as a nonrecurring $2.6 million charge
included in calendar 1993 related to the Company's 1992
reorganization.
Selling, general and administrative expenses for calendar 1993
increased 10.6% over the comparable (12 month) period in 1992, and, as
a percent of net sales, remained unchanged at 20.5%. Selling, general
and administrative expenses increased due to sales growth and
additional depreciation and amortization related to fair value
adjustments recorded at August 2, 1992, partially offset by the
Company's ongoing efforts to manage expenses relative to revenue
growth.
Interest Expense
Interest expense for calendar 1994 totaled $37.9 million and
reflects approximately one and one-half months of interest expense on
the Company's new debt structure and approximately ten and one-half
months of interest expense on the refinanced long-term debt.
Interest expense for calendar 1993 totaled $38.6 million. As of
August 3, 1992, the Company, in connection with its emergence from
Chapter 11 and pursuant to the Plan, issued long-term debt (along with
cash, common stock and warrants to purchase common stock) to settle
pre-petition liabilities. As a result, interest expense for calendar
1993 was based on the Company's post-emergence debt structure and,
therefore, is not comparable to the same periods of the prior year.
Interest expense for the five months ended December 31, 1992,
which totaled $16.4 million, was also based on the Company's post-
emergence debt structure whereas interest expense for the five months
ended August 2, 1992, which totaled $29.7 million, was based on the
Company's pre-emergence debt structure.
Other Income, Net
Other income, net for calendar 1994, 1993 and 1992 (ten months)
totaled $1.7 million, $1.8 million and $2.9 million, respectively.
For calendar 1994, other income, net consisted of interest income on
short-term investments of $0.8 million and other miscellaneous income
and (expense) items totaling $0.9 million.
Reorganization Items
Reorganization items consist of: adjustments to record assets and
liabilities at fair value in connection with the Company's
implementation of fresh-start reporting; and income, expenses and
other costs directly related to the reorganization of the Company from
the Chapter 11 filing date to its emergence from bankruptcy effective
August 3, 1992. Additional information is presented in Note 4 of the
Notes to Consolidated Financial Statements.
Income Tax Expense (Benefit)
For calendar 1994, the Company provided for income taxes totaling
$20.9 million on earnings before income tax expense totaling
$48.8 million, producing an effective tax rate of 42.8%, compared to
an effective tax rate for calendar 1993 of 42.7%. The effective tax
rates for both years were adversely impacted by certain nondeductible
expenses incurred (amortization of excess reorganization value) and
provisions for state and local taxes, partially offset by certain
deductible expenses provided for in prior years.
The effective tax rate for calendar 1992 was adversely impacted by
certain nondeductible expenses incurred, including a substantial
portion of the expenses relating to the reorganization items, and
provisions for state and local taxes.
Extraordinary Item - Gain on Extinguishment of Debt
Pursuant to the Plan, on the effective date (August 3, 1992) the
Company distributed cash, debt securities, common stock and warrants
to purchase common stock in settlement of its pre-petition
liabilities. The book value of cash and securities distributed was
approximately $1.1 billion less than the pre-petition liabilities, and
the resultant gain was recorded as an extraordinary item.
Cumulative Effect of Accounting Changes
In connection with the adoption of fresh-start reporting, the
Company was required to adopt SFAS No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions", as of August 2, 1992.
The Company recognized the full amount of the initial liability upon
adoption of SFAS No. 106. The cumulative effect of the change on
retained earnings prior to the adoption of fresh-start reporting at
August 2, 1992 was a charge of $1.7 million, net of income taxes of
$0.9 million. In addition, the Company was required to adopt SFAS No.
109, "Accounting for Income Taxes", as of August 2, 1992. The
adoption of SFAS No. 109 had no impact on calendar 1992 continuing
operations.
Net Earnings Per Common Share
Net earnings per common share from continuing operations on both a
primary and fully diluted basis were $0.54 and $0.41 for calendar 1994
and 1993, respectively. Pursuant to the Plan, the Company cancelled
all outstanding equity securities effective with the beginning of
business on August 3, 1992 and issued new common stock. Accordingly,
net earnings per common share for periods prior to August 3, 1992 are
not comparable.
Weighted average shares used in the calculation of primary and
fully diluted net earnings per common share for calendar 1994 were
51,495,000 and 51,506,000, respectively.
Financial Condition
Working Capital
Cash and cash equivalents at December 31, 1994 totaled $32.1
million, compared to $34.8 million at December 31, 1993. For calendar
1994, net cash used by operating activities (including net cash used
by discontinued operations) totaled $6.1 million. Net cash used by
investing activities totaled $15.5 million, including $21.1 million
of capital expenditures incurred to add, upgrade or replace property,
plant and equipment. Net cash provided by financing activities during
calendar 1994 totaled $18.9 million, the majority of which pertained
to increases in long-term debt as a result of the Company's
refinancing and distribution of discontinued operations to the
Company's shareholders.
Working capital was $307.0 million at December 31, 1994, compared
to $271.6 million (excluding net current assets of discontinued
operations) at December 31, 1993. The current ratio was 4.1 to 1 at
December 31, 1994 and December 31, 1993. The increase in working
capital between years is a result of the Company's growth as
demonstrated by the improved sales and earnings performance described
previously.
Financing Arrangements
At December 31, 1994, long-term debt, including current
maturities, totaled $426.3 million, compared to $408.0 million
(excluding long-term debt allocated to discontinued operations) at
December 31, 1993. The increase in long-term debt, totaling $18.3
million, was primarily a result of fees paid by the Company to
complete the shareholder distribution and debt refinancing noted
earlier. The Company's debt-to-capitalization ratio was 60.8% at
December 31, 1994, compared to 54.7% at December 31, 1993. However,
excluding the net equity of discontinued operations (which was
subsequently distributed to the Company's shareholders), the debt-to-
capitalization ratio at December 31, 1993 would have been 60.8%, the
same as reported at December 31, 1994.
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. See Note 8
of the Notes to Consolidated Financial Statements for additional
information. At December 31, 1994, there were no cash borrowings
outstanding under the revolving credit facility; however, there were
$21.7 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 December 31, 1994.
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>
<TABLE>
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
CONSOLIDATED BALANCE SHEET
<CAPTION>
-----------------------------------------------------------------------------
(Dollars in thousands) December 31,
December 31,
1994
1993
-----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 32,145 $
34,809
Receivables, less allowances of
$5,062 ($4,060 at December 31,
1993) (Note 9) 202,270
174,291
Inventories (Note 7) 155,031
134,478
Prepaid expenses and other current
assets 15,122
14,989
Net current assets of discontinued
operations (Note 3) -
262,327
-----------------------------------------------------------------------------
Total current assets 404,568
620,894
Property, plant and equipment:
Land 11,933
11,933
Buildings and improvements 111,076
106,623
Machinery and equipment 115,407
106,354
-----------------------------------------------------------------------------
238,416
224,910
Less accumulated depreciation 57,023
33,329
-----------------------------------------------------------------------------
Net property, plant and equipment 181,393
191,581
Reorganization value in excess of
amounts allocable to identifiable
assets, net (Note 2) 128,414
135,716
Trademarks and trade names, net (Note 2) 147,353
151,274
Other assets 30,150
21,025
-----------------------------------------------------------------------------
$891,878
$1,120,490
=============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term
debt (Note 9) $ 16,574 $
4,739
Accounts payable 37,721
32,426
Accrued employee compensation 19,771
13,101
Accrued interest expense 1,652
3,307
Other accrued expenses 28,015
22,537
Income taxes (6,152)
10,869
-----------------------------------------------------------------------------
Total current liabilities 97,581
86,979
Long-term debt, less current
maturities (Note 9) 409,679
403,255
Net noncurrent liabilities of
discontinued operations (Note 3) -
187,258
Other long-term liabilities 109,224
104,441
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 50,076,515 and
50,004,282 shares at December 31,
1994 and 1993 (Note 10) 50,076
50,004
Paid-in capital 220,788
226,391
Retained earnings 4,530
62,162
-----------------------------------------------------------------------------
Total shareholders' equity 275,394
338,557
-----------------------------------------------------------------------------
$891,878
$1,120,490
=============================================================================
See accompanying notes to consolidated financial statements.<PAGE>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
--------------------------------------------------------------------------------
-----------
(Dollars in thousands except per Five
Months /Five Months
share data) Year Ended Year Ended
Ended / Ended
December 31, December 31,
December 31,/ August 2,
1994 1993
1992 / 1992
-------------------------------------------------------------------------------/
-----------
<S> <C> <C> <C>
/<C>
Net sales $ 1,072,696 $ 980,532 $
394,873 /$ 356,705
Costs and expenses:
/
Cost of operations 752,528 685,749
278,711 / 253,528
Selling, general and administrative
/
expenses 199,333 186,205
70,896 / 74,715
Depreciation and amortization (includes
/
$16,900, $16,463, $6,695 and $0
/
related to fair value adjustments) 35,776 34,455
13,370 / 8,104
-------------------------------------------------------------------------------/
-----------
Earnings from operations 85,059 74,123
31,896 / 20,358
/
Interest expense 37,886 38,621
16,358 / 29,689
Other income, net 1,668 1,764
2,507 / 383
-------------------------------------------------------------------------------/
-----------
Earnings (loss) before reorganization
/
items, income tax expense (benefit),
/
discontinued operations,
/
extraordinary item and cumulative
/
effect of a change in accounting
/
principle 48,841 37,266
18,045 / (8,948)
Reorganization items (Note 4) - -
- / 256,664
-------------------------------------------------------------------------------/
-----------
Earnings before income tax expense
/
(benefit), discontinued operations,
/
extraordinary item and cumulative
/
effect of a change in accounting
/
principle 48,841 37,266
18,045 / 247,716
Income tax expense (benefit) (Note 11) 20,908 15,924
6,807 / (1,206)
-------------------------------------------------------------------------------/
-----------
Net earnings before discontinued
/
operations, extraordinary item and
/
cumulative effect of a change in
/
accounting principle 27,933 21,342
11,238 / 248,922
Discontinued operations (Note 3):
/
Earnings (loss) from operations,
/
net of taxes 25,443 24,026
10,088 / (112,522)
Loss on distribution, net of taxes (15,104) -
- / -
Cumulative effect of accounting change - -
- / (23,825)
-------------------------------------------------------------------------------/
-----------
Net earnings before extraordinary item
/
and cumulative effect of a change in
/
accounting principle 38,272 45,368
21,326 / 112,575
Extraordinary item - gain on
/
extinguishment of debt (Note 5) - -
- / 1,075,466
Cumulative effect on prior years of
/
a change in accounting for
/
postretirement benefits other than
/
pensions and income taxes (Note 6) - -
- / (1,719)
-------------------------------------------------------------------------------/
-----------
Net earnings $ 38,272 $ 45,368 $
21,326 /$ 1,186,322
===============================================================================/
===========
/
Net earnings per common share -
/
primary and fully diluted (Note 2):
/
Net earnings before discontinued
/
operations, extraordinary item and
/
cumulative effect of a change in
/
accounting principle $ 0.54 $ 0.41 $
0.23 /$ 6.42
Discontinued operations 0.20 0.47
0.20 / (3.52)
Extraordinary item - gain on
/
extinguishment of debt - -
- / 27.72
Cumulative effect on prior years of
/
a change in accounting for
/
postretirement benefits other
/
than pensions and income taxes - -
- / (0.04)
-------------------------------------------------------------------------------/
-----------
Net earnings per common share $ 0.74 $ 0.88 $
0.43 /$ 30.58
===============================================================================/
===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
--------------------------------------------------------------------------------
-----------
(Dollars in thousands) Five
Months /Five Months
Year Ended Year Ended
Ended / Ended
December 31, December 31,
December 31,/ August 2,
1994 1993
1992 / 1992
-------------------------------------------------------------------------------/
-----------
Cash Flows from Operating Activities:
/
<S> <C> <C> <C>
/<C>
Net earnings $ 38,272 $ 45,368 $
21,326 /$ 1,186,322
Adjustments to reconcile net earnings
/
to net cash provided (used) by
/
operating activities:
/
Net adjustment in accounts for fair
/
value - -
- / (263,768)
Gain on extinguishment of debt - -
- / (1,075,466)
Net (earnings) loss from discontinued
/
operations (10,339) (24,026)
(10,088)/ 136,347
Cumulative effect of a change in
/
accounting for postretirement
/
benefits other than pensions
/
and income taxes - -
- / 1,719
Depreciation of property, plant and
/
equipment 25,675 24,304
9,140 / 7,793
Amortization of intangible assets 10,101 10,151
4,230 / 311
Noncash interest and other expense 196 2,097
188 / 866
(Increase) decrease in receivables (27,979) (3,237)
(16,400)/ 3,234
(Increase) decrease in income tax
/
refund receivable - -
6,327 / (1,317)
(Increase) decrease in inventories (20,553) (11,072)
6,742 / (2,777)
(Increase) decrease in prepaid
/
expenses and other assets (8,807) (714)
3,553 / (1,805)
Increase (decrease) in accounts
/
payable, accrued interest expense
/
and other accrued expenses 15,788 (3,866)
(26,158)/ 41,343
Increase (decrease) in income taxes (17,021) 3,938
(2,268)/ (375)
Increase (decrease) in net deferred
/
tax liabilities 7,904 969
4,348 / (1,381)
Increase (decrease) in other long-
/
term liabilities (2,676) (886)
3,971 / 2,934
-------------------------------------------------------------------------------/
-----------
Net cash provided by continuing operations 10,561 43,026
4,911 / 33,980
Net cash provided (used) by discontinued
/
operations (16,695) (11,993)
6,773 / (43,818)
-------------------------------------------------------------------------------/
-----------
Net cash provided (used) by operating
/
activities (6,134) 31,033
11,684 / (9,838)
-------------------------------------------------------------------------------/
-----------
Cash Flows from Investing Activities:
/
Proceeds from the disposal of assets 5,621 358
173 / 1,242
Additions to property, plant and
/
equipment (21,108) (30,197)
(8,850)/ (7,041)
-------------------------------------------------------------------------------/
-----------
Net cash used by investing activities (15,487) (29,839)
(8,677)/ (5,799)
-------------------------------------------------------------------------------/
-----------
Cash Flows from Financing Activities:
/
Additions to long-term debt 423,000 -
- / -
Payments of long-term debt (404,741) (20,940)
(19,144)/ -
Proceeds from the issuance of common stock 698 42
- / -
-------------------------------------------------------------------------------/
-----------
Net cash provided (used) by financing
/
activities 18,957 (20,898)
(19,144)/ -
-------------------------------------------------------------------------------/
-----------
Cash Flows from Reorganization Activities:
/
Payments of liabilities subject to
/
compromise - -
- / (241,287)
Payments of deferred financing fees
/
and expenses - -
- / (1,736)
Proceeds from cash held in trust - -
- / 27,351
-------------------------------------------------------------------------------/
-----------
Net cash used by reorganization activities - -
- / (215,672)
-------------------------------------------------------------------------------/
-----------
Net decrease in cash and cash equivalents (2,664) (19,704)
(16,137)/ (231,309)
Cash and cash equivalents at beginning
/
of period 34,809 54,513
70,650 / 301,959
-------------------------------------------------------------------------------/
-----------
Cash and cash equivalents at end of period $ 32,145 $ 34,809 $
54,513 /$ 70,650
===============================================================================/
===========
Supplemental Disclosure:
/
Cash payments (refunds) for income
/
taxes, net $ 37,127 $ 11,115 $
(1,817)/$ 910
===============================================================================/
===========
Cash payments for interest, exclusive
/
of reorganization activities $ 39,345 $ 38,454 $
29,474 /$ 194
===============================================================================/
===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
--------------------------------------------------------------------------------
-------------
(Dollars in thousands)
Retained
Preferred Stock Common Paid-In
Earnings
Series D Series E Stock Capital
(Deficit) Total
--------------------------------------------------------------------------------
-------------
<S> <C> <C> <C> <C> <C>
<C>
Balance February 29, 1992 $ 1,146 $ 3,321 $ 3,873 $ 199,084
$(1,393,946) $(1,186,522)
Net earnings - Five months
ended August 2, 1992
1,186,322 1,186,322
Conversion of preferred
stock:
Series D - 1,600 shares (160) 15 145
-
Foreign currency translations
- Five months ended
August 2, 1992
200 200
Fresh-start adjustments:
Cancellation of former
equity and elimination
of deficit (986) (3,321) (3,888) (199,229)
207,424 -
Issuance of new equity 50,000 225,400
275,400
Net earnings - Five months
ended December 31, 1992
21,326 21,326
Foreign currency translations
- Five months ended
December 31, 1992
(3,612) (3,612)
--------------------------------------------------------------------------------
-------------
Balance December 31, 1992 - - 50,000 225,400
17,714 293,114
Net earnings
45,368 45,368
Common stock activity:
Stock option grants and
exercises (Note 10) 4 988
992
Warrant exercises - 282
shares 3
3
Foreign currency translations
(920) (920)
--------------------------------------------------------------------------------
-------------
Balance December 31, 1993 - - 50,004 226,391
62,162 338,557
Net earnings
38,272 38,272
Common stock activity:
Stock option exercises
(Note 10) 71 615
686
Warrant exercises - 983 shares 1 11
12
Foreign currency translations
2,659 2,659
Distribution of discontinued
operations to shareholders (6,229)
(98,563) (104,792)
--------------------------------------------------------------------------------
-------------
Balance December 31, 1994 $ - $ - $50,076 $ 220,788 $
4,530 $ 275,394
================================================================================
=============
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. The Company
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.
Substantially all of the Company's sales are made to
unaffiliated customers. The Company has a diversified
customer base with no one customer accounting for 10% or more
of consolidated sales and no particular concentration of
credit risk in one economic section. Foreign operations and
sales are not material.
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.
2. Significant Accounting Policies
The significant accounting policies of the Company are set
forth below.
Fresh-Start Reporting
On January 24, 1991, INTERCO INCORPORATED and its domestic
subsidiaries filed petitions for reorganization under Chapter
11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Missouri (the
"Court"). The Company emerged from Chapter 11 effective with
the beginning of business on August 3, 1992. In general, the
Plan of Reorganization (the "Plan") provided for resolution
of all claims against the Company as of January 24, 1991, the
Chapter 11 filing date, as well as resolution of certain
legal disputes, in exchange for cash, new indebtedness and/or
new common equity securities. The Plan provided for no
distributions to the holders of the Company's Series D
Preferred Stock, Series E Preferred Stock or common stock,
and all outstanding shares of those equity securities were
cancelled as of the effective date of the Plan.
As of August 2, 1992, in accordance with AICPA Statement
of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the
Company was required to adopt "fresh-start" reporting and
reflect the effects of such adoption in the financial
statements as of August 2, 1992. The ongoing impact of the
adoption of fresh-start reporting is reflected in the
financial statements for the years ended December 31, 1994
and 1993 and five months ended December 31, 1992.
In adopting fresh-start reporting, the Company, with the
assistance of its financial advisors, was required to
determine its reorganization value, which represents the fair
value of the entity before considering liabilities and
approximates the amount a willing buyer would pay for the
assets of the Company immediately after its emergence from
Chapter 11 status. The reorganization value of the Company
was determined by consideration of several factors,
including: the discounted residual value of the Company;
market share, position and competition of each operating
company; projected sales, profitability growth and working
capital requirements; and general economic considerations.
Various valuation methods were relied upon, including:
discounted cash flow, price/earnings ratios, comparable
merger and acquisition activities and other applicable ratios
and industry indices.
The adjustments to reflect the consummation of the Plan
(including the gain on extinguishment of debt relating to
pre-petition liabilities) and the adjustment to record assets
and liabilities at their fair values (including the
establishment of reorganization value in excess of amounts
allocable to identifiable assets) have been reflected in the
accompanying consolidated financial statements. Accordingly,
a vertical black line is shown in the consolidated financial
statements to separate post-emergence operations from those
prior to August 3, 1992 since they have not been prepared on
a comparable basis.
Fiscal Year
Effective December 31, 1992, the Company changed its
fiscal year end to December 31. Prior to December 31, 1992,
the Company's fiscal year ended on the last Saturday in
February.
For purposes of this annual report, calendar 1994 refers
to the 12 month period ended December 31, 1994, calendar 1993
refers to the 12 month period ended December 31, 1993, and
calendar 1992 refers to the two five month periods ended
December 31, 1992 and August 2, 1992.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and all its subsidiaries, the majority of
which are wholly owned. All material intercompany
transactions are eliminated in consolidation. The operating
companies included in the consolidated financial statements
report their results of operations as of the Saturday closest
to December 31. Accordingly, the results of operations will
periodically include a 53 week fiscal year. Calendar 1994
and calendar 1993 represent 52 week fiscal years. As a
result of adopting fresh-start reporting, calendar 1992
included a 22 week period ended August 2, 1992 and a 22 week
period ended January 2, 1993 for the operating companies.
Cash and Cash Equivalents
The Company considers all short-term investments with an
original maturity of three months or less to be cash
equivalents. Short-term investments are recorded at
amortized cost, which approximates market.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost when
acquired. Expenditures for improvements are capitalized
while normal repairs and maintenance are expensed as
incurred. When properties are disposed of, the related cost
and accumulated depreciation or amortization are removed from
the accounts, and gains or losses on the dispositions are
reflected in results of operations. For
financial reporting purposes, the Company utilizes both
accelerated and straight-line methods of computing
depreciation and amortization. Such expense is computed
based on the estimated useful lives of the respective assets,
which generally range from 3 to 45 years for buildings and
improvements and from 3 to 12 years for machinery and
equipment. In connection with the adoption of fresh-start
reporting, property, plant and equipment were adjusted to
fair value resulting in an increase of approximately $77,500
as of August 2, 1992.
Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets
As a result of adopting fresh-start reporting, the Company
recorded reorganization value in excess of amounts allocable
to identifiable assets of approximately $146,000. This
intangible asset is being amortized on a straight-line basis
over a 20 year period.
Trademarks and Trade Names
In connection with the adoption of fresh-start reporting,
the Company recorded approximately $156,800 in fair value of
trademarks and trade names based upon an independent
appraisal. Such trademarks and trade names are being
amortized on a straight-line basis over a 40 year period.
Reorganization Items
Reorganization items consist of income, expenses and other
costs directly related to the reorganization of the Company
during the Chapter 11 period.
Income Tax Expense (Benefit)
In connection with the adoption of fresh-start reporting,
the Company was required to adopt Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109") as of August 2, 1992. Under the asset and
liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the
enactment date.
Extraordinary Item
The extraordinary item for the five months ended August 2,
1992 represents the gain, net of income taxes, resulting from
the discharge of pre-petition liabilities in accordance with
the Plan.
Cumulative Effect on Prior Years of a Change in Accounting
for Postretirement Benefits other than Pensions and Income
Taxes
In connection with the adoption of fresh-start reporting,
the Company was required to adopt Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" ("SFAS No. 106")
as of August 2, 1992. SFAS No. 106 requires the cost of
these benefits be recognized in the financial statements over
an employee's service period with the Company. Prior to
August 2, 1992, the Company recognized these benefits on a
cash payment basis. The adoption of SFAS No. 106 and SFAS
No. 109 (described above under Income Tax Expense (Benefit))
represents a change in accounting principle.
Net Earnings Per Common Share
Net earnings per common share is based on the weighted
average number of shares of common stock and common stock
equivalents outstanding during the year. Subsequent to the
Company's emergence from Chapter 11, net earnings per common
share is calculated based on the common stock and common
stock equivalents issued in accordance with the Plan. The
stock options and warrants issued (Note 10) are considered
common stock equivalents. Weighted average shares used in
the calculation of primary and fully diluted net earnings per
common share for calendar 1994 were 51,495,000 and
51,506,000, respectively.
Prior to the Company's emergence from Chapter 11, common
stock equivalents and the conversion of Series D Preferred
Stock were not included in computations of net earnings per
common share as they were not dilutive. As a result of the
Chapter 11 filing, the Company stopped providing for
preferred dividend requirements.
Reclassification
Certain calendar 1993 and calendar 1992 amounts have been
reclassified to conform to the calendar 1994 presentation.
3. Discontinued Operations
On November 17, 1994, the Company distributed the common
stock of each of The Florsheim Shoe Company and Converse Inc.
(which, in aggregate, represented the Company's footwear
segment) to its shareholders. In accordance with Accounting
Principles Board Opinion No. 30, the financial results for
the footwear segment are reported as "Discontinued
Operations" and the Company's financial results of prior
periods have been restated. Condensed results of the
discontinued operations were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
----
Eleven Months Five Months / Five
Months
Ended Year Ended Ended /
Ended
November 17, December 31, December 31,/
August 2,
1994 1993 1992 /
1992
-----------------------------------------------------------------------/--------
----
<S> <C> <C> <C> / <C>
Net sales $663,637 $676,282 $267,401 / $
246,868
=======================================================================/========
====
Earnings (loss) before /
reorganization items, /
income tax expense and /
cumulative effect of a /
change in accounting /
principle $ 40,047 $ 38,706 $ 17,831 / $
(1,384)
Reorganization items - - - /
(110,976)
Income tax expense 14,604 14,680 7,743 /
162
-----------------------------------------------------------------------/--------
----
Net earnings (loss) $ 25,443 $ 24,026 $ 10,088 /
$(112,522)
=======================================================================/========
====
Loss on distribution, net /
of taxes of $4,564 $(15,104) $ - $ - / $
-
=======================================================================/========
====
Cumulative effect of /
accounting change $ - $ - $ - / $
(23,825)
=======================================================================/========
====
</TABLE>
The loss on distribution reflects expenses related
to: the distribution of the common stock of The
Florsheim Shoe Company and Converse Inc. to the
Company's shareholders, including certain expenses
associated with establishing the capital structure of
each company; compensation expense accrued as a result
of adjustments required to be made to exercisable
employee stock options; interest expense on certain
long-term debt defeased, net of estimated interest
income to be received from the trustees; and applicable
income taxes.
Prior to the distribution of the common stock of The
Florsheim Shoe Company to its shareholders, the Company
had guaranteed certain of Florsheim's retail store
operating leases. At December 31, 1994, the Company had
guarantees outstanding on 148 retail store leases with a
contingent liability totaling approximately $49,400.
The Florsheim Shoe Company has agreed to indemnify the
Company against any losses incurred as a result of the
lease guarantees.
4. Reorganization Items
Reorganization items included in the consolidated
statement of operations are summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
-
Five Months
Ended
August 2,
1992
--------------------------------------------------------------------------------
-
<S>
<C>
Adjustments to fair value
$263,768
Fees for services rendered
(6,996)
Other reorganization costs
and expenses
(2,179)
Debtor-in-possession financing
fee amortization and expenses
(263)
Interest earned on accumulated
cash resulting from Chapter 11
proceedings
2,334
--------------------------------------------------------------------------------
-
$256,664
================================================================================
=
</TABLE>
Adjustments to fair value reflect the net change to
state assets and liabilities at fair value in accordance
with the provisions of SOP 90-7.
5. Extraordinary Item - Gain on Extinguishment of Debt
The Plan resulted in the discharge of approximately
$2,200,000 of pre-petition liabilities against the
Company through the distribution to creditors of
$293,100 in cash, $642,300 in various debt instruments,
50.0 million shares of common stock and 5.0 million
warrants to purchase common stock. The book value of
cash and securities distributed was approximately
$1,100,000 less than the pre-petition liabilities, and
the resultant gain was recorded as an extraordinary item
for the five months ended August 2, 1992.
6. Cumulative Effect of Accounting Changes
In connection with the adoption of fresh-start
reporting, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits other than
Pensions", as of August 2, 1992. The cumulative effect
of the change on retained earnings, prior to the
adoption of fresh-start reporting at August 2, 1992, was
approximately $1,700, net of approximately $900 in
income taxes. The Company also adopted SFAS No. 109,
"Accounting for Income Taxes", as of August 2, 1992.
The adoption of SFAS No. 109 had no impact on calendar
1992 continuing operations.
7. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
-
December 31,
December 31,
1994
1993
--------------------------------------------------------------------------------
-
<S> <C>
<C>
Finished products $ 66,445
$ 55,453
Work-in-process 36,365
32,460
Raw materials 52,221
46,565
--------------------------------------------------------------------------------
-
$155,031
$134,478
================================================================================
=
</TABLE>
8. Short-Term Financing
In conjunction with the November 17, 1994
distribution of the common stock of The Florsheim Shoe
Company and Converse Inc. to the Company's shareholders,
the Company refinanced the majority of its indebtedness.
As part of this refinancing, the Company entered into a
$360,000 Secured Credit Agreement which includes a
$75,000 revolving credit facility.
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 $35,000, with the limitation increasing by $5,000
annually to a maximum of $50,000. Cash borrowings are
limited only by the facility's maximum availability less
letters of credit outstanding.
As part of the Secured Credit Agreement, the
revolving credit facility is secured by a first priority
lien on and security interest in substantially all of
the Company's assets except for trade receivables. See
Note 9 - Long-Term Debt - for further information
regarding the Secured Credit Agreement.
The outstanding cash borrowings under the revolving
credit facility bear interest at a base (prime) rate
plus 0.75% or at an adjusted Eurodollar rate plus 1.75%,
depending upon which type of loan the Company executes.
The "spread" or margin over the base rate and Eurodollar
rate is subject to a "step down" or reduction when the
Company achieves certain financial performance ratios.
At December 31, 1994, there were no cash borrowings
outstanding under the revolving credit facility.
Under the letter of credit facility, a fee of 1.75%
per annum (subject to the same "step down" as noted
earlier) is assessed for the account of the lenders
ratably. A further fee of 0.25% is assessed on stand-by
letters of credit representing a facing fee. A
customary administrative charge for processing letters
of credit is also payable to the relevant issuing bank.
Letter of credit fees are payable quarterly in arrears.
At December 31, 1994, there were $21,720 in letters of
credit outstanding under the revolving credit facility.
9. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
-
December 31,
December 31,
1994
1993
--------------------------------------------------------------------------------
-
<S> <C>
<C>
Secured credit agreement $285,000
$ -
Receivables securitization facility 130,000
-
Industrial revenue bonds 8,000
12,768
Federal tax obligation 3,253
3,968
10.0% secured notes due 2001 -
104,734
9.0% secured notes due 2004 -
149,274
8.5% secured notes due 1997 -
9,334
Secured term loan -
289,881
ILGWU fund note -
16,150
--------------------------------------------------------------------------------
-
426,253
586,109
Less amount allocated to discontinued
operations -
(178,115)
Less current maturities (16,574)
(4,739)
--------------------------------------------------------------------------------
-
$409,679
$403,255
================================================================================
=
</TABLE>
On November 17, 1994, the Company refinanced the
majority of its long-term debt by entering into a
$360,000 Secured Credit Agreement ($285,000 term loan
facility and $75,000 revolving credit facility) with a
group of banks and a $150,000 Receivables Securitization
Facility. Proceeds from these loan facilities were used
to repay or defease (in the case of the 10.0% Secured
Notes) the majority of the Company's outstanding
indebtedness. In addition, a certain portion of the
Company's long-term debt was allocated to discontinued
operations which was repaid in conjunction with the
refinancing of those operations at the time of their
distribution to the Company's shareholders.
The following discussion summarizes certain
provisions of the long-term debt.
Secured Credit Agreement
The common stock of the Company's principal
subsidiaries, substantially all of the Company's cash,
working capital (other than trade receivables) and
property, plant and equipment, have been pledged or
mortgaged as security for the Secured Credit Agreement.
The Secured Credit Agreement contains a number of
restrictive covenants and events of default, including
covenants limiting capital expenditures and incurrence
of debt, and requires the Company to achieve certain
financial ratios, some of which become more restrictive
over time.
Borrowings under the $285,000 term loan facility bear
interest at a base (prime) rate plus 0.75% or at an
adjusted Eurodollar rate plus 1.75%, depending upon
which type of loan the Company executes. Similar to the
revolving credit facility, the "spread" or margin over
the base rate and Eurodollar rate is subject to a "step
down" or reduction when the Company achieves certain
financial performance ratios.
The Secured Credit Agreement (term loan facility and
revolving credit facility) matures on November 17, 2001.
Interest is payable based upon the type (base rate or
Eurodollar rate) of loan the Company executes; however,
interest is payable quarterly at a minimum. At December
31, 1994, all loans outstanding under the Secured Credit
Agreement were based on the Eurodollar rate.
Mandatory principal payments of the term loan
facility are due on the last business day of March and
September. Annual principal payments are as follows:
Year Amount Year Amount
---- ------ ---- ------
1995 $15,000 1998 $40,000
1996 20,000 1999 50,000
1997 30,000 2000 65,000
2001 65,000
In addition to mandatory principal payments, the term
loan facility requires principal payments from excess
cash flow (as defined in the Secured Credit Agreement),
and a portion of the net proceeds realized from (i) the
sale, conveyance, or other disposition of collateral
securing the debt or (ii) the sale by the Company for
its own account of additional subordinated debt and/or
shares of its preferred and/or common stock.
Receivables Securitization Facility
The Receivables Securitization Facility is an
obligation of the Company which matures on November 15,
1999 and is secured by substantially all of the
Company's trade receivables. The facility operates
through use of a special purpose subsidiary (Interco
Receivables Corp.) which "buys" trade receivables from
the operating companies and "sells" interests in same to
a third party financial institution, which uses the
interests as collateral for borrowings in the commercial
paper market to fund the purchases. The Company has
accounted for this transaction as long-term debt.
The Company pays a commercial paper index rate on all
funds received (outstanding) on the facility. In
addition, a program fee of 0.65% per annum on the entire
$150,000 facility is paid on a monthly basis. The
$130,000 balance outstanding at December 31, 1994 was
unchanged from the original amount drawn under the
facility. The Company may increase or decrease its use
of the facility on a monthly basis subject to the
availability of sufficient trade receivables and the
facility's maximum amount ($150,000). As of December
31, 1994, the Company had $20,000 in excess availability
under the facility.
Industrial Revenue Bonds
On January 21, 1994, the Company entered into a
secured obligation with the Mississippi Business Finance
Corporation to finance the construction of a new
furniture manufacturing facility in Tupelo, Mississippi.
The industrial revenue bonds totaled $8,000 and bear
interest at 8.82% per annum. The bonds mature in annual
installments of $800 beginning January 15, 1995 and are
secured by the facility and equipment included therein.
Because of special tax incentives granted by the State
of Mississippi, the Company will receive certain state
income tax credits based upon the interest and principal
payments made on the bonds.
Federal Tax Obligation
In settlement of certain Federal tax obligations, the
Company entered into an unsecured obligation with the
Internal Revenue Service which matures on August 3,
1998, and bears interest at 8.0%. Interest and
principal are paid quarterly based upon a predetermined
amortization schedule.
Other Information
Maturities of long-term debt are $16,574, $21,639,
$31,709, $41,531 and $180,800 for calendar years 1995
through 1999, respectively.
10. Common Stock
The Company's restated certificate of incorporation
includes authorization to issue up to 100.0 million
shares of common stock with a $1.00 per share stated
value. As of December 31, 1994, 50,076,515 shares of
common stock were issued and outstanding. It is not
presently anticipated that dividends will be paid on
common stock in the foreseeable future and certain of
the debt instruments to which the Company is a party
restrict the payment of dividends.
Shares of common stock were reserved for the
following purposes at December 31, 1994:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
--
NUMBER
OF SHARES
--------------------------------------------------------------------------------
--
<S>
<C>
Common stock options:
Granted
2,643,000
Available for grant
710,000
Common stock warrants
8,397,190
--------------------------------------------------------------------------------
--
11,750,190
================================================================================
==
</TABLE>
On May 5, 1993, shareholders approved the 1992 Stock
Option Plan including an amendment thereto which
increased the number of common shares reserved for
issuance from 2.5 million shares to 3.5 million shares.
Under the Company's 1992 Stock Option Plan, certain key
employees may be granted nonqualified options, incentive
options or combinations thereof. Nonqualified and
incentive options may be granted to expire up to ten
years after the date of grant. Options granted become
exercisable at varying dates depending upon the
achievement of certain performance targets and/or the
passage of certain time periods.
Shareholders also approved an amendment to the 1992
Stock Option Plan authorizing grants of options to
purchase common shares at less than fair market value on
the date of grant. During calendar 1993, an option
grant of 250 thousand common shares was made by the
Company at less than market value resulting in a credit
to paid-in capital and a charge to compensation expense
of approximately $1.0 million.
Changes in options granted and outstanding are
summarized as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
December 31, 1994 December
31, 1993
---------------------
--------------------
Average
Average
Shares Price Shares
Price
----------- ------- ---------
-------
<S> <C> <C> <C>
<C>
Beginning of period 2,915,000 $ 7.39 2,500,000
$ 7.00
Granted 917,000 7.85 461,000
9.58
Exercised (71,250) 7.00 (4,000)
7.00
Cancelled (1,117,750) 7.82 (42,000)
7.92
--------- ------- ---------
-------
End of period 2,643,000 $ 4.64 2,915,000
$ 7.39
========= ======= =========
=======
Exercisable at end of period 954,750 586,750
========= =========
</TABLE>
As a result of the November 17, 1994 distribution of
the common stock of The Florsheim Shoe Company and
Converse Inc. to the Company's shareholders, options
granted to the employees of those operating companies
were cancelled. In addition, the exercise prices of the
remaining options were adjusted to reflect the
distribution in accordance with the antidulution
provisions of the 1992 Stock Option Plan.
The Company issued, upon emergence from Chapter 11
status, approximately 5.0 million warrants to purchase
common stock. Each warrant entitled the holder thereof
to purchase one share of common stock at $12.00 per
share; provided however, that in the event of certain
distributions of assets, the purchase price and number
of shares of common stock would be subject to adjustment
in accordance with the antidilution provisions of the
warrant agreement. The November 17, 1994 distribution
to shareholders resulted in the number of warrants
increasing by approximately 3.4 million and the exercise
price decreasing to $7.13 per share. The warrants,
which expire on August 3, 1999, were issued in two
series; Series 1 warrants include a five year call
protection, whereas Series 2 warrants do not include
such a feature. All other terms and conditions of the
two series of warrants are identical. The warrants
trade on the over-the-counter market.
In accordance with the Plan, all shares of the
Company's common stock outstanding prior to the Plan's
effective date were cancelled, as were all option shares
outstanding, shares available for grant, existing stock
option plans and common share purchase rights.
<PAGE>
11. Income Taxes
Income tax expense (benefit) was comprised of the
following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Five Months
/Five Months
Year Ended Year Ended Ended /
Ended
December 31, December 31, December 31,/
August 2,
1994 1993 1992 /
1992
--------------------------------------------------------------------/-----------
<S> <C> <C> <C> /
<C>
Current: /
Federal $10,095 $11,788 $1,443 /
$(1,463)
State and local 2,909 3,167 1,016 /
1,638
--------------------------------------------------------------------/-----------
13,004 14,955 2,459 /
175
Deferred 7,904 969 4,348 /
(1,381)
--------------------------------------------------------------------/-----------
$20,908 $15,924 $6,807 /
$(1,206)
====================================================================/===========
</TABLE>
The following table reconciles the differences between the Federal
corporate statutory rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
--------------------------------------------------------------------/-----------
Five Months
/Five Months
Year Ended Year Ended Ended /
Ended
December 31,December 31, December 31,/
August 2,
1994 1993 1992 /
1992
--------------------------------------------------------------------/-----------
<S> <C> <C> <C> /
<C>
Federal corporate /
statutory rate 35.0% 35.0% 34.0%/
34.0%
State and local income /
taxes, net of Federal /
tax benefit 2.9 4.2 2.8 /
0.4
Reorganization items - - - /
(35.5)
Amortization of excess /
reorganization value 5.2 6.8 5.7 /
-
Other (0.3) (3.3) (4.8)/
0.6
--------------------------------------------------------------------/-----------
Effective income tax rate 42.8% 42.7% 37.7%/
(0.5)%
====================================================================/===========
</TABLE>
The sources of the tax effects for temporary differences that give rise to
the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
December 31,
December 31,
1994
1993
-------------------------------------------------------------------------------
<S> <C>
<C>
Deferred tax assets:
Expense accruals $ 6,109
$ 4,973
Valuation reserves 3,027
3,089
Inventory costs capitalized 1,534
1,418
Interest expense -
8,199
Employee pension plans -
4,607
Other 2,404
1,684
-------------------------------------------------------------------------------
Total gross deferred tax assets 13,074
23,970
Valuation allowance -
-
-------------------------------------------------------------------------------
Total net deferred tax assets 13,074
23,970
Deferred tax liabilities:
Fair value adjustments (70,690)
(77,299)
Employee pension plans (6,139)
-
Depreciation (4,441)
(6,703)
Other (7,575)
(7,835)
-------------------------------------------------------------------------------
Total deferred tax liabilities (88,845)
(91,837)
-------------------------------------------------------------------------------
Net deferred tax liabilities $(75,771)
$(67,867)
===============================================================================
/TABLE
<PAGE>
<TABLE>
The net deferred tax liabilities are included in the consolidated balance
sheet as follows:
<CAPTION>
-------------------------------------------------------------------------------
December 31,
December 31,
1994
1993
-------------------------------------------------------------------------------
<S> <C>
<C>
Prepaid expenses and other current assets $ 12,089
$ 12,534
Other long-term liabilities (87,860)
(80,401)
-------------------------------------------------------------------------------
$(75,771)
$(67,867)
===============================================================================
</TABLE>
The Federal income tax returns of the Company and its
major subsidiaries have been examined by the Internal
Revenue Service ("IRS") through February 23, 1991. For
tax periods beginning January 1, 1982 and ending
February 23, 1991, the Company settled claims by the IRS
by entering into an unsecured obligation of
approximately $4,800 (See Note 9).
12. Employee Benefits
The Company sponsors or contributes to retirement
plans covering substantially all employees. The total
cost of all plans for calendar 1994, calendar 1993 and
calendar 1992 (ten months) was $6,303, $5,716 and
$4,085, respectively.
Company-Sponsored Defined Benefit Plans
Annual cost for defined benefit plans is determined
using the projected unit credit actuarial method. Prior
service cost is amortized on a straight-line basis over
the average remaining service period of employees
expected to receive benefits.
It is the Company's practice to fund pension costs to
the extent that such costs are tax deductible and in
accordance with ERISA. The assets of the various plans
include corporate equities, government securities,
corporate debt securities and insurance contracts. The
table below summarizes the funded status of the Company-
sponsored defined benefit plans.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
December 31,
December 31,
1994
1993
--------------------------------------------------------------------------------
<S> <C>
<C>
Actuarial present value of benefit obligations:
Vested benefit obligation $179,006
$168,844
=======================
Accumulated benefit obligation $182,903
$171,533
=======================
Projected benefit obligation $202,148
$192,608
Plan assets at fair value 217,535
188,573
--------------------------------------------------------------------------------
Projected benefit obligation less than
(greater than) plan assets 15,387
(4,035)
Unrecognized net loss 3,886
928
Unrecognized prior service cost (515)
7,599
--------------------------------------------------------------------------------
Prepaid pension cost $ 18,758 $
4,492
================================================================================
</TABLE>
Net periodic pension cost for calendar 1994, 1993 and 1992 includes the
following components:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Five Months /Five
Months
Year Ended Year Ended Ended /
Ended
December 31, December 31, December 31,/
August 2,
1994 1993 1992 /
1992
--------------------------------------------------------------------/-----------
<S> <C> <C> <C> /
<C>
Service cost-benefits earned /
during the period $ 4,758 $ 4,575 $ 1,868 / $
1,888
Interest cost on the projected /
benefit obligation 13,682 12,818 5,419 /
5,311
Actual return on plan assets (159) (16,863) (11,269)/
(1,779)
Net amortization and deferral (16,297) 1,377 5,007 /
(4,340)
--------------------------------------------------------------------/-----------
Net periodic pension cost $ 1,984 $ 1,907 $ 1,025 / $
1,080
====================================================================/===========
</TABLE>
Employees are covered primarily by noncontributory
plans, funded by Company contributions to trust funds,
which are held for the sole benefit of employees.
Monthly retirement benefits are based upon service and
pay with employees becoming vested upon completion of
five years of service.
The expected long-term rate of return on plan assets
was 8.0%-9.5% in calendar 1994, 1993 and 1992.
Measurement of the projected benefit obligation was
based upon a weighted average discount rate of 8.00%,
7.25% and 7.75% and a long-term rate of compensation
increase of 4.5%, 4.5% and 5.0% for calendar 1994, 1993
and 1992, respectively.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company
makes contributions to a defined contribution plan and
sponsors an employee savings plan. The cost of these
plans is included in the total cost for all plans
reflected above.
13. Lease Commitments
Certain of the Company's real properties and
equipment are operated under lease agreements expiring
at various dates through the year 2005. Leases covering
equipment generally require, in addition to stated
minimums, contingent rentals based on usage. Generally,
the leases provide for renewal for various periods at
stipulated rates.
<PAGE>
<TABLE>
Rental expense under operating leases was as follows:
<CAPTION>
--------------------------------------------------------------------------------
Five Months
/Five Months
Year Ended Year Ended Ended /
Ended
December 31, December 31, December 31,/
August 2,
1994 1993 1992 /
1992
---------------------------------------------------------------------/----------
-
<S> <C> <C> <C> /
<C>
Basic rentals $11,553 $10,704 $3,727 /
$4,043
Contingent rentals 385 570 1,436 /
1,578
---------------------------------------------------------------------/----------
-
11,938 11,274 5,163 /
5,621
Less: sublease rentals 54 132 219 /
256
---------------------------------------------------------------------/----------
-
$11,884 $11,142 $4,944 /
$5,365
=====================================================================/==========
=
</TABLE>
Future minimum lease payments under operating leases,
reduced by minimum rentals from subleases of $830 at
December 31, 1994, aggregate $32,226. Annual minimum
payments under operating leases are $9,248, $7,697,
$4,749, $3,595 and $2,712 for 1995 through 1999,
respectively.
14. Fair Value of Financial Instruments
The Company considers the carrying amounts of cash
and cash equivalents, receivables and accounts payable
to approximate fair value because of the short maturity
of these financial instruments.
The Secured Credit Agreement and Receivables
Securitization Facility are also considered to be
carried on the financial statements at their estimated
fair values because they were entered into recently
(November 17, 1994) and both accrue interest at rates
which generally fluctuate with interest rate trends.
The Industrial Revenue Bonds and Federal Tax
Obligation are considered special purpose financing as
an incentive to acquire specific real estate and for
settlement of certain claims. Accordingly, the Company
believes the carrying amounts approximate fair value
given the circumstances under which such financings were
acquired.
15. Litigation
Notwithstanding the confirmation and effectiveness of
the Plan, the Court continues to have jurisdiction,
among other things, to resolve disputed pre-petition
claims against the Company, to resolve matters related
to the assumption, assumption and assignment, or
rejection of executory contracts pursuant to the Plan,
and to resolve other matters that may arise in
connection with or relate to the Plan. Pursuant to the
Plan, the Company, on the effective date, paid into a
Disputed Claims Trust the face amount of certain claims
still to be resolved. Since those unresolved claims
were funded at their face amounts, the Company has no
further financial exposure with respect to those claims.
The Company is or may become a defendant in a number
of pending or threatened legal proceedings in the
ordinary course of business. In the opinion of
management, the ultimate liability, if any, of the
Company from all such proceedings will not have a
material adverse effect upon the consolidated financial
position or results of operations of the Company and its
subsidiaries.
16. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Following is a summary of unaudited quarterly information:
--------------------------------------------------------------------------------
--
Fourth Third Second
First
Quarter Quarter Quarter
Quarter
--------------------------------------------------------------------------------
--
<S> <C> <C> <C>
<C>
Year ended December 31, 1994:
Net sales $277,244 $254,496 $272,203
$268,753
Gross profit 76,937 71,697 75,894
74,184
Net earnings:
Continuing operations 10,796 5,366 5,863
5,908
Discontinued operations (11,952) 7,042 5,480
9,769
Total $ (1,156) $ 12,408 $ 11,343
$ 15,677
Net earnings per common
share:
Continuing operations $ 0.21 $ 0.10 $ 0.12
$ 0.11
Total $ (0.02) $ 0.24 $ 0.22
$ 0.30
Common stock price range
(High-Low) $147/8-61/8 $153/4-133/4 $147/8-123/8
$153/4-131/8
================================================================================
==
Year ended December 31, 1993:
Net sales $251,771 $240,317 $242,191
$246,253
Gross profit 69,763 66,795 68,244
70,521
Net earnings:
Continuing operations 6,069 4,060 4,912
6,301
Discontinued operations 6,806 5,134 3,989
8,097
Total $ 12,875 $ 9,194 $ 8,901
$ 14,398
Net earnings per common
share:
Continuing operations $ 0.11 $ 0.08 $ 0.10
$ 0.12
Total $ 0.25 $ 0.18 $ 0.17
$ 0.28
Common stock price range
(High-Low) $153/8-13 $145/8-12 $153/4-123/8
$147/8-93/8
================================================================================
==
</TABLE>
The Company has not paid cash dividends on its common
stock during the two years ended December 31, 1994. The
closing market price of the Company's common stock on
December 31, 1994 was $6.75 per share.
The 1994 fourth quarter common stock price range
reflects the impact of the November 17, 1994
distribution of the discontinued operations to the
Company's shareholders.
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
Not applicable.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
Pages 4 to 6 of the Company's Definitive Proxy Statement for the
Annual Meeting of Stockholders on April 27, 1995 are incorporated herein by
reference.
Executive Officers of the Registrant
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Richard B. Loynd 67 Chairman of the Board of the
Former Subsidiary - Converse Inc. 1982
Vice-President 1987
Director X 1987
President X 1989
Chief Operating Officer 1989
Chief Executive Officer X 1989
Chairman of the Board X 1990
Brent B. Kincaid 63 President and Chief Executive
Officer of the Subsidiary -
Broyhill Furniture Industries,
Inc. X 1992
K. Scott Tyler, Jr.55 President of the Subsidiary -
The Lane Company, Incorporated X 1989
Chief Executive Officer of the
Subsidiary - The Lane Company,
Incorporated X 1991
David P. Howard 44 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Duane A. Patterson 63 Secretary X 1973
Director 1991
Vice-President X 1992
Steven W. Alstadt 40 Controller X 1994
The following officer retired on September 1, 1994.
Eugene F. Smith 62 Senior Vice-President, Finance 1982
Executive Vice-President 1989
The following officers are no longer executive officers of the Company as
of November 17, 1994 because of the spin-off of The Florsheim Shoe Company
and Converse Inc.
Ronald J. Mueller 60 President and Chief Executive
Officer of the Division -
The Florsheim Shoe Company 1985
Vice-President 1987
Gilbert Ford 63 President and Chief Executive
Officer of the Subsidiary -
Converse Inc. 1986
_________________________
* Member of the Executive Committee
There are no family relationships between any of the
executive officers of the Registrant.
The executive officers are elected at the
organizational meeting of the Board of Directors which
follows the annual meeting of stockholders and serve
for one year and until their successors are elected and
qualified.
Each of the executive officers has held the same
position or other positions with the same employer
during the past five years.
Item 11. Executive Compensation
-------------------------------
Pages 6 to 12 of the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders on April 27, 1995,
are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
------------------------------------------------------------
Management
----------
Pages 2 to 4 of the Company's Definitive Proxy Statement for
the Annual Meeting of Stockholders on April 27, 1995, are
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------
Page 6 of the Company's Definitive Proxy Statement for the
Annual Meeting of Stockholders on April 27, 1995, is
incorporated herein by reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and
------------------------------------------------------------
Reports on Form 8-K
-------------------
(a) List of documents filed as part of this report:
1. Financial Statements:
Consolidated balance sheet, December 31, 1994 and
December 31, 1993.
Consolidated statement of operations for the year
ended December 31, 1994, for the year ended
December 31, 1993, and for the five months ended
December 31, 1992 and August 2, 1992.
Consolidated statement of cash flows for the year
ended December 31, 1994, for the year ended
December 31, 1993, and for the five months ended
December 31, 1992 and August 2, 1992.
Consolidated statement of shareholders' equity for
the year ended December 31, 1994, for the year
ended December 31, 1993 and for the ten months
ended December 31, 1992.
Notes to consolidated financial statements.
Independent Auditors' Report
Financial statements of the Registrant have been
omitted since there are no restrictions as to the
transfer of funds from its subsidiaries and the net
assets of the subsidiaries are generally not
restricted. 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.
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II).
All other schedules are omitted as the required
information is presented in the consolidated financial
statements or related notes or are not applicable.
3. Exhibits:
3(a) Restated Certificate of Incorporation of the
Company, as amended (Incorporated by
reference to Exhibit 4(a) to INTERCO
INCORPORATED's Quarterly Report on Form 10-Q
for the quarter ended on March 31, 1993.)
3(b) By-Laws of the Company revised and amended to
May 5, 1993. (Incorporated by reference to
Exhibit 4(b) to INTERCO INCORPORATED's
Quarterly Report on Form 10-Q for the quarter
ended on March 31, 1993.)
4(a) 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. (Incorporated by
reference to Exhibit 10(a) to INTERCO
INCORPORATED's Current Report on Form 8-K,
dated January 24, 1995.)
4(b) Purchase and Contribution Agreement, dated as
of November 15, 1994, among The Lane Company,
Incorporated, Action Industries, Inc. and
Broyhill Furniture Industries, Inc. as
Sellers and Interco Receivables Corp. as
Purchaser. (Incorporated by reference to
Exhibit 10(b) to INTERCO INCORPORATED's
Current Report on Form 8-K, dated January 24,
1995.)
4(c) Receivables Purchase Agreement, dated as of
November 15, 1994 among Interco Receivables
Corp. as the Seller and Atlantic Asset
Securitization Corp. as an Investor and
Credit Lyonnais New York Branch as the Agent.
(Incorporated by reference to Exhibit 10(c)
to INTERCO INCORPORATED's Current Report on
Form 8-K, dated January 24, 1995.)
4(d) Warrant Agreement, dated as of August 3,
1992, between the Company and Society
National Bank, as Warrant Agent.
(Incorporated by reference to Exhibit 4.5 to
INTERCO INCORPORATED's Current Report on Form
8-K, dated August 18, 1992.)
4(e) Agreement to furnish upon request of the
Commission copies of other instruments
defining the rights of holders of long-term
debt of the Company and its subsidiaries
which debt does not exceed 10% of the total
assets of the Company and its subsidiaries on
a consolidated basis. (Incorporated by
reference to Exhibit 4(c) to INTERCO
INCORPORATED's Annual Report on Form 10-K for
the year ended February 28, 1981.)
10(a) INTERCO INCORPORATED's 1992 Stock Option
Plan. (Incorporated by reference to Exhibit
10(b) to INTERCO INCORPORATED's Annual Report
on Form 10-K for the year ended December 31,
1992.)
10(b) Form of Indemnification Agreement between the
Company and Richard B. Loynd, Donald E.
Lasater and Lee M. Liberman. (Incorporated
by reference to Exhibit 10(h) to INTERCO
INCORPORATED's Annual Report on Form 10-K for
the year ended February 29, 1988.)
10(c) Consulting Agreement, dated as of September
23, 1992, between the Company and Apollo
Advisors, L.P. (Incorporated by reference to
Exhibit 10(e) to INTERCO INCORPORATED's
Annual Report on Form 10-K for the year ended
December 31, 1992.)
10(d) Registration Rights Agreement, dated as of
August 3, 1992, among the Company, Apollo
Investment Fund, L.P. and Altus Finance.
(Incorporated by reference to Exhibit 10(f)
to INTERCO INCORPORATED's Annual Report on
Form 10-K for the year ended December 31,
1992.)
10(e) Registration Rights Agreement, dated as of
August 3, 1992, between the Company and
Apollo Interco Partners, L.P. (Incorporated
by reference to Exhibit 10(g) to INTERCO
INCORPORATED's Annual Report on Form 10-K for
the year ended December 31, 1992.)
10(f) Written description of bonus plan for
management personnel of the Lane Company,
Incorporated.
10(g) Retirement Plan for directors.
10(h) INTERCO Corporate Executive Incentive Plan.
10(i) Broyhill Furniture Industries, Inc. Executive
Incentive Plan.
11 Statement regarding computation of per share
earnings.
21 List of Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99(a) Distribution and Services Agreement, dated
November 17, 1994, between the Company and
Converse Inc. (Incorporated by reference to
Exhibit 99(a) to INTERCO INCORPORATED's
Annual Report on Form 8-K, dated December 2,
1994.)
99(b) Tax Sharing Agreement, dated November 17,
1994, between the Company and Converse Inc.
(Incorporated by reference to Exhibit 99(b)
to INTERCO INCORPORATED's Annual Report on
Form 8-K, dated December 2, 1994.)
99(c) Distribution and Services Agreement, dated
November 17, 1994, among the Company, The
Florsheim Shoe Company and certain of its
subsidiaries. (Incorporated by reference to
Exhibit 99(c) to INTERCO INCORPORATED's
Annual Report on Form 8-K, dated December 2,
1994.)
99(d) INTERCO/Florsheim Tax Sharing Agreement,
dated November 17, 1994, among the Company,
The Florsheim Shoe Company and certain of its
subsidiaries. (Incorporated by reference to
Exhibit 99(d) to INTERCO INCORPORATED's
Annual Report on Form 8-K, dated December 2,
1994.)
(b) Reports on Form 8-K.
A Form 8-K was filed on December 2, 1994 reporting the
dispositions of Converse Inc. and The Florsheim Shoe
Company and a Form 8-K was filed on January 24, 1995
summarizing the Company's credit agreements and filing
the agreements as exhibits thereto.
SHAREHOLDERS REQUESTING COPIES OF EXHIBITS TO FORM
10-K WILL BE SUPPLIED ANY OR ALL SUCH EXHIBITS
AT A CHARGE OF TEN CENTS PER PAGE.
<PAGE>
INTERCO INCORPORATED AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Consolidated Financial Statements:
Consolidated balance sheet, December 31, 1994 and
December 31, 1993.
Consolidated statement of operations for the year ended
December 31, 1994, for the year ended December 31, 1993,
and for the five months ended December 31, 1992 and
August 2, 1992.
Consolidated statement of cash flows for the year ended
December 31, 1994, for the year ended December 31, 1993,
and for the five months ended December 31, 1992 and
August 2, 1992.
Consolidated statement of shareholders' equity for the
year ended December 31, 1994, for the year ended
December 31, 1993 and for the ten months ended December
31, 1992.
Notes to consolidated financial statements.
Independent Auditors' Report
Consolidated Financial Statement Schedules:
Schedule
--------
Valuation and qualifying accounts II
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
-----------
INTERCO INCORPORATED AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in
Thousands)
-----------------------------------------------
Additions
Balance at Charged to
Deductions Balance at
Beginning Costs and from
End of
Description of Period Expenses
Reserves Period
----------- --------- ---------
---------- ----------
<S> <C> <C> <C>
<C>
Year Ended December 31, 1994
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 3,847 $ 3,372 $
(2,405) (a)$ 4,814
Allowance for cash discounts 213 306
(271) (b) 248
------- -------
-------- -------
$ 4,060 $ 3,678 $
(2,676) $ 5,062
======= =======
======== =======
Year Ended December 31, 1993
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 3,372 $ 1,723 $
(1,248) (a)$ 3,847
Allowance for cash discounts 385 103
(275) (b) 213
------- -------
-------- -------
$ 3,757 $ 1,826 $
(1,523) $ 4,060
======= =======
======== =======
Five Months Ended December 31, 1992
-----------------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 5,309 $ (125) $
(1,812) (a)$ 3,372
Allowance for cash discounts 530 17
(162) (b) 385
------- -------
-------- -------
$ 5,839 $ (108) $
(1,974) $ 3,757
======= =======
======== =======
Five Months Ended August 2, 1992
--------------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 3,452 $ 1,913 $
(56) (a)$ 5,309
Allowance for cash discounts 494 260
(224) (b) 530
------- -------
-------- -------
$ 3,946 $ 2,173 $
(280) $ 5,839
======= =======
======== =======
(a) Uncollectible accounts written off, net of recoveries.
(b) Cash discounts taken by customers.
See accompanying independent auditors' report.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
INTERCO INCORPORATED:
We have audited the consolidated financial
statements of INTERCO INCORPORATED and subsidiaries as
listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we
also have audited the financial statement schedule as
listed in the accompanying index. These consolidated
financial statements and financial statement schedule
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all
material respects, the financial position of INTERCO
INCORPORATED and subsidiaries at December 31, 1994 and
1993, and the results of their operations and their
cash flows for the year ended December 31, 1994, year
ended December 31, 1993, five months ended December 31,
1992 and five months ended August 2, 1992 in conformity
with generally accepted accounting principles. Also,
in our opinion, the related financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as a whole,
presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 2 to the consolidated
financial statements, effective August 2, 1992, INTERCO
INCORPORATED was required to adopt "fresh-start"
reporting principles in accordance with AICPA Statement
of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." As a
result, the financial statements for the period
subsequent to the adoption of fresh-start reporting are
presented on a different cost basis than that for prior
periods and, therefore, are not comparable.
As discussed in Notes 2 and 6 to the consolidated
financial statements, the company changed its method of
accounting for postretirement benefits and income taxes
in calendar year 1992.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
January 31, 1995
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 Richard B. Loynd
------------------------
Richard B. Loynd
Chairman of the Board
Date: March 29, 1995
Pursuant to the requirement of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated on March 29, 1995.
Signature Title
--------- -----
Richard B. Loynd Chairman of the Board,
--------------------------- President and Director
(Richard B. Loynd) (Principal Executive Officer)
Donald E. Lasater Director
---------------------------
(Donald E. Lasater)
Lee M. Liberman Director
---------------------------
(Lee M. Liberman)
Leon D. Black Director
---------------------------
(Leon D. Black)
Craig M. Cogut Director
---------------------------
(Craig M. Cogut)
Robert H. Falk Director
---------------------------
(Robert H. Falk)
Michael S. Gross Director
---------------------------
(Michael S. Gross)
John J. Hannan Director
---------------------------
(John J. Hannan)
Bruce A. Karsh Director
---------------------------
(Bruce A. Karsh)
John H. Kissick Director
---------------------------
(John H. Kissick)
Matthew J. Morahan Director
---------------------------
(Matthew J. Morahan)
Eric B. Siegel Director
---------------------------
(Eric B. Siegel)
Basil Vasiliou Director
---------------------------
(Basil Vasiliou)
David P. Howard Vice President
--------------------------- (Principal Financial Officer)
(David P. Howard)
Steven W. Alstadt Controller
--------------------------- (Principal Accounting Officer)
(Steven W. Alstadt)
Exhibit 10(f)
INTERCO INCORPORATED
Summary of Terms of Bonus Plan
------------------------------
BONUS PLAN WITH
THE LANE COMPANY, INCORPORATED
A bonus plan was in effect during the calendar year ended
December 31, 1994 whereby all management personnel of The Lane
Company, Incorporated, including K. Scott Tyler, were entitled to
receive a bonus equal to a predetermined percentage of the pre-
tax earnings of The Lane Company, Incorporated.<PAGE>
Exhibit 10(g)
INTERCO INCORPORATED
Retirement Plan for Directors
1. Purpose The purpose of the INTERCO INCORPORATED
Retirement Plan for Directors ("Plan") is to provide retirement
benefits for non-employee directors of INTERCO INCORPORATED
("INTERCO") following the termination of their service on the
Board of Directors of INTERCO ("Board"), under the terms and
conditions set forth hereinafter. The Board has determined that
the establishment of such benefits will be useful in INTERCO's
efforts to retain and to attract highly qualified individuals to
serve on the Board.
2. Eligibility Except as otherwise provided in Section 3(a),
a non-employee director, in order to be eligible to receive
benefits under the Plan, must have attained age 62 and have at
least five (5) consecutive years of service as a non-employee
director of INTERCO. Service as a non-employee director shall
mean such service while the director is not an employee of
INTERCO or of a division or subsidiary of INTERCO. A non-
employee director who serves in that capacity at any time after
January 1, 1994 shall have a vested right under the Plan if he or
she has both attained age 62 while serving as a non-employee
director and completed five (5) consecutive years of service as a
non-employee director.
3. Benefits (a) The level of benefits ("Benefit Rate")
will be determined as a percentage of the annual retainer for
non-employee directors in effect at the time of the non-employee
director's termination of service as a director ("Termination
Rate") in accordance with the following schedule:
Years of Service as a Percentage of
Non-Employee Director Termination Rate
--------------------- ----------------
5 years 50%
6 years 60%
7 years 70%
8 years 80%
9 years 90%
10 years or more 100%
(b) The Benefit Rate will be paid for the life of the non-
employee director commencing with the last day of the month next
following the later of the date of his or her termination of
service as a non-employee director or attainment of age 62.
4. Miscellaneous The Executive Compensation and Stock
Option Committee of the Board shall have plenary authority to
interpret and to apply the terms of the Plan and to take such
additional action consistent with the purpose of the Plan as is,
in their sole judgment, just and equitable.
Each former non-employee director receiving benefits under the
Plan, and in consideration therefor, shall be expected to be
available upon reasonable request to consult with the Chief
Executive Officer of INTERCO and with the Board on a reasonable
basis and to an extent not inconsistent with the former non-
employee director's retirement.
The benefits contemplated hereunder shall not be funded by trust
or otherwise, but shall be treated as a general expense of
INTERCO.
The rights and benefits inuring to any non-employee director
under the Plan may not be assigned, alienated or anticipated.
All benefits payable under the Plan shall be reduced by any
amounts required to be withheld therefrom pursuant to federal,
state and local law.
Nothing in the Plan shall give any non-employee director the
right to be retained as a director of INTERCO.
INTERCO reserves the right to amend from time to time or at any
time to terminate the Plan; provided, however, that any vested
right may not be reduced or terminated by amendment or
termination of the Plan.<PAGE>
Exhibit 10(h)
INTERCO CORPORATE
EXECUTIVE INCENTIVE PLAN
February 1995
<PAGE>
TABLE OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 1
OBJECTIVES OF PLAN . . . . . . . . . . . . . . . . . . . . . 1
Objectives . . . . . . . . . . . . . . . . . . . . . . . 1
Award Achievement . . . . . . . . . . . . . . . . . . . 1
PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . 2
Eligibility . . . . . . . . . . . . . . . . . . . . . . 2
Participation . . . . . . . . . . . . . . . . . . . . . 2
Non-Eligibility . . . . . . . . . . . . . . . . . . . . 2
Plan Year . . . . . . . . . . . . . . . . . . . . . . . 2
HOW THE PLAN WORKS . . . . . . . . . . . . . . . . . . . . . 2
Plan Factors . . . . . . . . . . . . . . . . . . . . . . 2
Notification of Participation . . . . . . . . . . . . . 3
Setting INTERCO Goals . . . . . . . . . . . . . . . . . 3
MECHANICS OF DETERMINING AWARDS . . . . . . . . . . . . . . . 3
Definitions of Terms . . . . . . . . . . . . . . . . . . 3
Mechanics of Determining Awards . . . . . . . . . . . . 4
DISCRETIONARY AWARDS PROGRAM . . . . . . . . . . . . . . . . 4
PAYMENT OF AWARDS . . . . . . . . . . . . . . . . . . . . . . 5
NO CONTRACT OF EMPLOYMENT . . . . . . . . . . . . . . . . . . 5
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . . 6
EXHIBIT II . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
INTERCO CORPORATE
EXECUTIVE INCENTIVE PLAN
------------------------
1. INTRODUCTION
------------
This Executive Incentive Plan (the "Plan") has been designed
for those management persons at the corporate offices of INTERCO
INCORPORATED ("INTERCO") who directly and substantially influence
achievement of certain corporate goals. The Plan provides
monetary awards for the achievement of those goals. In select
cases, the Plan provides for additional special discretionary
awards.
The Plan is in addition to and assumes the existence of a
base salary which is competitive, equitable, and subject to
periodic performance-related adjustments.
INTERCO believes that the total annual income of key
employees should be influenced by their individual and collective
effort, and that rewards should directly relate to the
achievement of planned, meaningful results.
2. OBJECTIVES OF PLAN
------------------
A. Objectives. The Plan has been created with several
objectives in mind:
(1) to emphasize achievement of planned strategic
objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives
through meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the
Plan is designed to:
(1) provide for monetary awards of significant value
related directly to measurable INTERCO results;
(2) motivate participating individuals to achieve
results beyond the routine of position
responsibilities; and
(3) be appropriate for both the level of
responsibility and total compensation for the
position.
Total compensation, resulting from the combination of
base salary and monetary awards under the Plan, is
designed to be competitive with total compensation for
similar positions in American industry.
3. PARTICIPATION
-------------
A. Eligibility. Only management persons whose performance
directly and substantially influences the annual
results of INTERCO will be considered for participation
in the Plan. Ordinarily the extent of such influence
will be reflected in the Bonus Percentage (as herein
defined).
B. Participation
(1) At the start of each Plan Year INTERCO management
will submit a list of proposed participants and
Bonus Percentages for review and approval by the
Executive Compensation and Stock Option Committee
of the INTERCO Board of Directors (the
"Committee"). The Committee may in its discretion
change the participants and Bonus Percentages.
(2) To earn an award, an individual must be designated
a participant for the Plan Year and must
participate effectively for a minimum of eight
full months of the Plan Year.
(3) A participant who has lost time due to illness, or
dies, retires or becomes totally disabled during
the Plan Year, will be considered for an award
under the Plan provided that his/her influence on
goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
---------------
(1) Any individual whose employment is terminated at
any time during the Plan Year by reason of
voluntary or encouraged resignation, or who is
discharged, will not receive an award.
(2) Any individual who has been demoted at any time
during the Plan Year to a position not included in
the Plan will not receive an award.
D. Plan Year. The Plan Year will correspond with the
INTERCO calendar fiscal year.
4. HOW THE PLAN WORKS
------------------
A. Plan Factors. There are two factors which will be
measured in order to determine an award: opportunity
and INTERCO performance.
(1) Opportunity is the potential impact that a
participant may have on the achievement of goals.
This is expressed by the Bonus Percentage.
(2) INTERCO Performance is the result of achievement.
This is measured by the percentage of attainment
of INTERCO's goals.
B. Notification of Participation. Each participant's
target Bonus Percentage will be communicated each Plan
Year by delivery of the Participation Form (see Exhibit
II).
C. Setting INTERCO Goals. At or prior to the beginning of
each Plan Year, INTERCO management will recommend to
the Committee for approval, one or more objective
measurable performance goals for INTERCO (the "Goals")
for such year, and the weighting to be assigned to each
Goal. The Goals will be realistic, yet rigorous. They
will be attainable, but attainment will require above
average performance. The Committee may, in its
discretion, approve management's recommendations or
change the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
-------------------------------
A. Definitions of Terms
--------------------
(1) Bonus Percentage. The Bonus Percentage will be
expressed as a percentage (not less than 10% and
not more than 50%) of the participant's base
salary. That percentage will increase with
significant increases in responsibility, thus
recognizing the direct relationship between
position responsibility and influence on INTERCO
results. Participants who are promoted during a
Plan Year to a position with a higher Bonus
Percentage will receive a prorated award based on
the percentage of the Plan Year spent in each
position.
(2) Aggregate Target Amount. The Aggregate Target
Amount will be expressed as a dollar amount,
calculated by multiplying the participant's base
annual salary rate (in effect on October 1 of the
Plan Year) by the Bonus Percentage. The result
will be the total award to which the participant
will be entitled if INTERCO achieves 100% of all
3
<PAGE>
Goals for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted
Target Amount will be calculated by multiplying
the Aggregate Target Amount by the weighted
percentage applicable to the Goal. The result for
each Goal will be the portion of the total award
to which the participant will be entitled if
INTERCO achieves 100% of that Goal for that Plan
Year. The sum of the Weighted Target Amounts will
equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
-------------------------------
(1) INTERCO Performance. INTERCO's performance
against the Goals will be measured by the
percentage of achievement of each Goal. INTERCO's
performance with respect to each Goal will be
based upon audited results.
(2) Achievement of Target. The Plan is designed to
provide the participant with 100% of his/her
Weighted Target Amount with respect to each Goal
if INTERCO achieves 100% satisfaction of that
Goal.
(3) Minimum INTERCO Performance. Each Plan Year the
Committee will establish a minimum percentage with
respect to each Goal. Achievement below the
minimum percentage will result in no award with
respect to that Goal.
Under certain circumstances, the Committee may
establish Goals the achievement of which
contemplate reducing rather than increasing an
amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage
which will be applied to the Weighted Target
Amount for such Goal will be inversely
proportional to the performance against the Goal.
For example, if a Goal is a year-end debt amount
and the actual year-end debt is 105% of the Goal,
the percentage of Weighted Target Amount to be
paid with respect to that Goal would be 95%. In
these circumstances, the minimum performance
percentage will be expressed in terms of a figure
greater than 100%.
(4) Calculation of Award. The percentage of INTERCO's
achievement of each Goal will be applied to the
Weighted Target Amount for that Goal to determine
the amount of the award payable with respect to
that Goal. Awards will be calculated separately
for each Goal, but will be aggregated and paid as
one award check. The examples set forth in
Exhibit I illustrate this calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective
is to recognize the performance of INTERCO through a more
qualitative evaluation, rather than a quantitative evaluation.
This could occur, for example, if INTERCO does not achieve one or
more Goals due to business or economic reasons beyond its control
but, given these adverse circumstances, nonetheless performed
well. Under such circumstances, a special award may be granted
at the discretion of the Committee.
7. PAYMENT OF AWARDS. Awards, to the extent immediately
deductible as compensation expense by INTERCO for federal income
tax purposes, less appropriate withholdings, will be paid by
check as soon as practical after the audited close of a fiscal
year. To the extent all or any portion of an award is not
immediately deductible as compensation expense by INTERCO for
federal income tax purposes, payment of such award or portion
thereof, as the case may be, will be deferred until following
termination of employment of the participant, whereupon such
award or such portion thereof, as the case may be, plus simple
interest at INTERCO's effective borrowing rate for the period of
deferral, less appropriate withholdings, will be paid by check as
soon as the same shall become immediately deductible as
compensation expense by INTERCO for federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall
not be considered an agreement to employ a participant for any
period of time or in any position.
EXHIBIT I
Assumptions:
Participant's Base Salary $100,000
Bonus Percentage x 20% of base
salary
-------
Aggregate Target Amount $20,000
Weighted INTERCO Goals:
Goal 1 (e.g., Net Sales) Weighted 20%
Goal 2 (e.g., Pre-Tax Profit) Weighted 40%
Goal 3 (e.g., Cash Flow) Weighted 40%
Weighted Target Amounts:
Goal 1 ($20,000 x 20%) $ 4,000
Goal 2 ($20,000 x 40%) $ 8,000
Goal 3 ($20,000 x 40%) $ 8,000
-------
$20,000
Example 1:
INTERCO Goal Achievement:
Goal 1 90% of Goal
Goal 2 100% of Goal
Goal 3 110% of Goal
Award Payable:
Goal 1 (90% x $4,000) $ 3,600
Goal 2 (100% x $8,000) $ 8,000
Goal 3 (110% x $8,000) $ 8,800
-------
TOTAL $20,400
Example 2:
INTERCO Goal Achievement:
Goal 1 100% of Goal
Goal 2 50% of Goal
Goal 3 160% of Goal
Award Payable:
Goal 1 (100% x $4,000) $ 4,000
Goal 2 (0% x $8,000) $ 0
Goal 3 (160% x $8,000) $12,800
-------
TOTAL $16,800
---------------------------
No award for achievement below minimum percentage of the
Goal [e.g, 60%]
EXHIBIT II
INTERCO CORPORATE
EXECUTIVE INCENTIVE PLAN
------------------------
Participation Form
------------------
PARTICIPANT: _____________________________________________
BONUS PERCENTAGE FOR 1995: ____________ % OF BASE SALARY
MINIMUM
GOALS FOR 1995 AMOUNT WEIGHTING PERCENT
Net Sales $1,126,330,800 20% 60%
Pre-Tax Earnings $ 51,283,050 40% 60%
Pre-Tax Cash Flow (*) $ 32,558,000 40% 60%
(*) Defined as pre-tax cash generated after debt
service and excludes all impact of reconstruction
of Broyhill's Particleboard Plant in excess of
$5,000,000
<PAGE>
Exhibit 10(i)
BROYHILL FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
February 1995
TABLE OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 1
OBJECTIVES OF PLAN . . . . . . . . . . . . . . . . . . . . . 1
Objectives . . . . . . . . . . . . . . . . . . . . . . . 1
Award Achievement . . . . . . . . . . . . . . . . . . . 1
PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . 2
Eligibility . . . . . . . . . . . . . . . . . . . . . . 2
Participation . . . . . . . . . . . . . . . . . . . . . 2
Non-Eligibility . . . . . . . . . . . . . . . . . . . . 2
Plan Year . . . . . . . . . . . . . . . . . . . . . . . 2
HOW THE PLAN WORKS . . . . . . . . . . . . . . . . . . . . . 2
Plan Factors . . . . . . . . . . . . . . . . . . . . . . 2
Notification of Participation . . . . . . . . . . . . . 3
Setting Broyhill Goals . . . . . . . . . . . . . . . . . 3
MECHANICS OF DETERMINING AWARDS . . . . . . . . . . . . . . . 3
Definitions of Terms . . . . . . . . . . . . . . . . . . 3
Mechanics of Determining Awards . . . . . . . . . . . . 4
DISCRETIONARY AWARDS PROGRAM . . . . . . . . . . . . . . . . 4
PAYMENT OF AWARDS . . . . . . . . . . . . . . . . . . . . . . 5
NO CONTRACT OF EMPLOYMENT . . . . . . . . . . . . . . . . . . 5
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . . 6
EXHIBIT II . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
BROYHILL FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
------------------------
1. INTRODUCTION
------------
This Executive Incentive Plan (the "Plan") has been designed for
those management persons at the corporate offices of Broyhill
Furniture Industries, Inc. ("Broyhill") who directly and
substantially influence achievement of certain corporate goals.
The Plan provides monetary awards for the achievement of those
goals. In select cases, the Plan provides for additional special
discretionary awards.
The Plan is in addition to and assumes the existence of a base
salary which is competitive, equitable, and subject to periodic
performance-related adjustments.
Broyhill believes that the total annual income of key employees
should be influenced by their individual and collective effort,
and that rewards should directly relate to the achievement of
planned, meaningful results.
2. OBJECTIVES OF PLAN
------------------
A. Objectives. The Plan has been created with several
objectives in mind:
(1) to emphasize achievement of planned strategic objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives through
meaningful compensation opportunities.
B.Award Achievement. To achieve these objectives, the Plan is
designed to:
(1)provide for monetary awards of significant value related
directly to measurable Broyhill results;
(2)motivate participating individuals to achieve results beyond
the routine of position responsibilities; and
(3)be appropriate for both the level of responsibility and total
compensation for the position.
Total compensation, resulting from the combination of base salary
and monetary awards under the Plan, is designed to be competitive
with total compensation for similar positions in American
industry.
3. PARTICIPATION
-------------
A. Eligibility. Only management persons whose performance
directly and substantially influences the annual
results of Broyhill will be considered for
participation in the Plan. Ordinarily the extent of
such influence will be reflected in the Bonus
Percentage (as herein defined).
B. Participation
-------------
(1) At the start of each Plan Year Broyhill management
will submit a list of proposed participants and
Bonus Percentages for review and approval by the
Executive Compensation and Stock Option Committee
of the INTERCO INCORPORATED Board of Directors
(the "Committee"). The Committee may in its
discretion change the participants and Bonus
Percentages.
(2) To earn an award, an individual must be designated
a participant for the Plan Year and must
participate effectively for a minimum of eight
full months of the Plan Year.
(3) A participant who has lost time due to illness, or
dies, retires or becomes totally disabled during
the Plan Year, will be considered for an award
under the Plan provided that his/her influence on
goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
---------------
(1) Any individual whose employment is terminated at
any time during the Plan Year by reason of
voluntary or encouraged resignation, or who is
discharged, will not receive an award.
(2) Any individual who has been demoted at any time
during the Plan Year to a position not included in
the Plan will not receive an award.
D. Plan Year. The Plan Year will correspond with the
Broyhill calendar fiscal year.
4. HOW THE PLAN WORKS
------------------
A. Plan Factors. There are two factors which will be
measured in order to determine an award: opportunity
and Broyhill performance.
(1) Opportunity is the potential impact that a
participant may have on the achievement of goals.
This is expressed by the Bonus Percentage.
(2) Broyhill Performance is the result of achievement.
This is measured by the percentage of attainment
of Broyhill's goals.
B. Notification of Participation. Each participant's
target Bonus Percentage will be communicated each Plan
Year by delivery of the Participation Form (see Exhibit
II).
C. Setting Broyhill Goals. At or prior to the beginning
of each Plan Year, Broyhill management will recommend
to the Committee for approval, one or more objective
measurable performance goals for Broyhill (the "Goals")
for such year, and the weighting to be assigned to each
Goal. The Goals will be realistic, yet rigorous. They
will be attainable, but attainment will require above
average performance. The Committee may, in its
discretion, approve management's recommendations or
change the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
-------------------------------
A. Definitions of Terms
--------------------
(1) Bonus Percentage. The Bonus Percentage will be
expressed as a percentage (not less than 10% and
not more than 70%) of the participant's base
salary. That percentage will increase with
significant increases in responsibility, thus
recognizing the direct relationship between
position responsibility and influence on Broyhill
results. Participants who are promoted during a
Plan Year to a position with a higher Bonus
Percentage will receive a prorated award based on
the percentage of the Plan Year spent in each
position.
(2) Aggregate Target Amount. The Aggregate Target
Amount will be expressed as a dollar amount,
calculated by multiplying the participant's base
annual salary rate (in effect on October 1 of the
Plan Year) by the Bonus Percentage. The result
will be the total award to which the participant
will be entitled if Broyhill achieves 100% of all
Goals for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted
Target Amount will be calculated by multiplying
the Aggregate Target Amount by the weighted
percentage applicable to the Goal. The result for
each Goal will be the portion of the total award
to which the participant will be entitled if
Broyhill achieves 100% of that Goal for that Plan
Year. The sum of the Weighted Target Amounts will
equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
-------------------------------
(1) Broyhill Performance. Broyhill's performance
against the Goals will be measured by the
percentage of achievement of each Goal.
Broyhill's performance with respect to each Goal
will be based upon audited results.
(2) Achievement of Target. The Plan is designed to
provide the participant with 100% of his/her
Weighted Target Amount with respect to each Goal
if Broyhill achieves 100% satisfaction of that
Goal.
(3) Minimum Broyhill Performance. Each Plan Year the
Committee will establish a minimum percentage with
respect to each Goal. Achievement below the
minimum percentage will result in no award with
respect to that Goal.
Under certain circumstances, the Committee may
establish Goals the achievement of which
contemplate reducing rather than increasing an
amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage
which will be applied to the Weighted Target
Amount for such Goal will be inversely
proportional to the performance against the Goal.
For example, if a Goal is a year-end debt amount
and the actual year-end debt is 105% of the Goal,
the percentage of Weighted Target Amount to be
paid with respect to that Goal would be 95%. In
these circumstances, the minimum performance
percentage will be expressed in terms of a figure
greater than 100%.
(4) Calculation of Award. The percentage of
Broyhill's achievement of each Goal will be
applied to the Weighted Target Amount for that
Goal to determine the amount of the award payable
with respect to that Goal. Awards will be
calculated separately for each Goal, but will be
aggregated and paid as one award check. The
examples set forth in Exhibit I illustrate this
calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective
is to recognize the performance of Broyhill through a more
qualitative evaluation, rather than a quantitative evaluation.
This could occur, for example, if Broyhill does not achieve one
or more Goals due to business or economic reasons beyond its
control but, given these adverse circumstances, nonetheless
performed well. Under such circumstances, a special award may be
granted at the discretion of the Committee.
7. PAYMENT OF AWARDS. Awards, to the extent immediately
deductible as compensation expense by Broyhill for federal income
tax purposes, less appropriate withholdings, will be paid by
check as soon as practical after the audited close of a fiscal
year. To the extent all or any portion of an award is not
immediately deductible as compensation expense by Broyhill for
federal income tax purposes, payment of such award or portion
thereof, as the case may be, will be deferred until following
termination of employment of the participant, whereupon such
award or such portion thereof, as the case may be, plus simple
interest at Broyhill's effective borrowing rate for the period of
deferral, less appropriate withholdings, will be paid by check as
soon as the same shall become immediately deductible as
compensation expense by Broyhill for federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall
not be considered an agreement to employ a participant for any
period of time or in any position.
EXHIBIT I
---------
Assumptions:
Participant's Base Salary $100,000
Bonus Percentage x 20% of base
salary
--------
Aggregate Target Amount $20,000
Weighted Broyhill Goals:
Goal 1 (e.g., Net Sales) Weighted 20%
Goal 2 (e.g., Pre-Tax Profit) Weighted 40%
Goal 3 (e.g., Cash Flow) Weighted 40%
Weighted Target Amounts:
Goal 1 ($20,000 x 20%) $ 4,000
Goal 2 ($20,000 x 40%) $ 8,000
Goal 3 ($20,000 x 40%) $ 8,000
-------
$20,000
Example 1:
Broyhill Goal Achievement:
Goal 1 90% of Goal
Goal 2 100% of Goal
Goal 3 110% of Goal
Award Payable:
Goal 1 (90% x $4,000) $ 3,600
Goal 2 (100% x $8,000) $ 8,000
Goal 3 (110% x $8,000) $ 8,800
-------
TOTAL $20,400
Example 2:
Broyhill Goal Achievement:
Goal 1 100% of Goal
Goal 2 50% of Goal
Goal 3 160% of Goal
Award Payable:
Goal 1 (100% x $4,000) $ 4,000
Goal 2 (0% x $8,000) $ 0
Goal 3 (160% x $8,000) $12,800
-------
TOTAL $16,800
No award for achievement below minimum percentage of the
Goal [e.g, 60%]
EXHIBIT II
----------
BROYHILL FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
------------------------
Participation Form
------------------
PARTICIPANT: _____________________________________________
BONUS PERCENTAGE FOR 1995: ____________ % OF BASE SALARY
MINIMUM
GOALS FOR 1995 AMOUNT WEIGHTING PERCENT
Net Sales $514,690,050 33.3% 60%
Pre-Tax Earnings $ 53,959,500 33.3% 60%
Pre-Tax Cash Flow (*) $ 46,446,000 33.3% 60%
(*) Excludes all impact of reconstruction of
Particleboard Plant.
<TABLE>
<CAPTION>
INTERCO INCORPORATED
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
Year Year Five Months Five Months
Ended Ended Ended Ended
December 31, December 31, December 31, August 2,
1994 1993 1992 (5) 1992 (6)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares outstanding during the
period.............................................. 50,035,868 50,001,110 50,000,000 38,795,695
Common shares issuable if all Series D preferred stock
had been converted at the date of issuance.......... - - - -
Common shares issuable on exercise of stock options (1) 789,958 850,349 - -
Common shares issuable on exercise of warrants (2).... 669,006 523,991 - -
Weighted average common and common equivalent shares
outstanding for primary calculation................. 51,494,832 51,375,450 50,000,000 38,795,695
Fully diluted:
Weighted average common and common equivalent shares
outstanding for primary calculation................ 51,494,832 51,375,450 50,000,000 38,795,695
Common shares issuable on exercise of stock options (3) 11,519 21,216 - -
Common shares issuable on exercise of warrants (4)... - - - -
Weighted average common and common equivalent shares
outstanding for fully diluted calculation.......... 51,506,351 51,396,666 50,000,000 38,795,695<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.
(5) Subsequent to the Company's emergence from Chapter 11, net
earnings per common share was calculated based on the common stock issued
in accordance with the Plan of Reorganization. The stock options and
warrants issued pursuant to the Plan were considered common stock
equivalents, but were not dilutive for purposes of computing net earnings
per common share for the five months ended December 31, 1992.
(6) Prior to the emergence from Chapter 11, common stock
equivalents and the conversion of Series D Preferred Stock were not
included in the computations of net earnings per common share as they were
not dilutive. Pursuant to the Plan of Reorganization, the Company
cancelled all outstanding equity securities effective with the beginning
of business on August 3, 1992 and issued new common stock. Accordingly,
net earnings per common share prior to August 3, 1992, are not comparable.<PAGE>
</TABLE>
Exhibit 21
List of Subsidiaries of INTERCO
Name of Subsidiary Jurisdiction of
Incorporation
------------------ --------------
Action Transport, Inc. Delaware
Action Industries, Inc. Virginia
Broyhill Furniture Industries, Inc. North Carolina
Broyhill Transport, Inc. North Carolina
Interco Receivables Corp. Delaware
Interfashions Industries, Inc., S.A. Costa Rica
Lane Advertising, Inc. Virginia
The Lane Company, Incorporated Virginia
Textilera Tres Rios, S.A. Costa Rica<PAGE>
Exhibit 23
Independent Auditor's Consent
The Board of Directors
INTERCO INCORPORATED
We consent to incorporation by reference in registration
statement (No. 33-65714) on Form S-8 of INTERCO INCORPORATED of
our report dated January 31, 1995, relating to the consolidated
balance sheets of INTERCO INCORPORATED and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated
statements of operations, shareholders' equity, and cash flows
and related schedule for the year ended December 31, 1994, year
ended December 31, 1993, five months ended December 31, 1992, and
five months ended August 2, 1992, which report appears in the
December 31, 1994 annual report on Form 10-K of INTERCO
INCORPORATED.
Our report dated January 31, 1995, contains explanatory
paragraphs that describe the adoption of fresh start reporting
principles and the changes in accounting for postretirement
benefits and income taxes.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
March 29, 1995<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 32,145
<SECURITIES> 0
<RECEIVABLES> 207,332
<ALLOWANCES> 5,062
<INVENTORY> 155,031
<CURRENT-ASSETS> 404,568
<PP&E> 238,416
<DEPRECIATION> 57,023
<TOTAL-ASSETS> 891,878
<CURRENT-LIABILITIES> 97,581
<BONDS> 409,679
<COMMON> 50,076
0
0
<OTHER-SE> 225,318
<TOTAL-LIABILITY-AND-EQUITY> 891,878
<SALES> 1,072,696
<TOTAL-REVENUES> 1,072,696
<CGS> 752,528
<TOTAL-COSTS> 752,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,372
<INTEREST-EXPENSE> 37,886
<INCOME-PRETAX> 48,841
<INCOME-TAX> 20,908
<INCOME-CONTINUING> 27,933
<DISCONTINUED> 10,339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,272
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
