<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 29, 1995
INTERCO INCORPORATED
--------------------
(Exact name of Registrant as specified in charter)
I-91 43-0337683
Delaware ----------- -------------
- -------------------------- (Commission (IRS Employer
(State of Incorporation) File Number Identification Number)
101 South Hanley Road, St. Louis, Missouri 63105
------------------------------------------------
(Address of principal executive offices)
(314) 863-1100
--------------
(Registrant's telephone number)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements, pro forma financial information and
exhibits are filed as parts of this report.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
CONSOLIDATED FINANCIAL STATEMENTS OF THOMASVILLE FURNITURE INDUSTRIES INC. AND
SUBSIDIARIES:
<TABLE>
<S> <C>
Independent Auditors' Report............................................................................. 4
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992............... 5
Consolidated Balance Sheets as of December 31, 1994 and 1993............................................. 6
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1994, 1993 and 1992......................................................................... 7
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992......................................................................... 8
Notes to Consolidated Financial Statements............................................................... 9
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THOMASVILLE FURNITURE INDUSTRIES INC. AND SUBSIDIARIES:
Consolidated Statements of Operations for the nine months ended September 30, 1995 and 1994 (Unaudited).. 29
Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994 (Unaudited)................... 30
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 (Unaudited).. 31
Notes to Consolidated Financial Statements (Unaudited)................................................... 32
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Consolidated Balance Sheet at September 30, 1995.................................... 35
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 1995... 37
Unaudited Pro Forma Consolidated Statement of Operations for the twelve months ended December 31, 1994.. 38
</TABLE>
(c) EXHIBITS.
2 Stock Purchase Agreement by and among Armstrong World Industries,
Inc., Armstrong Enterprises, Inc. and the Company, dated as of
November 18, 1995.*
23 Independent Auditors' Consent
99(a) Credit Agreement among the Company, Broyhill Furniture Industries,
Inc., The Lane Company, Incorporated, Thomasville Furniture
Industries Inc., Various Banks, Credit Lyonnais New York Branch, as
Documentation Agent, Nationsbank, N.A., as Syndication Agent, and
Bankers Trust Company, as Administration Agent, dated as of November
17, 1994 and amended and restated as of December 29, 1995.*
2
<PAGE>
99(b) Receivables Purchase Agreement, dated as of November 15, 1994, as
amended and restated as of December 29, 1995, among Interco
Receivables Corp., as the Seller, and Atlantic Asset Securitization
Corp., as an Investor, and Credit Lyonnais New York Branch, as the
Agent.*
__________
*Previously filed
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Thomasville Furniture Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Thomasville
Furniture Industries, Inc. and subsidiaries as of December 31, 1994 and 1993 and
the related consolidated statements of operations, shareholder's equity and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 Thomasville
Furniture Industries, Inc. and subsidiaries at December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in notes 2 and 13, effective January 1, 1992, the Company changed
its method of accounting to adopt the provisions of the Statement of Financial
Accounting Standards (SFAS) 106, Employers' Accounting for Postretirement
Benefits Other than Pensions, and SFAS 112, Employers' Accounting for
Postemployment Benefits. As discussed in notes 2 and 11, effective January 1,
1992, the Company changed its method of accounting to adopt the provisions of
SFAS 109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
Greensboro, North Carolina
January 20, 1995, except as to
note 1, which is as of
April 7, 1995
4
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1994, 1993 and 1992
(In thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Net sales $526,643 449,583 437,915
Cost of goods sold 420,931 371,834 368,603
-------- ------- -------
Gross profit 105,712 77,749 69,312
Selling, general and administrative expenses 66,862 57,118 56,805
Restructuring charges 1,000 582 4,768
-------- ------- -------
Income from operations 37,850 20,049 7,739
Other income (expenses):
Interest expense (11,389) (10,250) (11,955)
Interest income 543 608 100
Other income, net of expenses 626 4,834 698
-------- ------- -------
(10,220) (4,808) (11,157)
-------- ------- -------
Income (loss) before income taxes and
cumulative effects of changes in
accounting principles 27,630 15,241 (3,418)
Income taxes 11,011 6,493 (29)
-------- ------- -------
Income (loss) before cumulative effects
of changes in accounting principles 16,619 8,748 (3,389)
Cumulative effects of changes in accounting
principles:
Postretirement benefits, net of income tax benefit
of $7,459 - - (14,479)
Postemployment benefits, net of income tax benefit
of $622 - - (1,208)
-------- ------- -------
Net income (loss) $ 16,619 8,748 (19,076)
======== ======= =======
Earnings per share:
Income (loss) per share before
cumulative effects of changes in
accounting principles $2.22 1.17 (.45)
Cumulative effects of changes in
accounting principles - - (2.09)
-------- ------- -------
Net income (loss) per share $2.22 1.17 (2.54)
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
(In thousands)
ASSETS
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Current assets:
Cash $ 160 700
Trade notes and accounts receivable, less allowance
for doubtful accounts, returns and allowances,
and discounts of $11,870 in 1994 and $8,906 in 1993 71,000 57,290
Inventories 64,774 67,199
Deferred taxes 8,189 6,633
Prepaid expenses 452 227
-------- -------
Total current assets 144,575 132,049
-------- -------
Property, plant and equipment, net 103,534 101,462
Deferred taxes 2,636 1,753
Intangible and other assets, net 5,282 5,078
-------- -------
$256,027 240,342
======== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable to banks $ - 43
Trade accounts payable 33,517 18,626
Income taxes payable 4,444 3,793
Accrued expenses and other current liabilities 22,014 19,613
-------- -------
Total current liabilities 59,975 42,075
Notes payable to Armstrong, net 135,699 156,474
Long-term debt 8,000 8,000
Other liabilities 33,651 31,710
-------- -------
Total liabilities 237,325 238,259
-------- -------
Shareholder's equity:
Common stock: $1 par value. Authorized
14 million shares, 7.5 million shares issued
and outstanding 7,500 7,500
Contributed capital 4,376 4,376
Retained earnings (deficit) 6,826 (9,793)
-------- -------
Total shareholder's equity 18,702 2,083
Commitments and contingencies
$256,027 240,342
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
(In thousands)
<TABLE>
<CAPTION>
Contributed Retained Total
Common Capital Earnings Stockholder's
Stock by AWI (Deficit) Equity
----------- -------- --------- --------------
<S> <C> <C> <C> <C>
Balances at December 31, 1991 $7,500 4,376 535 12,411
Net loss - - (19,076) (19,076)
------ -------- ------- -------
Balances at December 31, 1992 7,500 4,376 (18,541) (6,665)
Net income - - 8,748 8,748
------ -------- ------- -------
Balances at December 31, 1993 7,500 4,376 (9,793) 2,083
Net income - - 16,619 16,619
------ -------- ------- -------
Balances at December 31, 1994 $7,500 4,376 6,826 18,702
====== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 16,619 8,748 (19,076)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation of property, plant and equipment 11,948 11,510 11,727
Amortization of other assets, principally
intangibles 257 1,493 1,212
Additions to other assets (461) - (711)
Deferred taxes (2,439) (2,419) (2,968)
Other liabilities 1,941 3,037 2,654
Gain on sale of property, plant and equipment (55) (2,403) (35)
Cumulative effects of changes in accounting
principles - - 15,687
Changes in current assets and liabilities:
Trade notes and accounts receivable (13,710) 1,633 (3,967)
Inventories 2,425 131 (213)
Prepaid expenses (225) (220) (44)
Notes payable to banks (43) (242) 18
Trade accounts payable 14,891 2,187 336
Income taxes payable 651 3,092 (698)
Accrued expenses and other current liabilities 2,401 3,092 4,315
-------- ------- -------
Net cash provided by operating activities 34,200 29,639 8,237
-------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 126 4,295 1,885
Additions to property, plant and equipment (14,091) (10,035) (8,320)
-------- ------- -------
Net cash used in investing activities (13,965) (5,740) (6,435)
-------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - - 666
Principal payments on long-term debt - (994) -
Free cash flow transferred to Armstrong (20,775) (22,231) (2,567)
Net cash used in financing activities (20,775) (23,225) (1,901)
Net increase (decrease) in cash and
cash equivalents (540) 674 (99)
Cash and cash equivalents at beginning of year 700 26 125
-------- ------- -------
Cash and cash equivalents at end of year $ 160 700 26
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(All amounts in thousands)
(1) General Information and Basis of Presentation
---------------------------------------------
Thomasville Furniture Industries, Inc. (TFI) (also the "Company") is a
wholly-owned subsidiary of Armstrong Enterprises, Inc. ("Enterprises"), a
wholly-owned subsidiary of Armstrong World Industries, Inc.
("Armstrong"). The Company was reincorporated in Pennsylvania on April
7, 1995, and all data has been adjusted to reflect the changes in the
Company's capital structure affected in such reincorporation.
The Company operates in one business segment, the manufacture and
distribution of furniture, related components and accessories. The
Company distributes its products through retailers of residential
furniture, including furniture specialty stores, mass merchants and
department stores.
The accompanying consolidated financial statements are presented as if
the Company had existed as a corporation separate from Armstrong during
the periods presented and include the historical assets, liabilities,
revenues and expenses that are directly related to the Company's
operations. All material intercompany transactions have been eliminated.
For the periods presented, certain expenses reflected in the financial
statements include allocations of certain corporate expenses from
Armstrong. These allocations include expenses for general management,
treasury, legal, benefits administration, insurance, tax compliance and
other miscellaneous services. The allocation of expenses was generally
based on actual costs incurred.
Management believes that the foregoing allocations were made on a
reasonable basis; however, the allocations of costs and expenses do not
necessarily indicate the costs that would have been or will be incurred
by the Company on a stand-alone basis. Also, the financial information
included in the financial statements may not necessarily reflect the
financial position, results of operations and cash flows of the Company
in the future or what the financial position, results of operations and
cash flows would have been if the Company had been a separate stand-alone
9
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
company during the periods presented.
The Company participates in Armstrong's centralized cash management
program, pursuant to which cash receipts are remitted to Armstrong and
cash disbursements are funded by Armstrong, with Armstrong retaining any
excess cash.
(2) Summary of Significant Accounting Policies
------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of Thomasville Furniture Industries, Inc. and its subsidiaries, all of
which are wholly-owned. All significant intercompany balances and
transactions have been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost or market. In 1994 and
1993, approximately 77% of the Company's inventories are valued using the
last-in, first-out (LIFO) cost method, which is not in excess of market.
All other inventories in 1994 and 1993 are valued at the lower of first-
in, first-out (FIFO) cost or market (net realizable value).
10
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation on
plant and equipment is generally calculated on the straight-line method
over the estimated useful lives of the assets. Estimated useful lives
are as follows:
Buildings 20 to 50 years
Machinery and equipment 3 to 15 years
Major renewals and betterments are capitalized. Maintenance, repairs
and minor renewals are expensed as incurred. When properties are retired
or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss recorded in other
income (expense).
INTANGIBLE ASSETS
Intangible assets consist principally of values assigned to trade
names and goodwill, which represent the excess of purchase price over
fair value of net assets acquired. These assets are being amortized on a
straight-line method over the expected periods to be benefited, generally
2 to 25 years. The Company assesses the recoverability of these
intangible assets by determining whether the amortization of the balance
over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of intangible
assets impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Company's average cost of funds.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs amounted to $11, $290 and nil in 1994, 1993 and 1992,
respectively.
11
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards SFAS 109, Accounting for
Income Taxes. Prior to the year ended December 31, 1992, the Company
followed the provisions of SFAS 96, Accounting for Income Taxes. The
cumulative effect of that change in the method of accounting for income
taxes was not material to the 1992 consolidated statement of operations.
Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION AND RELATED RECEIVABLES
The Company's only line of business is the manufacture and sale of
furniture, related components and accessories. Sales are recognized when
products are shipped and invoiced to customers. Monthly provision is
made for doubtful receivables, returns and allowances and discounts.
Substantially all of the Company's trade notes and accounts receivable
are due from retailers of residential furniture. The Company grants
credit to customers, the majority of which are located in the United
States. Management performs credit evaluations of the Company's customers
and generally does not require collateral. See note 3 for discussions of
significant customers and concentration of credit risk.
12
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS PER SHARE
Earnings per share are presented assuming the Company's current
capital structure of 7,500,000 common shares outstanding after the
reincorporation discussed above had been in place for all periods
presented.
PENSION AND OTHER POSTRETIREMENT PLANS
The Company participates in a defined benefit pension plan of
Armstrong covering substantially all of its employees. The benefits are
based on years of service and the employee's compensation during the five
years before retirement. Company practice is to fund the actuarially
determined current service cost and the amounts necessary to amortize
prior service obligations over 15 years, but not in excess of the full
funding limitations.
The Company also participates in Armstrong plans that provide for
medical and life insurance benefits to eligible employees when they
retire from active service. The Company funds these benefit costs
primarily on a pay-as-you-go basis, with the retiree paying a portion of
the cost for health care through deductibles and contributions.
Effective January 1, 1992, the Company adopted SFAS 106, Employers'
Accounting for Postretirement Benefits Other than Pensions, which
recognizes the estimated future costs of providing retiree health care
and other postretirement benefits over the service life of the employee.
Prior to 1992, the Company recognized these benefits on the pay-as-you-go
method (i.e., cash basis). The cumulative effect of the change in method
of accounting for postretirement benefits other than pensions is reported
in the 1992 consolidated statement of operations.
POSTEMPLOYMENT BENEFITS
Armstrong provides certain postemployment benefits to former and
inactive employees of the Company and their dependents following
employment but before retirement. Prior to 1992, the Company
13
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognized these benefit costs on the pay-as-you-go method (i.e., cash
basis). Effective January 1, 1992, the Company adopted SFAS 112,
Employers' Accounting for Postemployment Benefits, which recognizes the
estimated future costs of providing postemployment benefits on an accrual
basis over the active service life of the employee. The cumulative effect
of the change in method of accounting for postemployment benefits other
than pensions is reported in the 1992 consolidated statement of
operations.
(3) Trade Notes and Accounts Receivable
-----------------------------------
Trade notes and accounts receivable consist of:
<TABLE>
<CAPTION>
December 31,
---------------
1994 1993
------- ------
<S> <C> <C>
Trade receivables $75,186 59,526
Notes receivable 7,684 6,670
------- ------
82,870 66,196
Allowance for doubtful accounts, returns
and allowances, and discounts 11,870 8,906
------- ------
$71,000 57,290
======= ======
</TABLE>
No single customer accounted for more than 5% of net sales in 1994,
1993 and 1992.
Periodically, the Company will grant certain customers, critical to
key geographic markets, extended terms by rolling trade receivable
balances into notes receivable. These customers are believed to be
highly leveraged. Included in trade notes and accounts receivable is one
such customer with an aggregate balance of approximately $9 million.
Management carefully reviews each of these situations and provides an
allowance when accounts are determined to be uncollectable.
14
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts of notes receivable approximates market because
the interest rates reflect current market rates at which similar types
notes would be made to borrowers with similar credit ratings and for the
same remaining maturities.
(4) Inventories
-----------
A summary of inventories follows:
<TABLE>
<CAPTION>
December 31,
----------------
<S> <C> <C>
1994 1993
------- ------
Inventories on the FIFO cost method:
Raw materials and purchased parts $55,139 43,882
Work in process 17,400 16,350
Finished goods 52,127 65,442
------- ------
Total inventories on FIFO
cost method 124,666 125,674
Less adjustments of certain
inventories to the
LIFO cost method (59,892) (58,475)
-------- -------
$ 64,774 67,199
======== =======
</TABLE>
During 1994 and 1993, LIFO layers were reduced. This reduction
resulted in charging lower inventory costs prevailing in previous years
to costs of goods sold, reducing cost of goods sold by approximately
$1,100 in 1994 and $86 in 1993 below the amount that would have resulted
from liquidating inventory at current year costs.
15
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Property, Plant and Equipment
-----------------------------
A summary of property, plant, and equipment follows:
December 31,
-------------------
1994 1993
-------- -------
[S] [C] [C]
Land $ 4,694 4,441
Buildings 84,424 80,371
Machinery and equipment 144,247 135,591
Construction in progress 3,315 3,328
--------- --------
236,680 223,731
Less accumulated
depreciation (133,146) (122,269)
--------- --------
Net property, plant
and equipment $ 103,534 101,462
========= ========
Rental expense under cancelable and noncancelable lease arrangements
was $948 in 1994, $850 in 1993 and $730 in 1992. At the present time,
the Company has no significant noncancelable operating leases (with
initial or remaining lease terms in excess of one year).
Capital lease arrangements are not significant to the consolidated
financial statements.
16
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Intangibles and Other Assets, Net
---------------------------------
A summary of intangible and other assets follows:
<TABLE>
<CAPTION>
December 31,
----------------
1994 1993
------- ------
<S> <C> <C>
Trade names $ 1,367 6,340
Goodwill 4,084 4,234
Other 1,454 993
------- ------
6,905 11,567
Less accumulated amortization (1,623) (6,489)
------- ------
Net intangible and other assets $ 5,282 5,078
======= ======
</TABLE>
17
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Accrued Expenses and Other Current Liabilities
----------------------------------------------
A summary of accrued expenses and other current liabilities follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1993
--------- ------
<S> <C> <C>
Compensation and benefits $18,341 13,360
Accrued advertising 1,762 1,116
Amounts payable to Armstrong (402) 2,797
Other 2,313 2,340
------- ------
$22,014 19,613
======= ======
</TABLE>
(8) Notes Payable to Armstrong, Net
-------------------------------
A summary of notes payable to Armstrong, net follows:
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
--------- -------
<S> <C> <C>
Notes payable to Armstrong Cork
Finance Company $227,352 213,913
Notes receivable from Armstrong 91,653 57,439
-------- -------
$135,699 156,474
======== =======
</TABLE>
The above notes bear interest at prime (8.5% at December 31, 1994),
and are payable on demand and are part of the Armstrong centralized cash
management program. Armstrong has committed to not making demands on the
notes at any time during fiscal 1995. Accordingly, the notes are not
classified as current. Net interest paid during 1994, 1993 and 1992
related to these notes totaled $10,628, $9,688 and $11,326, respectively.
(9) Long-term Debt
--------------
Long-term debt at December 31, 1994 and 1993 consists of $8,000 of
variable rate Industrial Development Revenue Bonds, of Fluvanna County,
Virginia with principal due November 1, 2005. These bonds are secured by
a letter of credit
18
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
issued by Armstrong as well as by certain property, plant and equipment
with a depreciated cost of approximately $3,600 at December 31,1994.
Interest on the bonds is payable monthly and is determined on a weekly
basis by the bonds' remarketing agent (bank) using the lowest rate
required to sell these tax exempt securities. The effective rate at
December 31, 1994 was approximately 4%.
The carrying amount of these bonds approximate fair value because the
variable rate reflects current market rates for bonds with similar
maturities and credit quality.
Interest paid during 1994, 1993 and 1992 related to these bonds
totalled $241, $214 and $243, respectively, including annual amortization
of closing cost of $5 each year. The Company paid additional interest of
$93, $30 and $42 in 1994, 1993 and 1992, respectively, related primarily
to miscellaneous state tax assessments and other finance charges.
(10) Other Liabilities
-----------------
A summary of other liabilities follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
------- ------
<S> <C> <C>
Postretirement benefits $27,149 25,563
Postemployment benefits 1,290 1,898
Deferred compensation 4,263 3,300
Deferred vacation pay 949 949
------- ------
$33,651 31,710
======= ======
</TABLE>
19
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Income Taxes
------------
Income tax expense (benefit) for the years ended December 31,
1994, 1993 and 1992 was allocated as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Income (loss) before cumulative effects of
changes in accounting principle $11,011 6,493 (29)
Cumulative effects of changes in accounting
for postretirement benefits other than
pensions and postemployment benefits - - (8,081)
------- ------ ------
$11,011 6,493 (8,110)
======= ====== ======
Components of income tax expense are as follows:
Year ended December 31,
----------------------------
1994 1993 1992
------- ------ -------
Current:
U.S. Federal $11,645 7,533 2,482
State and local 1,805 1,379 457
------- ------ -------
13,450 8,912 2,939
======= ====== =======
Deferred:
U.S. Federal (2,439) (2,419) (11,049)
State and local - - -
------- ------ -------
$(2,439) (2,419) (11,049)
======= ====== =======
Total
U.S. Federal 9,206 5,114 (8,567)
State and local 1,805 1,379 457
------- ------ -------
$11,011 6,493 (8,110)
======= ====== =======
</TABLE>
20
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedule summarizes the differences between income
taxes at the federal income tax rates and the effective income tax rate
reflected in the financial statements:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% (34.0%)
State income taxes, net of federal
income tax benefit 4.2 5.9 1.1
Other .6 1.7 3.1
---- ---- -----
39.8% 42.6% (29.8%)
==== ==== =====
</TABLE>
The tax effects of temporary differences that give the rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
--------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to
allowance for doubtful accounts $ 4,155 3,117
Compensation, postretirement and
post employment benefits 14,027 12,814
Liabilities and reserve 1,222 1,204
Other 521 430
------- ------
Total gross deferred tax assets 19,925 17,565
Less valuation allowance - -
------- ------
Net deferred tax assets 19,925 17,565
------- ------
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation and
capitalized interest (9,100) (9,179)
------- ------
Net deferred tax asset $10,825 8,386
======= ======
</TABLE>
21
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies
in making this assessment. Taxable income for the years ended December
31, 1994 and 1993 was $33,045 and $23,185 respectively. Based upon the
level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize
the benefits of these deductible differences, so that no valuation
allowance is necessary at December 31, 1994.
As discussed in note 2, the Company adopted SFAS 109 as of January 1,
1992. The cumulative effect of this change in accounting for income
taxes as of January 1, 1992 and the effect on income (loss) before
cumulative effect of changes in accounting principles for the year ended
December 31, 1992 were not significant. Armstrong files a consolidated
Federal income tax return with its subsidiaries, including the Company.
Pursuant to a tax sharing agreement with its parent, the Company is
responsible for its separate state and local taxes on a current basis,
and remits to Armstrong Federal tax on its book income at the statutory
Federal rate, and similarly receives a benefit from the Parent on its
separate book losses. During 1992, Armstrong instructed the Company to
remove all deferred state income taxes as a result of state tax planning
measures implemented by the parent company. This change increased the
1992 tax benefit by approximately $539.
Income taxes paid, net of income tax refunds, were $12,925 in
1994, $5,821 in 1993 and $3,628 in 1992.
(12) Pension Benefits
----------------
Prior to 1994, the Company had a defined benefit plan for hourly
employees and also participated in an Armstrong defined benefit plan for
salaried employees. Effective at the start of 1994, the hourly plan
merged with Armstrong's defined benefit plan for salaried employees to
create one plan covering substantially all employees.
22
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Generally, the Company's practice is to fund the actuarially
determined current service costs and the amounts necessary to amortize
prior service obligations over periods ranging up to 30 years, but not in
excess of the full funding limitation. There were no contributions made
in 1994 and 1993 due to the full funding limitation.
Net pension cost of the Company for 1994, 1993 and 1992 included the
following components:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1994 1993 1992
--------- -------- -------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 2,949 2,814 2,686
Interest cost on projected
benefit obligation 5,224 5,208 4,860
Actual return on plan assets 5,246 (17,133) (7,526)
Net amortization and deferral (12,279) 10,880 1,556
-------- ------- ------
Net pension cost $ 1,140 1,769 1,576
======== ======= ======
</TABLE>
23
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The funded status of the Company's portion of the defined-benefit
pension plan is presented in the following table:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(63,301) (66,508) (57,811)
======== ======= =======
Accumulated benefit obligation $(66,750) (72,299) (63,329)
======== ======= =======
Projected benefit obligation for
services rendered to date (76,688) (80,901) (72,589)
Plan assets at fair value 92,951 102,834 89,920
-------- ------- -------
Plan assets in excess of projected
benefit obligations 16,263 21,933 17,331
Unrecognized transition asset (3,747) (4,347) (4,947)
Unrecognized prior service cost 3,081 3,464 3,847
Unrecognized net gain - experience
different from assumptions (20,760) (25,073) (18,631)
-------- ------- -------
Accrued pension cost $ (5,163) (4,023) (2,400)
======== ======= =======
</TABLE>
Rates used in determining the actuarial present value of the projected
benefit obligation at the end of 1994, 1993, and 1992 are: (1) the
discount rate or the assumed rate at which the pension benefits could be
effectively settled, 8.00% in 1994, 7.00% in 1993 and 7.25% in 1992; and
(2) the compensation rate or the long-term rate at which compensation is
expected to increase as a result of inflation, promotions, seniority and
other factors, 4.75% in 1994, 1993 and 1992; and (3) the expected long-
term rate of return on assets was 8.25% in 1994, 1993 and 1992.
The Company also provides a deferred compensation plan for its
commissioned sales representatives whereby a participant can defer 5%-25%
of his annual compensation. Participants in the plan, which is a
nonqualified defined contribution retirement plan, must meet certain
minimum compensation levels and have completed one year of continuous
service with the Company. Contributions are kept in the Company for
investment in the business. Participant balances are credited with
interest monthly at the published one-year certificate of deposit rate.
Benefits are payable in lump sum at the end of the month after the
participant terminates from active service.
24
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred compensation interest expense for 1994, 1993 and 1992
amounted to $247, $100 and $116, respectively. The deferred compensation
liability at December 31, 1994 and 1993 amounted to $4,263 and $3,300,
respectively.
(13) Other Postretirement Benefit Plans
----------------------------------
The Company participates in Armstrong plans that provides for medical
and life insurance benefits to eligible employees when they retire from
active service. The Company funds these benefit costs primarily on a
pay-as-you-go basis, with the retiree paying a portion of the cost for
health-care benefits through deductibles and contributions. In 1992, the
Company adopted SFAS No. 106 and elected to immediately recognize the
cumulative effect of the change in accounting for postretirement benefits
of $21,938 ($14,479 after tax). Under this standard total retiree health
care and life insurance expense for the Company was $2,736 in 1994,
$2,822 in 1993 and $2,919 in 1992, and included the following components:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------
1994 1993 1992
------- ------ -----
<S> <C> <C> <C>
Service cost of benefits earned
during the year $ 917 979 1,138
Interest cost on accumulated
postretirement benefit obligations 1,819 1,843 1,781
------- ------ -----
Postretirement benefit cost $ 2,736 2,822 2,919
======= ====== =====
The following table sets forth the status of the Company's portion of the benefit plans
at December 31:
1994 1993
------- ------
Retirees $ 3,348 4,011
Fully eligible active plan participants 6,212 6,300
Other active plan participants 14,702 13,415
------- ------
Total accumulated postretirement
benefit obligation (APBO) 24,262 23,726
Unrecognized net gain 2,887 1,837
------- ------
Accrued postretirement benefit cost $27,149 25,563
======= ======
</TABLE>
The APBO at December 31, 1994 was determined utilizing a discount rate
of 8.25% and a compensation rate of 5.25%. The discount and compensation
rates used in determining the APBO at December 31, 1993 were 7.76% and
4.75%, respectively. The assumed health care cost trend rate used to
measure the APBO was 14% in 1992, decreasing 1%
25
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
per year to an ultimate rate of 6% by the year 2000. Increasing the
assumed health care cost trend rates by one point in each year would have
resulted in an increase in the accumulated postretirement benefit
obligation as of December 31, 1994 of approximately $2,302 and an
increase in the aggregate of the service cost and interest cost
components of net periodic postretirement benefit cost for fiscal year
1994 of approximately $346.
Armstrong provides certain postemployment benefits to eligible
employees of the Company. These benefits are provided to former or
inactive employees and their dependents during the time period following
employment but before retirement. In 1992, the Company adopted SFAS No.
112 and elected to immediately recognize the cumulative effect of the
change in accounting for benefits of $1,830 ($1,208 after tax). In 1994,
the Company recorded a postemployment benefit credit of $87, including a
$525 gain related to the qualification in 1994 of long-term disabled
employees for primary medical coverage under Medicare. Postemployment
benefit expense was $574 in 1993 and $593 in 1992.
26
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Related Party Transactions
--------------------------
A summary of various income and expense allocations from Armstrong
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Interest expense $15,472 12,227 12,412
Interest income (4,844) (2,589) (1,086)
Bank service charges 182 223 235
General insurance 1,052 847 867
Workmans compensation 1,692 2,507 2,090
Legal and audit fees 127 174 235
Share-in-success deductions 1,649 1,577 1,597
Restructuring expense 763 556 1,602
Marketing research 58 156 108
Medical VEBA 2,400 - -
Deferred compensation 181 84 76
Federal and state income tax 12,582 5,612 3,496
Other, net 653 637 1,277
------- ------ ------
$31,967 22,011 22,909
======= ====== ======
</TABLE>
(15) Restructuring Charges
---------------------
Restructuring charges amounted to $1,000 in 1994 compared with similar
charges of $582 in 1993 and $4,768 in 1992.
The 1994 and 1993 charges were primarily the result of accruals for
severance and special retirement incentives associated with the
elimination of employee positions. The 1993 charges also include a
write-down of certain assets of approximately $200 at the Company's
Hickory operations.
The 1992 charges relate primarily to the Company's closing of
operations and severance and special retirement incentives associated
with the elimination of employee positions.
27
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Environmental Matters
---------------------
On April 21, 1987, the Company was notified pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 that the United States Environmental Protection Agency (USEPA)
considered the Company and others potentially liable with regard to
threatened releases of hazardous substances at the Buckingham County
Landfill in Buckingham County, Virginia. The Company allegedly disposed
of flammable hazardous waste at the Buckingham County Landfill,
supposedly transported from its manufacturing facilities in Appomattox
and Brookneal, Virginia. On January 15, 1991, the Company and other
potentially responsible parties ("PRPs") agreed through an Administrative
Order on Consent with USEPA to conduct a Remedial
Investigation/Feasibility Study ("RI/FS") to investigate contamination at
the site.
The RI/FS was completed in March, 1993. USEPA issued a proposed
preliminary remedial action plan for the site in May, 1993, and a revised
plan in November, 1993. The final Record of Decision ("ROD") was issued
on September 30, 1994. Engineers retained by the Company and the other
PRPs have estimated that implementation of the preferred remedy described
in the ROD would cost approximately $2.2 million. In the event of
significant migration of groundwater contaminants, the engineers have
estimated that other prescribed remedies could cost between $2.2 million
and $11.0 million depending on the treatment required. Based on current
information, the Company is allegedly responsible for 84%, volumetrically
measured, of the hazardous waste taken to the landfill, and thus could be
responsible for up to that percentage of clean-up costs. The Company is
pursuing an investigation to determine if that percentage should be
lowered.
The Company has $2,000 accrued for environmental liabilities at
December 31, 1994. Total charges relating to environmental matters were
$429 in 1994, $4,379 in 1993 and $2,138 in 1992.
(17) Legal Proceedings
-----------------
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company believes that no
currently pending litigation to which it is a party will have a material
adverse effect on its financial position or results of operations.
28
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1995 and 1994
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Net sales $408,282 385,141
Cost of goods sold 327,338 308,870
-------- -------
Gross profit 80,944 76,271
Selling, general and administrative expenses 53,664 51,378
-------- -------
Income from operations 27,280 24,893
Other income (expenses):
Interest expense (9,855) (8,138)
Interest income 204 350
Other income, net of expenses 1,271 376
-------- -------
(8,380) (7,412)
-------- -------
Income before income taxes 18,900 17,481
Income taxes 6,561 6,786
-------- -------
Net income $ 12,339 10,695
======== =======
Earnings per share:
Net income per share $ 1.65 1.43
======== =======
</TABLE>
29
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 (unaudited) and December 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
1995 1994
-------- -------
<S> <C> <C>
Current assets:
Cash $ 594 160
Trade notes and accounts receivable, less allowance
for doubtful accounts, returns and allowances,
and discounts of $13,843 in 1995 and $11,870 in 1994 73,412 71,000
Inventories 64,612 64,774
Deferred taxes 8,189 8,189
Prepaid expenses - 452
-------- -------
Total current assets 146,807 144,575
-------- -------
Property, plant and equipment, net 105,211 103,534
Deferred taxes 2,636 2,636
Intangible and other assets, net 5,167 5,282
-------- -------
$259,821 256,027
======== =======
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 19,340 33,517
Income taxes payable 3,706 4,444
Accrued expenses and other current liabilities 25,017 22,014
-------- -------
Total current liabilities 48,063 59,975
Notes payable to Armstrong, net 134,461 135,699
Long-term debt 8,000 8,000
Other liabilities 38,256 33,651
-------- -------
Total liabilities 228,780 237,325
-------- -------
Shareholder's equity:
Common stock: $1 par value. Authorized
14 million shares, 7.5 million shares issued
and outstanding 7,500 7,500
Contributed capital 4,376 4,376
Retained earnings 19,165 6,826
-------- -------
Total shareholder's equity 31,041 18,702
Commitments and contingencies
-------- -------
$259,821 256,027
======== =======
</TABLE>
30
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and 1994
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,339 10,695
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property, plant and equipment 9,282 8,971
Amortization of other assets, principally
intangibles 193 191
Additions to other assets (78) (68)
Other liabilities 4,605 1,837
Gain on sale of property, plant and equipment (94) (35)
Changes in current assets and liabilities:
Trade notes and accounts receivable (2,412) (16,746)
Inventories 162 5,117
Prepaid expenses 452 227
Notes payable to banks - (38)
Trade accounts payable (14,177) (2,241)
Income taxes payable (738) (475)
Accrued expenses and other current liabilities 3,003 15,526
-------- -------
Net cash provided by operating activities 12,537 22,961
-------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 150 83
Additions to property, plant and equipment (11,015) (9,942)
-------- -------
Net cash used in investing activities (10,865) (9,859)
-------- -------
Cash flows from financing activities:
Free cash flow transferred to Armstrong (1,238) (13,533)
Net cash used in financing activities (1,238) (13,533)
Net increase (decrease) in cash and
cash equivalents 434 (431)
Cash and cash equivalents at beginning of period 160 700
-------- -------
Cash and cash equivalents at end of period $ 594 269
======== =======
</TABLE>
31
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(In thousands)
(Unaudited)
(1) Basis of Presentation
---------------------
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments of a normal recurring
nature which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for
the nine months ended September 30, 1995 are not necessarily indicative of
the results to be expected for the full year.
The accompanying consolidated financial statements are presented as if
Thomasville Furniture Industries, Inc. (the Company) had existed as a
corporation separate from Armstrong World Industries, Inc. (Armstrong)
during the periods presented and include the historical assets,
liabilities, revenues and expenses that are directly related to the
Company's operations. All material intercompany transactions have been
eliminated. For the periods presented, certain expenses reflected in the
financial statements include allocations of certain corporate expenses from
Armstrong. These allocations include expenses for general management,
treasury, legal, benefits administration, insurance, tax compliance and
other miscellaneous services. The allocation of expenses was generally
based on actual costs incurred.
Management believes that the foregoing allocations were made on a
reasonable basis; however, the allocations of costs and expenses do not
necessarily indicate the costs that would have been or will be incurred by
the Company on a stand-alone basis. Also, the financial information
included in the financial statements may not necessarily reflect the
financial position, results of operations and cash flows of the Company in
the future or what the financial position, results of operations and cash
flows would have been if the Company had been a separate stand-alone
company during the periods presented.
The Company participates in Armstrong's centralized cash management
program, pursuant to which cash receipts are remitted to Armstrong and cash
disbursements are funded by Armstrong, with Armstrong retaining any excess
cash.
(2) Inventories
-----------
A summary of inventories follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------- -------
<S> <C> <C>
Inventories on the FIFO cost method:
Raw materials and purchased parts $ 50,288 55,139
Work in process 15,661 17,400
Finished goods 58,595 52,127
-------- -------
Total inventories on FIFO cost method 124,544 124,666
Less adjustments of certain inventories to the
LIFO cost method (59,932) (59,892)
-------- -------
$ 64,612 64,774
======== =======
</TABLE>
32
<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Earnings Per Share
------------------
The Company was reincorporated in Pennsylvania on April 7, 1995, and all
data has been adjusted to reflect the changes in the Company's capital
structure affected in such reincorporation. Earnings per share are
presented assuming the Company's current capital structure of 7,500,000
common shares outstanding after the reincorporation discussed above had
been in place for all periods presented.
33
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information reflects
the acquisition of Thomasville, which was consummated on December 29, 1995, and
the incurrence of indebtedness by the Company in connection therewith and in
connection with the refinancing of a portion of the Company's then-existing
indebtedness, as of the beginning of the period presented for pro forma
statements of operations purposes and on September 30, 1995 for pro forma
balance sheet purposes. This information is presented for comparative purposes
only and is not necessarily indicative of the combined results of operations in
the future or of what the combined results of operations would have been if the
foregoing transactions had actually been consummated as of such dates. In
addition, the unaudited pro forma consolidated statements of operations do not
give effect to profit improvement opportunities, if any, which may be realized
by the Company as a result of the acquisition of Thomasville. The unaudited pro
forma consolidated financial information should be read in connection with the
historical financial statements of the Company.
The pro forma financial information has been prepared on the basis of
assumptions described in the notes thereto and includes assumptions relating to
the allocation of the consideration paid for the Thomasville acquisition to its
respective assets and liabilities based on preliminary estimates of their
respective fair values. The actual allocation of such consideration may differ
from that reflected in the pro forma consolidated financial statements after
valuations and other studies to be performed pursuant to post-closing
adjustments related to the acquisition have been completed. Actual amounts
allocated will be based upon the estimated fair values at the time of the
acquisition.
34
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-----------------------------------------------------
HISTORICAL THOMASVILLE ACQUISITION
----------------------- -----------------------------
PRO FORMA
THE COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 61,375 $ 594 $ (33,500)(a) $ 28,469
Receivables............ 206,355 73,412 -- 279,767
Inventories............ 157,417 64,612 54,867 (b) 276,896
Prepaid expenses and
other current assets.. 12,727 8,189 (8,189)(c) 12,727
-------- -------- ----------- ------------
Total current assets... 437,874 146,807 13,178 597,859
Net property, plant and
equipment.............. 172,470 105,211 10,048 (d) 287,729
Reorganization value in
excess of amounts
allocable to
identifiable assets,
net.................... 122,936 -- -- 122,936
Trademarks and trade
names, net............. 144,412 -- -- 144,412
Excess of cost over net
assets acquired........ -- -- 105,834 (e) 105,834
Other assets............ 18,752 7,803 (9,310)(f)
13,450 (g)
(3,635)(h)
(2,636)(c) 24,424
-------- -------- ----------- ------------
$896,444 $259,821 $ 126,929 $ 1,283,194
======== ======== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt........ $ 21,066 $ -- $ (19,444)(i) $
17,000 (i) 18,622
Accrued interest
expense............... 2,843 -- -- 2,843
Accounts payable and
other accrued
expenses.............. 97,413 44,357 (15,522)(c)
2,500 (j) 128,748
Income taxes........... 3,868 3,706 (3,706)(c)
(3,561)(f) 307
-------- -------- ----------- ------------
Total current
liabilities........... 125,190 48,063 (22,733) 150,520
Long-term debt, less
current maturities..... 381,312 8,000 (243,056)(i)
559,000 (i) 705,256
Other long-term
liabilities............ 97,748 38,256 (5,031)(c)
10,000 (k) 140,973
Notes payable--
affiliates............. -- 134,461 (134,461)(c) --
Shareholders' equity:
Common stock........... 50,120 7,500 (7,500)(l) 50,120
Paid-in capital........ 218,154 4,376 (4,376)(l) 218,154
Retained earnings...... 23,920 19,165 (19,165)(l)
(5,749)(f) 18,171
-------- -------- ----------- ------------
Total shareholders'
equity................ 292,194 31,041 (36,790) 286,445
-------- -------- ----------- ------------
$896,444 $259,821 $ 126,929 $ 1,283,194
======== ======== =========== ============
</TABLE>
- --------
(a) Adjusted to reflect the cash used by the Company to finance the
acquisition of Thomasville.
(b) Adjusted to reflect Thomasville's inventory at estimated fair value.
(c) Adjusted to reflect the elimination of certain historical Thomasville
assets not acquired and liabilities not assumed by the Company in the
acquisition of Thomasville.
(d) Adjusted to reflect the estimated fair value of property, plant and
equipment of Thomasville pursuant to the acquisition of Thomasville.
(e) Adjusted to reflect the excess of cost over net assets of Thomasville
acquired by the Company. The acquisition of Thomasville was accounted for
under the purchase method of accounting.
(f) Adjusted to reflect the write-off of deferred debt costs related to the
Company's old secured credit agreement, net of income tax benefits of
$3,561.
(g) Adjusted to reflect deferred debt costs attributable to the Company's new
secured credit agreement and amended receivables securitization facility.
35
<PAGE>
(h) Adjusted to reflect the elimination of Thomasville's historical excess of
cost over net assets acquired.
(i) Adjusted to reflect the repayment of the Company's old secured credit
agreement and borrowings under the new secured credit agreement and
amended receivables securitization facility in connection with the
financing of the acquisition of Thomasville.
(j) Adjusted to reflect the accrual of certain fees and expenses incurred in
connection with the Company's acquisition of Thomasville.
(k) Adjusted to reflect the estimated projected benefit obligation exceeding
the accumulated benefit obligation related to the Thomasville pension
plan.
(l) Adjusted to reflect the elimination of the shareholder's equity of
Thomasville that existed prior to the acquisition of Thomasville by the
Company.
36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
--------------------------------------------------
HISTORICAL THOMASVILLE ACQUISITION
------------------------ -------------------------
THE PRO FORMA
COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA
--------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............... $ 794,866 $ 408,282 $ -- $ 1,203,148
Costs and expenses:
Cost of operations..... 562,479 318,801 -- 881,280
Selling, general and
administrative
expenses.............. 149,101 52,726 2,700 (a)
(523)(b) 204,004
Depreciation and
amortization.......... 28,387(i) 9,475 (193)(c)
1,984 (d)
754 (e) 40,407(i)
--------- --------- ------- -----------
Earnings from
operations............. 54,899 27,280 (4,722) 77,457
Interest expense........ 25,409 9,855 9,529 (f) 44,793
Other income (expense),
net.................... 3,352 1,475 (1,407)(g) 3,420
--------- --------- ------- -----------
Earnings before income
tax expense............ 32,842 18,900 (15,658) 36,084
Income tax expense...... 13,416 6,561 (5,989)(h) 13,988
--------- --------- ------- -----------
Net earnings............ $ 19,426 $ 12,339 $(9,669) $ 22,096
========= ========= ======= ===========
Net earnings per common
share (fully diluted).. $0.38(i) $0.43(i)
========= ===========
Weighted average common
and common equivalent
shares outstanding (in
thousands) (fully
diluted)............... 51,404 51,404
</TABLE>
- --------
(a) Adjusted to reflect the estimated pension expense to the Company
associated with the formation of the new Thomasville pension plan.
(b) Adjusted to reflect the reversal of expenses incurred by Thomasville for
certain of its employee benefit plans, which were discontinued at the time
of the acquisition by the Company.
(c) Adjusted to reverse the amortization of Thomasville's historical excess of
cost over net assets acquired for the period prior to the acquisition of
Thomasville by the Company.
(d) Adjusted to reflect the amortization of the excess of cost over net assets
of Thomasville acquired by the Company.
(e) Adjusted to reflect increased depreciation expense to the Company
resulting from recording property, plant and equipment of Thomasville at
estimated fair value.
(f) Adjusted to reflect increased interest expense to the Company related to
borrowings under the Company's new secured credit agreement and amended
receivables securitization facility in connection with the acquisition of
Thomasville.
(g) Adjusted to reflect reduction in interest income of the Company
attributable to cash used by the Company to finance the Thomasville
acquisition.
(h) Adjusted to record the income tax effect of all adjustments at a combined
statutory rate of 38.25%.
(i) Includes $11,836 related to the 1992 asset revaluation. The impact of
this item on net earnings and earnings per share is a reduction of $9,247
and $.18 per share, respectively.
37
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1994
--------------------------------------------------------
HISTORICAL THOMASVILLE ACQUISITION
-------------------------- -----------------------------
PRO FORMA
THE COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............... $1,072,696 $526,643 $ -- $ 1,599,339
Costs and expenses:
Cost of operations...... 752,528 409,934 -- 1,162,462
Selling, general and
administrative
expenses............... 199,333 65,654 2,460 (a)
(280) (b) 267,167
Restructuring charges.. -- 1,000 (1,000)(c) --
Depreciation and
amortization.......... 35,776(j) 12,205 (257)(d)
2,646 (e)
1,005 (f) 51,375(j)
---------- -------- ---------- ------------
Earnings from
operations............. 85,059 37,850 (4,574) 118,335
Interest expense........ 37,886 11,389 14,457 (g) 63,732
Other income (expense),
net.................... 1,668 1,169 (1,876) (h) 961
---------- -------- ---------- ------------
Earnings before income
tax expense............ 48,841 27,630 (20,907) 55,564
Income tax expense...... 20,908 11,011 (7,997)(i) 23,922
---------- -------- ---------- ------------
Net earnings............ $ 27,933 $ 16,619 $ (12,910) $ 31,642
========== ======== ========== ============
Net earnings per common
share (primary and
fully diluted) $ 0.54(j) $ 0.61(j)
========== ============
Weighted average common
and common equivalent
shares outstanding (in
thousands) (fully
diluted)............... 51,506 51,506
</TABLE>
- --------
(a) Adjusted to reflect the estimated pension expense to the Company
associated with the formation of the new Thomasville pension plan.
(b) Adjusted to reflect the reversal of expenses incurred by Thomasville for
certain of its employee benefit plans, which were discontinued at the time
of the acquisition by the Company.
(c) Adjusted to reflect the reversal of Thomasville's nonrecurring
restructuring charge of $1,000 in 1994 prior to the acquisition by the
Company.
(d) Adjusted to reverse the amortization of Thomasville's historical excess of
cost over net assets acquired for the period prior to the acquisition of
Thomasville by the Company.
(e) Adjusted to reflect the amortization of the excess of cost over net assets
of Thomasville acquired by the Company.
(f) Adjusted to reflect increased depreciation expense to the Company
resulting from recording property, plant and equipment of Thomasville at
estimated fair value.
(g) Adjusted to reflect increased interest expense to the Company related to
borrowings under the Company's new secured credit agreement
and amended receivables securitization facility in connection with the
acquisition of Thomasville.
(h) Adjusted to reflect reduction in interest income of the Company
attributable to cash used by the Company to finance the Thomasville
acquisition.
(i) Adjusted to record the income tax effect of all adjustments at a combined
statutory rate of 38.25%.
(j) Includes $16,900 related to the 1992 asset revaluation. The impact of
this item on net earnings and earnings per share is a reduction
of $13,051 and $.25 per share, respectively.
38
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
January 16, 1996 INTERCO INCORPORATED
BY: /s/ Steven W. Alstadt
----------------------------------
Steven W. Alstadt
Controller and Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
23. Independent Auditors' Consent
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Thomasville Furniture Industries, Inc.:
We consent to the inclusion of our report dated January 20, 1995, except as to
note 1, which is as of April 7, 1995, with respect to the consolidated balance
sheets of Thomasville Furniture Industries, Inc. and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of operations,
shareholder's equity, and cash flows for each of the years in the three-year
period ended December 31, 1994, which report appears in the Form 8-K/A-1 of
INTERCO INCORPORATED dated January 16, 1996.
Our report refers to changes in accounting for postemployment benefits,
postretirement benefits and income taxes.
KPMG Peat Marwick LLP
Greensboro, North Carolina
January 16, 1996
