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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1994
Commission File No. 0-18071
----------------
INDUSTRIAL FUNDING CORP.
(Exact name of registrant as specified in its charter)
OREGON 93-1013278
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2121 S.W. BROADWAY
SUITE 100
PORTLAND, OREGON 97201
(Address of principal executive offices, including zip code)
(503)228-2111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
----------------
Outstanding at
Class July 13, 1994
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Class A, Without Par Value 1,875,000 shares
Class B, Without Par Value 5,625,000 shares
(The number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date)
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INDUSTRIAL FUNDING CORP.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Net Assets 3
Consolidated Statements of Income and Changes
in Net Assets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL FUNDING CORP. UNAUDITED
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Consolidated Statement of Net Assets (liquidation basis) as of May 31, 1994 and
Consolidated Balance Sheets (going concern basis) as of May 31, and November 30,
1993
<TABLE>
<CAPTION>
May 31, May 31, November 30,
-------------------------------------
(DOLLARS IN THOUSANDS) 1994 1993 1993
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<S> <C> <C> <C>
ASSETS:
Cash and temporary investments $6,155 $20,185 $6,586
Restricted cash 810 0 800
Short-term investments 23,224 0 18,260
Notes receivable 12,695 19,638 15,869
Nonperforming assets 395 5,707 3,025
Other assets 216 734 55
-------------------------------------
TOTAL $43,495 $46,264 $44,595
-------------------------------------
-------------------------------------
LIABILITIES:
Accounts payable and accrued liabilities $784 $688 $619
Reserve for estimated costs during the period of liquidation 4,160 0 0
-------------------------------------
Total liabilities 4,944 688 619
COMMITMENTS AND CONTINGENCIES (Note 3)
REDEEMABLE PREFERRED STOCK
Series A Cumulative Preferred Stock (without par value,
134,310 shares issued and outstanding - at redemption
and liquidation value of $100 per share) 19,559 17,649 18,604
-------------------------------------
Total Liabilites and Redeemable Preferred Stock 24,503 18,337 19,223
SHAREHOLDERS' EQUITY:
Preferred stock (10,000,000 shares authorized, 134,310
redeemable preferred shares outstanding) 0 0 0
Common stock:
Class A (20,000,000 no par value shares authorized,
1,875,000 outstanding) 0 20,381 20,381
Class B (10,000,000 no par value shares authorized,
5,625,000 outstanding) 0 27,831 27,831
Accumulated deficit 0 (20,285) (22,840)
-------------------------------------
Total shareholders' equity 0 27,927 25,372
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TOTAL $24,503 $46,264 $44,595
-------------------------------------
NET ASSETS IN LIQUIDATION $18,992 $0 $0
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-------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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INDUSTRIAL FUNDING CORP. UNAUDITED
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Consolidated Statements of Income and Changes in Net Assets
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
May 31, May 31, May 31, May 31,
-------------------------- --------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1994 1993
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LIQUIDATION GOING CONCERN LIQUIDATION GOING CONCERN
BASIS BASIS BASIS BASIS
<S> <C> <C> <C> <C>
REVENUE:
Net lease revenue $0 $3,360 $0 $7,374
Gain on sale of equipment 0 172 0 1,103
Interest and dividend income 334 0 946 0
Gain (loss) on sale of investments 10 0 (339) 0
Unrealized loss on market value (162) 0 (78) 0
Other revenue 12 383 28 877
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Total revenue 194 3,915 557 9,354
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EXPENSES:
Net selling, general and administrative 876 1,948 1,820 4,163
Provision for credit loss 0 10 0 55
Interest expense 0 1,530 0 3,821
Loss on sale of assets 0 692 0 692
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Total expenses 876 4,180 1,820 8,731
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INCOME (LOSS) FROM OPERATIONS (682) (265) (1,263) 623
ADJUSTMENT FOR LIQUIDATION BASIS 4,160 0 4,160 0
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INCOME (LOSS) BEFORE INCOME
TAX BENEFIT (4,842) (265) (5,423) 623
INCOME TAX BENEFIT 0 (2,576) 0 (2,276)
--------------------------------------------------------
NET INCOME (LOSS) ($4,842) $2,311 ($5,423) $2,899
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NET INCOME (LOSS) PER SHARE (Exhibit 11.1) ($0.71) $0.24 ($0.85) $0.26
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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INDUSTRIAL FUNDING CORP. UNAUDITED
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Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended
May 31, May 31,
------------------------
(DOLLARS IN THOUSANDS) 1994 1993
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTVITIES:
Net income (loss) ($5,423) $2,899
Adjustments to reconcile net income (loss) to net cash provided
by operating activiites:
Depreciation and amortization 0 1,807
Provision for credit loss 0 55
Gain on sale of equipment 0 (1,103)
Adjustment to liquidation basis 4,160 0
Increase in restricted cash (10) 0
(Increase) decrease in other assets (161) (503)
Unrealized loss on short-term investments 78 0
Loss on sale of short-term investments 339 0
Increase (decrease) in accounts payable and other liabilities 164 (2,590)
Decrease in deferred income taxes 0 (2,057)
Loss on sale of assets 0 692
Other (32) 26
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Total adjustments 4,538 (3,673)
------------------------
Net cash used in operating activities (885) (774)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on lease receivables 0 27,697
Payments received on sale of equipment 0 8,557
Payments received on nonperforming assets 2,667 0
Increase in short-term investments (20,351) 0
Payments received on sale of short-term investments 14,964 0
Principal payment received on note receivable 3,174 0
Cash received on sale of assets (net of $12,829 cash sold) 0 7,356
Purchase of equipment to be financed 0 (2,773)
Initial direct costs - deferred 0 (130)
Purchase of property and equipment 0 (81)
------------------------
Net cash provided by investing activities 454 40,626
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt 0 (44,311)
Decrease in restricted cash 0 23,478
------------------------
Net cash used in financing activities 0 (20,833)
------------------------
INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS (431) 19,019
CASH AND TEMP. INVESTMENTS AT BEGINNING OF PERIOD 6,586 1,166
------------------------
CASH AND TEMP. INVESTMENTS AT END OF PERIOD $6,155 $20,185
------------------------
------------------------
SUPPLEMENTAL DISCLOSURES:
Interest paid $0 $3,890
Income taxes refunded $0 (120)
Non-cash - preferred stock dividends accreted 955 955
Non-cash - note receivable from sale of assets 0 19,638
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Industrial Funding Corp. (the "Company"), a majority owned subsidiary of
IFC Holdings Inc. ("IFC Holdings"), was incorporated in October 1989, as a
holding company formed for the purpose of owning Industrial Leasing Corporation
("Industrial Leasing"). During 1992, First City Realty Investment Corp.
("FCRIC"), the Company's previous majority shareholder, transferred all of its
interest in the Company to IFC Holdings. The accompanying consolidated financial
statements include all of the accounts of the Company and its wholly-owned
subsidiary. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Until May 27, 1993, the business of the Company was providing capital
equipment lease financing to small businesses. At that time, the Company
completed a sale of substantially all of the assets of Industrial Leasing (the
"Asset Sale"), to ILC Acquisition Corp., a wholly-owned subsidiary of Parrish
Equipment Partner L.P. ("Parrish"), in a transaction approved by shareholders of
the Company on May 17, 1993.
Subsequent to the sale, Company activities include: collection of the
remaining assets; investment of financial liquid assets; and management of legal
proceedings against the Company.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). While these statements
reflect all necessary, normal and recurring adjustments, including those
required for liquidation basis accounting, which in the opinion of management
are required to present fairly, in all material respects, the financial
position, results of operations and cash flows of the Company and its subsidiary
at May 31, 1994, and for the three and six months then ended, they do not
include all information and notes required by generally accepted accounting
principles for complete financial statements. Further information is contained
in the annual financial statements of the Company and notes thereto, for the
year ended November 30, 1993, contained in the Company's Form 10-K, filed with
the Commission pursuant to the Securities Exchange Act of 1934. Operating
results for the three and six month periods ended May 31, 1994, are not
necessarily indicative of the results that may be expected for the full year.
See Note 2 regarding a plan of liquidation.
NOTE 2. PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION
The Board of Directors of the Company approved a Plan of Dissolution and
Complete Liquidation (the "Plan of Liquidation") on May 20, 1994. The Board has
called a special meeting of the shareholders to be held on approximately August
8, 1994. The effective date of this Plan of Liquidation will be the date on
which it is approved and adopted by the shareholders. As of May 31, 1994, IFC
Holdings owned 100% of the Class B Common Stock of the company, which represents
75% of the ownership of the Company and 96.8% of the outstanding Common Stock
voting rights. As a result, IFC Holdings has a sufficient number of votes to
approve the Plan of Liquidation, regardless of the vote of any other
shareholders. IFC Holdings has agreed to vote such shares in
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favor of the proposed Plan of Liquidation and, as a result, approval of the
Plan of Liquidation is assured. As a result of the Board's approval of the Plan
of Liquidation, the Company's financial statements as of May 31, 1994, and for
the three and six months then ended, have been prepared on a liquidation basis.
Accordingly, assets have been valued at their estimated net realizable value and
liabilities include estimated costs associated with carrying out the Plan of
Liquidation.
The net adjustment at May 31, 1994 required to convert from a going concern
(historical cost) basis to a liquidation basis of accounting was a decrease in
the carrying value of net assets of $4.2 million which is included in the
consolidated statement of income and changes in net assets (liquidation basis).
This decrease in the carrying value of net assets is a result of recording
estimated liabilities associated with carrying out the Plan of Liquidation.
Under the liquidation basis, the Company has estimated future liabilities
associated with carrying out the Plan of Liquidation (see assumptions below).
The Company has not reflected future revenues by way of interest or investment
income or gains associated with the nonperforming portfolio as such income will
be recognized when realized.
The statement of net assets as of May 31, and November 30, 1993, and the
consolidated statement of income and changes in net assets for the three and six
months ended May 31, 1993 have been prepared using the historical cost (going
concern) basis of accounting on which the Company has previously reported its
financial condition and its results of operations.
The conversion of the Company's assets and liabilities to the liquidation
basis of accounting requires significant estimates and judgments by management
of the Company. A summary of the Plan of Liquidation, and the significant
judgments and estimates made, are described below.
The Plan of Liquidation calls for the orderly liquidation of the Company
over a five year period from the effective date of the Plan of Liquidation. The
period may be shortened or lengthened if it is deemed to be in the best interest
of the shareholders. The Company may engage in transactions as may be
appropriate to its complete liquidation, including the sale, exchange, or other
disposition of all or any part of its remaining assets for cash, shares, bonds,
or other securities or property, or any combination of the foregoing. Prior to
the final distribution of the assets of the Company to its shareholders, the
Company will invest its cash or other liquid assets. The Company will also
discharge or otherwise provide for all its liabilities and obligations.
The Company has made the following assumptions in the valuation of the
assets and liabilities of the Company on the liquidation basis of accounting:
1) Short-term investments are carried at their estimated net realizable
value. No accrual has been made for future income or loss on
investments except for unrealized gains or losses that existed at May
31, 1994, if any.
2) Notes receivable. The Company has the intent and ability to hold this
receivable to maturity, which is May 27, 1996. No valuation allowance
is deemed necessary. Interest income will be recognized when earned
at a rate of 6% per annum.
3) Nonperforming assets are carried at their estimated net realizable
value. The Company
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does not anticipate any additional losses on the aggregate
nonperforming assets as of May 31, 1994, therefore, no write-down of
these assets was taken. Gains, if any, on the liquidation of the
nonperforming assets will be recorded at the time they are realized.
The Company estimates that the collection efforts on the nonperforming
assets will cease at approximately December 31, 1994; however, this
date is subject to change should facts and circumstances change.
4) Preferred stock. Dividends on preferred stock have been accreted
through May 31, 1994. Additional dividends will be accreted as
earned.
5) Reserve for estimated costs during the period of liquidation. This
amount represents costs that management estimates will be incurred to
liquidate the Company. Major assumptions are as follows:
a) Nonperforming assets will be liquidated as of December 31, 1994;
b) The litigation, (WADE ET. AL., V. INDUSTRIAL ET. AL.) is
scheduled to go to trial in September of 1994. Legal costs
associated with this litigation have been accrued through October
1994. No accrual has been made as to the resolution of this
litigation, as the amount, if any, cannot presently be
determined;
c) No accrual has been made with regard to the demand of the
Company's underwriters that the Company pay the underwriters'
attorney fees and costs incurred in connection with their defense
of the securities litigation as the Company. Based in part on
discussions with counsel, management believes that any liability
related to the matter is unlikely to occur;
d) Administrative costs have been accrued through May 31, 1996, the
anticipated date of the final payment on the note receivable. No
costs have been accrued subsequent to May 1996, as the Company
currently anticipates all matters will be resolved at that time.
All of the above assumptions are subject to change should facts and
circumstances change.
NOTE 3. CONTINGENCIES
There is litigation pending against the Company, Industrial Leasing, the
Company's previous majority shareholder, First City, and certain of its former
affiliates and subsidiaries, certain directors, certain former directors and
officers, its independent auditor, and the underwriters of the December 8, 1989,
initial public offering. The class action lawsuits, WADE ET. AL. V. INDUSTRIAL
ET. AL., filed January 1992, and a related case BOWER ET. AL. V. BELZBERG ET.
AL., filed February 1992, allege violations of federal securities law. The WADE
lawsuit also alleged violations under California state law; however, these
claims were dismissed by the Court in January 1994. These lawsuits were filed
in the United States District Court for the Northern District of California (the
"Court"), and allege that plaintiffs were damaged as a result of alleged
misstatements and omissions in documents disseminated in connection with the
initial public offering and in subsequent communications and
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public filings by the Company, through February 1991. The Company has retained
legal counsel to defend against these actions. Initial discovery has been
completed, however, expert discovery is ongoing. Disposition motions by
plaintiffs and defendants, including the Company, are pending. The Court has
ordered a jury trial of WADE scheduled for September 1994. Plaintiffs allege
damages of approximately $22.5 million. The lawsuits could have a material
effect on results of operations and financial condition of the Company if
adversely determined.
As a result of the sale of substantially all of Industrial Leasing's assets
on May 27, 1993, plaintiffs moved the Court for a preliminary injunction
restraining the Company from withdrawing, transferring, pledging or disposing of
any funds or assets received in connection with the Asset Sale, and further
moved the Court to supervise the transfer of any such assets. The Court denied
plaintiffs' injunction motions. In so doing, the Court stated that plaintiffs
were likely to prevail on their Section 11 claims and that, in the absence of
the requested injunction, there was a possibility plaintiffs would be
irreparably harmed. The preliminary findings of the Court, however, will not
control the ultimate determination of liability in connection with the
plaintiffs' Section 11 claim. The plaintiffs have filed an appeal with the
Ninth Circuit Court of Appeals (the "Court of Appeals"). It is not known when
the Court of Appeals will rule on the appeal.
On October 6, 1993, the trial judge ordered the WADE and BOWER cases to a
settlement magistrate, in an attempt to facilitate a settlement of the
securities litigation. There can be no assurance, however, that the securities
litigation will be resolved by a settlement between the parties.
On June 23, 1994, the Company and the other defendants in WADE moved for
summary judgment of the claims asserted by the plaintiffs. Also, on June 23,
1994, plaintiffs moved for summary judgment against the Company solely on
plaintiffs' Section 11 claim. Oral argument is currently scheduled to be heard
by the Court on these motions on August 8, 1994.
The Company has filed a lawsuit against two insurance carriers, demanding
coverage against American Home under a directors and officers liability policy
in the amount of approximately $5 million (Canadian), and against Continental
Insurance under a general liability policy and umbrella policy of approximately
$4 million (Canadian) and $16 million (Canadian), respectively. American Home
and Continental have each filed answers denying liability. Continental has also
filed a counterclaim against the Company, demanding reimbursement of the
attorney fees and costs it advanced to the Company in connection with the
defense of the securities class action lawsuits under a reservation of rights.
As of May 31, 1994, Continental has advanced the Company attorney fees and costs
in the amount of approximately $1.6 million.
In May 1994, the Company filed a motion for summary adjudication of its
claims against American Home. On June 27, 1994, the Court granted the insured
plaintiffs' motion for summary judgment against American Home. The Court held
the claims asserted in WADE were covered acts under the American Home policy
unless it is ultimately determined by a finder of fact that the insureds
deliberately defrauded investors or were unjustly enriched from the disclosures
identified in WADE. The Court also held that allocation issues remain
concerning the Continental policies and the American Home policy.
In January 1993, Alex. Brown & Sons and Piper Jaffray, Inc., the
underwriters of the
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Company's initial public offering, filed an action against the Company,
demanding that the Company pay the underwriters' attorney fees and costs
associated with their defense of the securities litigation, in accordance with
the Underwriting Agreement entered into by the Company. The Court granted the
underwriters' motion for summary judgment, on July 9, 1993, and ordered the
Company to pay the underwriters' costs and legal fees as they are incurred. An
appeal of this decision is pending before the Court of Appeals. The Company has
been advised that as of May 31, 1994 the total amount of expenses incurred by
the underwriters was approximately $566,000. Such amount has not been accrued
as the Company, based in part on discussions with counsel, believe that any
liability related to the matter is unlikely to occur.
On March 4, 1994, the underwriter defendants filed a third-party claim in
WADE for contribution against one current director, certain former directors,
and one former officer of the Company. In their claim, the underwriter
defendants seek to shift any damages assessed against them to these present and
former directors and officers. On May 18, 1994, the Court dismissed some of
these contribution claims against some of the parties. On June 6, 1994, the
Court stayed and severed the contribution action, to be adjudicated following
the conclusion of WADE. Under Oregon law, the Company may be required to
indemnify the officers and directors if this matter is adversely determined.
The Company is also a defendant in various lawsuits resulting from normal
business activity. In the opinion of management, the disposition of all other
such litigation currently pending will not have a material effect on the
financial position or results of operation of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The Company services a nonperforming lease portfolio through collection and
disposition activities. This portfolio was specifically excluded from the
assets sold by the Company in an asset sale that concluded on May 27, 1993 (the
"Asset Sale").
The nonperforming lease portfolio is comprised of leases that either were
seriously delinquent or otherwise impaired prior to the Asset Sale and
consequently were written down in value to an amount estimated to be equal to
their net realizable value. As of May 31, 1994, the aggregate value of the
nonperforming portfolio, as reflected on the financial statements of the Company
was $395,000, compared to $1.4 million as of February 28, 1994, and compared to
$5.7 million at May 31, 1993.
The Company plans to continue its collection efforts so long as cash
recoveries are deemed by management to exceed the costs of collection and
disposition. If the total remaining cash recoveries are less than the remaining
value as reflected on the Company's financial statements an additional loss will
occur. If the remaining cash recoveries exceed the remaining book value, any
subsequent recoveries will be recorded as a gain. The Company anticipates, at
May 31, 1994, that the collection efforts may result in gains during the next
two fiscal quarters, although it is not possible to predict the extent of such
gains.
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The Company invests cash, derived primarily from the proceeds of the Asset
Sale including payments received from the purchaser pursuant to a purchase note
(the "Purchase Note"), in accordance with an Investment Policy, primarily in
securities issued or guaranteed by the United States government, or mutual funds
invested in such securities through financial advisors. These investments are
reflected on the Company's balance sheet as short-term investments and are
recorded at their net realizable value. During the fiscal quarter ending May
31, 1994, interest rates fluctuated significantly with the result of a general
upward movement in interest rates. As a result of this volatility, the Company
incurred unrealized losses of $162,000 for the period in its short-term
portfolio. Management reviews the performance of these investments on a regular
basis, and within the investment limitations as provided in its Investment
Policy, makes investment decisions based upon general government bond market
conditions.
On May 27, 1994, the Company received its scheduled payment of interest and
principal under the Purchase Note in the amount of $3.6 million.
The Company continues to defend pending litigation as described in Note 3,
Contingencies, in Notes to Consolidated Financial Statements, and will continue
to incur significant legal costs associated with this defense. The level of
costs are expected to increase in the period immediately preceding and during
the trial, which is scheduled to commence in September 1994. The Company has
included $1.975 million in the adjustment for liquidation basis as estimated
legal defense costs for the period June through October 1994.
On May 20, 1994, the Board of Directors approved a Plan of Liquidation,
which remains subject to shareholder approval. As of May 31, 1994, IFC Holdings
Inc. owned 100% of the Class B Common Stock of the Company, which represents 75%
of the ownership of the Company and 96.8% of the outstanding Common Stock voting
rights of the Company. As a result, IFC Holdings has a sufficient number of
votes to approve the Plan, regardless of the vote of any other shareholders.
IFC Holdings has agreed to vote such shares in favor of the proposed Plan and,
as a result, approval of the Plan is assured. The Company has prepared its
financial statements for the three and six month period ended May 31, 1994 on a
liquidation basis. Accordingly, assets have been valued at their estimated net
realizable value and liabilities include estimated costs associated with
carrying out the Plan of Liquidation.
The net adjustment at May 31, 1994 required to convert from a going concern
(historical costs) basis to a liquidating basis of accounting was a decrease in
the carrying value of net assets of $4.2 million, which in included in the
statement of consolidated income and changes in net assets (liquidation basis).
See Note 2, Plan of Dissolution and Complete Liquidation.
In future periods, the Company's net income will consist of current period
revenues from cash, investments, note receivable and collection of nonperforming
assets, less any adjustment to the estimated expenses based upon actual
performance or upon revised estimates.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1994 COMPARED TO MAY 31, 1993
As a result of the Asset Sale on May 27, 1993, and the revised presentation
of its financial statements for the three months ended May 31, 1994 as a result
of the Board approval of the adoption
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of the Plan of Liquidation, management believes that performance and results of
operations are not comparable with prior periods.
Revenue for the three months ended May 31, 1994 consisted primarily of
interest income, net of a loss on investments for the period, of $194,000, as
compared to net lease and other revenue, and gains on sale of equipment of $3.9
million for the same period a year earlier.
Operating expenses were $876,000 for the three months ended May 31, 1994,
compared to $4.2 million the previous year. Costs incurred in the defense of
the securities litigation were $202,000 for the period, which reflects
reimbursement from Continental Insurance in the amount of $566,000. Continental
has provided the payment under a reservation of rights based on a counterclaim
filed against the Company. See Note 3, Contingencies, in Notes to the
Consolidated Financial Statements.
As a result of the Board's approval of the Plan of Liquidation, the
Company's financial statements, for the three and six months ended May 31, 1994,
have been prepared on a liquidating basis. Accordingly, assets have been valued
at their estimated net realizable value and the liabilities include estimated
costs associated with implementing the Plan of Liquidation.
The net adjustment required to convert from a going concern basis to a
liquidation basis of accounting was a decease in the carrying value of the net
assets of $4.2 million, which is included in the consolidated statement of
income and changes in net assets (liquidation basis).
The Company reports a net loss of $4.8 million the quarter ended May 31,
1994, compared to net income of $2.3 million for the same period a year ago.
SIX MONTHS ENDED MAY 31, 1994 COMPARED TO MAY 31, 1993
As a result of the Asset Sale and as a result of the change in the
presentation of the Company's financial results from a going concern basis to a
liquidation basis for the three and six months ended May 31, 1994, management
believes that performance is not comparable with prior periods.
Total revenues for the six months ended May 31, 1994 were $557,000 compared
to $9.4 million a year earlier. Expenses for the six month period were $1.8
million in 1994, compared to $8.7 million a year earlier.
The Company reports a net loss of $5.4 million for the six months ended May
31, 1994, as compared to net income of $2.9 million a year earlier.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no available short-term or long-term debt facilities. The
Company believes that its present cash short-term investments and collection of
its notes receivable will allow it to manage the collection of the remaining
assets, carry out the Plan of Liquidation, and defend the legal proceedings
against the Company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3, Contingencies, in Notes to the Consolidated Financial
Statements beginning on page 8.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
8-K The Company filed a Form 8-K, related to the Plan of Liquidation, on May
31, 1994.
11.1 Exhibit 11.1 is a statement of computation of per share earnings that
includes the preferred stock dividend.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL FUNDING CORP.
(Registrant)
Date: July 12, 1994 By: /S/ JOHN J. ESTOK
------------- ------------------------------
John J. Estok
President and Chief Executive Officer
Date: July 12, 1994 By: /S/ JOHN W. PITT
------------- ------------------------------
John W. Pitt
Vice-President and Secretary
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------
FORM 8K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
May 31 1994
(Date of earliest event reported)
INDUSTRIAL FUNDING CORP.
(Exact name of registrant specified in its charter)
OREGON 0-18071 93-1013278
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Indentificaton No.)
2121 S.W. BROADWAY
SUITE 100
PORTLAND, OREGON 97201
(Address of principal executive offices, including zip code)
(503)228-2111
(Registrant's telephone number, including area code)
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PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION OF
INDUSTRIAL FUNDING CORP.
This Plan of Dissolution and Complete Liquidation (the "Plan") of
Industrial Funding Corp., an Oregon corporation ("IFC"), has been approved by
the Board of Directors of IFC (the "Board") as being in the best interests of
IFC and the holders of its common and preferred stock (the "Shareholders"). The
Board has directed that this plan be submitted to the Shareholders in accordance
with Or. Rev. Stat. SECTION 60.627 with the recommendation that the Plan be
adopted, and has authorized the distribution of a Proxy Statement in connection
with the solicitation of proxies. The Board has called a special meeting of
the Shareholders to be held on July 20, 1994, at 10:00 a.m. PT to consider and
vote upon such proposal. The Board has fixed July 1, 1994, as the record date
in connection with such meeting.
1. ADOPTION OF PLAN. The effective date of this Plan (the "Effective
Date") shall be the date on which it is approved and adopted by the
Shareholders.
2. LIQUIDATION PERIOD. The actions authorized in this Plan shall be
accomplished during the period (the "Liquidation Period") commencing on the
Effective Date and ending on the fifth anniversary of the Effective Date;
provided, however, that the Board may shorten the Liquidation Period if the
Board determines that all material assets of IFC have been sold or collected,
all liabilities of IFC, fixed or contingent, have been paid, discharged, or
adequate provisions have been established therefore, and such a shortening of
the Liquidation Period is in the best interests of IFC and its Shareholders or
the Board may extend the Liquidation Period if the Board determines that such an
extension is necessary to accomplish the foregoing purposes and that such an
extension is in the best interest of IFC and it Shareholders. IFC shall cause
the adoption of a plan of complete liquidation by Industrial Leasing Corporation
which plan shall provide for the complete liquidation of Industrial Leasing
Corporation during the Liquidation Period.
3. DISSOLUTION. Not more that 60 days after the Effective Date,
appropriate officers of IFC shall execute and deliver for filing articles of
dissolution of IFC in accordance with Or. Rev. Stat. SECTION 60.621, thereby
limiting the purposes and activities of IFC to those described in Or. Rev.
Stat. SECTION 60.637. Following the filing of such articles and for so long
as IFC shall continue to exist pursuant to Or. Rev. Stat. 60.637, IFC shall,
to the maximum extent permitted by law, continue to have the power and
authority to take any of the actions that this Plan would authorize IFC to take
during the Liquidation Period. Upon the filing of such articles of
dissolution, IFC, its Board, officers, employees, and agents shall hold IFC
out as a corporation in dissolution.
4. SALE OR OTHER DISPOSITION OF ASSETS. IFC shall have the authority to
engage in such transactions as may be appropriate to its complete liquidation,
including, without limitation, the sale, exchange or other disposition of all or
any part of its remaining assets for cash, shares, bonds, or other securities or
property, or any combination of the foregoing, in one or more transactions, to
such persons or entities
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and upon such terms and conditions as the Board, or officers, employees or
agents of IFC acting pursuant to authority delegated by the Board, shall
determine, with no further approvals by the Shareholders except as required by
law.
IFC shall have the authority to commence and prosecute any proceeding
against any party for contribution, indemnification, recoupment of defense
costs, or to establish insurance coverage in respect of any cost, expense, loss
or damage suffered by IFC by reason of the WADE litigation or any related
proceeding upon a determination by the Board, or officers, employees or agents
of IFC acting pursuant to authority delegated by the Board, that such proceeding
is in the best interests of IFC or its Shareholders; provided, however, that
nothing herein shall operate to limit IFC from commencing or prosecuting any
other proceeding permitted under Or. Rev. Stat. SECTION 60.637.
5. INVESTMENT POLICY PENDING SHAREHOLDER DISTRIBUTIONS. Prior to the
final distribution of the assets of IFC to its Shareholders, IFC shall have the
authority to invest its cash or other liquid assets in: money market mutual
funds; bank money market funds; bank repurchase agreements collateralized by
direct obligations of the United States Government; bank time deposits,
certificates of deposit, and bankers' acceptances; investment-grade commercial
paper or corporate bonds; securities issued or guaranteed by the United States
Government or any agency thereof and mutual funds investing exclusively in the
same.
6. PROVISION FOR LIABILITIES. Within the Liquidation Period, IFC shall
pay or discharge, or set aside a reserve fund for, or otherwise provide for, all
its liabilities and obligations, fixed and contingent, including, without
limitation, any liabilities arising by reason of the WADE litigation, related
proceedings, and the Parrish Purchase and Sale Agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS. Subject to the limitations on the
declaration and payment of dividends and the repurchase of capital stock arising
under law, including such limitations as may arise by reason of the pendency of
the WADE litigation and related proceedings, IFC shall, at such time and in such
manner as the Board shall deem appropriate, but in any event within the
Liquidation Period, distribute its assets to its Shareholders to the end that,
by the end of the Liquidation Period, IFC shall have distributed all its assets,
including proceeds of sales, exchanges or other dispositions, to its
Shareholders. Subject to the limitations on the declaration and payment of
dividends and the repurchase of capital stock arising under law, including such
limitations as may arise by reason of the pendency of the WADE litigation and
related proceedings, but as soon as is reasonably practicable, IFC shall, at
such times and in such manner as the Board shall deem appropriate, pay the
cumulative preferred stock dividends which have accrued in respect of IFC's
Series A Cumulative Preferred Stock and redeem or otherwise repurchase all
issued and outstanding shares of such Series A Cumulative Preferred Stock. If,
in the judgment of the Board, such a course appears advisable, IFC may incur
indebtedness to such persons and entities, in such amounts and on such terms and
conditions as the Board shall determine, to permit IFC to make
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distributions of cash to Shareholders. The preceding sentence shall not operate
to limit the power of IFC to incur indebtedness under any other circumstances.
8. TRANSFER OF ASSETS TO TRANSFEREE ENTITIES. If, in the judgment of the
Board, such a course appears advisable, IFC may distribute assets of IFC to its
Shareholders by transferring such assets to one or more partnerships, trusts,
corporations or other entities, each a "Transferee Entity," and distributing
interests in such Transferee Entity or Entities to the Shareholders. If the
Board deems it to be advisable, the general partner (or its directors or
officers, if any) of any Transferee Entity that is a partnership, the trustee of
any Transferee Entity that is a trust, the directors or officers of any
Transferee Entity that is a corporation or the persons with comparable rules and
any other type of Transferee Entity may be officers, directors or employees of
IFC or any of its subsidiaries or persons or entities (including subsidiaries)
otherwise controlling, controlled by, or under common control with IFC.
9. METHODS FOR DISTRIBUTIONS TO SHAREHOLDERS. Any distributions to
Shareholders may be made by way of prorated dividends or other distributions of
cash, securities or other property, tender or exchange offers for shares of
IFC's stock or repurchases or redemptions of, or privately negotiated exchanges
of IFC's assets for, such shares.
10. RESTRICTIONS ON SELF-DEALING. Commencing on the Effective Date, IFC
shall not sell, exchange, or otherwise dispose of any of its remaining assets to
any director, officer, employee, or agent of IFC. Except for the exercise of
stock options previously granted by the Board and for sales of the capital stock
of IFC to IFC as contemplated under Paragraphs 7 and 9 of this Plan, no
director, officer or employee of IFC shall purchase or sell any shares of the
capital stock of IFC during the Liquidation Period.
11. AMENDMENT OF PLAN. The Board may modify or amend this Plan at any
time without Shareholder approval if it determines that such action would be in
the best interest of IFC or its Shareholders. If any amendment or modification
appears necessary and, in the judgment of the Board, will materially and
adversely affect the interest of its Shareholders, such an amendment or
modification shall be submitted to the Shareholders for approval.
12. AUTHORIZATION TO BOARD AND OFFICERS. The Board and officers of IFC
are authorized to approve such changes to the terms of any of the transactions
referred to herein, to interpret any of the provisions of this Plan, and to
make, execute and deliver such other agreements, conveyances, assignments,
transfers, certificates and other documents and to take such other actions as
the Board and such officers deem necessary or desirable in order to carry out
the provisions of this Plan and effect the complete liquidation and dissolution
of IFC in accordance with Section 60.627 and other applicable sections of the
Oregon Revised Statutes.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INDUSTRIAL FUNDING CORP.
(Registrant)
Date: May 31, 1994 By: /S/ JOHN J. ESTOK
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John J. Estok
President and Chief Executive Officer
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INDUSTRIAL FUNDING CORP.
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Exhibit 11.1
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<CAPTION>
For The Three Months Ended For The Six Months Ended
May 31, May 31, May 31, May 31,
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(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1994 1993
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LIQUIDATION GOING CONCERN LIQUIDATION GOING CONCERN
BASIS BASIS BASIS BASIS
<S> <C> <C> <C> <C>
Net income ($4,842) $2,311 ($5,423) $2,899
Cumulative preferred stock dividend (478) (478) (955) (955)
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Earnings on common stock ($5,320) $1,833 ($6,378) $1,944
Average number of common shares outstanding 7,500 7,500 7,500 7,500
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Earnings per common share ($0.71) $0.24 ($0.85) $0.26
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