<PAGE>
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 FEBRUARY 28, 1995
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 ____ No
________________
Outstanding at
Class April 3, 1995
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Class A, Without Par Value 1,977,602 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)
<PAGE>
INDUSTRIAL FUNDING CORP.
INDEX
Part I. Financial Information
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Net Assets (Liquidation Basis). . . 3
Consolidated Statements of Changes in Net Assets in
liquidation . . . . . . . . . . . . . . . . . . . . . . . . . 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
2
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INDUSTRIAL FUNDING CORP. UNAUDITED
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Consolidated Statement of Net Assets (liquidation basis)
<TABLE>
<CAPTION>
February 28, February 28, November 30,
----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994 1994
- ---------------------------------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION LIQUIDATION
BASIS BASIS BASIS
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $1,444 $7,110 $20,754
Restricted cash -- 805 6,175
Short-term investments 6,005 18,321 6,569
Notes receivable 9,521 15,869 9,521
Nonperforming assets -- 1,415 989
Other assets 827 515 99
----------------------------------------
TOTAL $17,797 $44,035 $44,107
----------------------------------------
----------------------------------------
LIABILITIES:
Accounts payable and accrued liabilities $122 $641 $661
Reserve for litigation settlement -- -- 5,000
Reserve for estimated costs during the period of liquidation 1,100 4,506 1,427
----------------------------------------
Total liabilities 1,222 5,147 7,088
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Series A Cumulative Preferred Stock (without par value,
10,000,000 shares authorized, 134,310 shares issued and
outstanding - at redemption and liquidation value of
$100 per share and accumulated dividends). -- 19,081 20,514
----------------------------------------
Total Liabilities and Redeemable Preferred Stock 1,222 24,228 27,602
SHAREHOLDERS' EQUITY:
Common stock:
Class A (20,000,000 no par value shares authorized,
1,879,294 outstanding) -- -- --
Class B (10,000,000 no par value shares authorized,
5,625,000 outstanding) -- -- --
----------------------------------------
Total shareholders' equity -- -- --
----------------------------------------
TOTAL 1,222 24,228 27,602
----------------------------------------
NET ASSETS IN LIQUIDATION $16,575 $19,807 $16,505
----------------------------------------
----------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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INDUSTRIAL FUNDING CORP. UNAUDITED
- -------------------------------------------------------------------------------
Consolidated Statements of Changes in Net Assets in Liquidation
<TABLE>
<CAPTION>
For The Three Months Ended
February 28, February 28,
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(DOLLARS IN THOUSANDS EXCEPT PER SHARE 1995 1994
- --------------------------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION
BASIS BASIS
<S> <C> <C>
REVENUE:
Gain on nonperforming portfolio $7 -
Interest and dividend income 292 $621
Gain (loss) on sale of short-term investment 69 (357)
Unrealized gain on short-term investments - 83
Other revenue - 16
-----------------------------------
Total revenue 368 363
-----------------------------------
ESTIMATED COSTS DURING LIQUIDATION - (5,451)
-----------------------------------
NET INCOME (LOSS) $368 ($5,088)
-----------------------------------
-----------------------------------
NET INCOME (LOSS) PER SHARE (Exhibit 11.1) $0.01 ($0.74)
-----------------------------------
-----------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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INDUSTRIAL FUNDING CORP. Unaudited
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Three Months Ended
February 28, February 28,
------------ ------------
(DOLLARS IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION
BASIS BASIS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTVITIES:
Net income (loss) $368 ($5,088)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
(Increase) decrease in restricted cash 6,175 (5)
(Gain) loss on sale of short-term investments (69) 357
Recovery of unrealized loss on short-term investments - (83)
Increase (decrease) in reserve for estimated costs during liquidation (327) 4,506
Decrease in reserve for litigation settlement (5,000) -
Increase in other assets (728) (460)
Increase (decrease) in accounts payable and other liabilities (539) 22
Other (1) (26)
---------------------------------
Total adjustments (489) 4,311
---------------------------------
Net cash used in operating activities (121) (777)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on nonperforming assets 989 1,636
Purchase of short-term investments (6,005) (11,682)
Proceeds received on sale of short-term investments 6,638 11,347
Redemption of Series A Cumulative Preferred Stock and accumulated dividend (20,811) -
---------------------------------
Net cash provided by (used in) investing activities (19,189) 1,301
---------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,310) 524
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,754 6,586
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,444 $7,110
---------------------------------
---------------------------------
SUPPLEMENTAL DISCLOSURES:
Non-cash - preferred stock dividends accreted $297 $477
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Industrial Funding Corp. ("Industrial" or the "Company"), was incorporated
in October 1989, as a holding company formed for the purpose of owning
Industrial Leasing Corporation ("Industrial Leasing"). 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 Asset Sale, Company activities include collection of the
remaining assets, investment of its financial resources, and the management of
legal proceedings against the Company.
The Company has adopted the liquidation basis of accounting as of May 20,
1994. This basis of accounting is considered appropriate when the Company has
adopted a plan of liquidation and liquidation appears imminent, the Company is
no longer viewed as a going concern and the net realizable value of the
Company's assets are reasonably determinable. Under this basis of accounting,
assets and liabilities are stated at their estimated net realizable value and
estimated costs of liquidating the Company are provided to the extent they are
reasonably determinable.
The Company's Plan of Dissolution and Complete Liquidation (the "Plan of
Liquidation") (see NOTE 2. - Plan of Dissolution and Complete Liquidation)
provides for the liquidation of all of the Company's assets. In connection with
the adoption of the liquidation basis of accounting, the Company has accrued
what management believes are reasonable estimates of costs to liquidate its
remaining assets and to defend legal claims. The actual costs may differ
significantly depending on a number of factors, including the length of time it
takes to dispose of and the amount received for the remaining assets and the
holding costs associated therewith, and the resolution of the claims against the
Company's insurance carriers for reimbursement of legal fees and expenses
related to the security litigation. Estimated costs to liquidate are reflected
in the Consolidated Statement of Net Assets as "Reserve for estimated costs
during the period of liquidation".
The accompanying Unaudited Consolidated Financial Statements were prepared
on the liquidation basis of accounting 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 "SEC").
While these statements reflect all necessary, normal, and recurring adjustments,
including those required to present fairly, in all material respects, the
financial position, results of operations and cash flows of the Company and its
subsidiary at February 28, 1995 and 1994, and for the three month periods 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, 1994, contained in the Company's
Form 10-K/A, filed with the SEC pursuant to the Securities Exchange Act of 1934.
Operating results for the three months period ended February 28, 1995, are not
necessarily indicative of the results that may be expected for the full year.
The effects of adopting the Plan of Liquidation are explained in NOTE 2. - Plan
of Dissolution and Complete Liquidation.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION
The Board of Directors of the Company approved the Plan of Liquidation, on
May 20, 1994, for submission to the shareholders of the Company. A Special
Meeting of Shareholders was scheduled for August 18, 1994, for shareholders to
consider approval of the Plan of Liquidation. However, on August 15, 1994, the
Company reached a preliminary agreement to settle the securities class action
lawsuits pending against the Company. (See NOTE 3. - Commitments and
Contingencies). Due to the material financial implications of this proposed
settlement, the Special Meeting was adjourned to enable the Company to revise
the Proxy Statement, and provide its shareholders with additional information
concerning the terms of the proposed settlement. No date has been set for the
continuation of the Special Meeting.
On April 3, 1995, a change in control of the Company occurred pursuant to
the closing of the sale of 5,625,000 shares of Class B Common Stock of the
Company by IFC Holdings, Inc. under the terms of a Stock Purchase Agreement,
dated as of April 3, 1995, to Fir Tree Industrial, L.P., a Delaware limited
partnership ("FTI"), Fir Tree Value Fund, L.P., a Delaware limited partnership
("FTV"), F/B/O Jeffrey D. Tannenbaum IRA Neuberger & Berman Custodian ("IRA"),
and Quota Fund, N.V., a foreign investment company ("Quota"); collectively the
("Fir Tree Holders"), FTI, FTV, IRA and Quota purchased 3,135,000, 1,125,000,
72,500 and 1,292,500 shares of the Company's Class B Common Stock, respectively.
The Plan of Liquidation will be effective the date on which it is approved
by the shareholders. The Fir Tree Holders are record owners, in the
aggregate, of 100 percent of the Company's Class B Common Stock, which
represents 74 percent of the ownership of the Company and 96.6 percent of the
outstanding Common Stock voting rights as of April 3, 1995. FTV and Quota are
beneficial owners, in the aggregate, of 70.1 percent of the Company's Class A
Common Stock, which represents 18.2 percent of the ownership of the Company and
2.4 percent of the outstanding Common Stock voting rights. The Fir Tree Holders
accordingly have a sufficient number of votes to approve the Plan of
Liquidation, regardless of the votes of any other shareholders. The Fir Tree
Holders have advised the Company that they will provide the Company with a proxy
for those shares, to be voted by management in favor of the proposed Plan of
Liquidation, and, consequently, approval of the Plan of Liquidation is assured.
As a result of the Board's approval of the Plan of Liquidation, the
Company's Consolidated Financial Statements are prepared on the liquidation
basis of accounting. Accordingly, assets are valued at their estimated net
realizable value, and liabilities include the estimated costs to carry out the
Plan of Liquidation. The Company's financial statements for the three months
ended February 28, 1994 have been restated to reflect the liquidation basis of
accounting.
The net adjustment required to convert from the going concern (historical
cost) basis to the liquidation basis of accounting as of December 1, 1993 was a
decrease in the carrying value of net assets of $5.5 million which was included
in the Consolidated Statement of Changes in Net Assets in Liquidation. This
decrease in the carrying value of net assets is principally a result of
recording estimated costs associated with carrying out the Plan of Liquidation.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the liquidation basis, the Company has accrued future liabilities
associated with carrying out the Plan of Liquidation (see assumptions below).
The Company has not reflected future revenues from interest income or income
associated with investment activities as such income will be recognized when
realized.
The conversion of the Company's assets and liabilities from the going
concern (historical cost) basis to the liquidation basis of accounting has
required the determination of significant estimates and judgments by management
of the Company. A summary of the Plan of Liquidation, and of the significant
estimates and judgments made, are described below.
The Plan of Liquidation calls for an orderly liquidation of the Company
over a five year period from the effective date of the Plan. This 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
complete its liquidation, including the sale, exchange, or other disposition of
all or part of its remaining assets for cash, shares, bonds, or other security
or property, or any combination of the foregoing. Prior to distributions of the
assets of the Company to its shareholders, the Company will invest its financial
resources and will discharge or otherwise provide for all of its known
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 market value. No
accrual has been made for future income or loss on investments except for
unrealized gains or losses that existed on February 28, 1995.
2) NOTE RECEIVABLE. The Company has the intent and ability to hold this
receivable, acquired in connection with the Asset Sale, to maturity, which
is May 27, 1996. No valuation allowance is deemed necessary. Interest
income will be recognized when earned, calculated at the stated rate of 6%
per annum.
3) NONPERFORMING ASSETS are carried at their estimated net realizable
value.
4) PREFERRED STOCK DIVIDENDS were accreted through January 26, 1995. The
Company redeemed the preferred stock and accumulated dividends on January
26, 1995 for a total of $20.8 million, which includes $297,000 in dividends
accreted subsequent to November 30, 1994.
5) THE RESERVE FOR ESTIMATED COSTS DURING THE PERIOD OF LIQUIDATION
represents management estimates of costs to be incurred in the future to
liquidate the company. Major considerations and assumptions are as
follows:
a) Nonperforming assets were sold at auction as of December 15,
1994.
b) 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 that all significant outstanding matters will be
resolved by that time.
All of the above assumptions may be subject to change as facts emerge and
circumstances change.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. COMMITMENTS AND CONTINGENCIES
On August 20, 1994, the Company established a reserve in the amount of $5.0
million as its share of the settlement of the securities lawsuits previously
filed 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 certified public
accountants, 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, alleged violations of federal securities laws. The WADE lawsuit also
alleged violations under California state law. These lawsuits were filed in the
United States District Court for the Northern District of California, and
alleged that plaintiffs were damaged as a result of alleged misstatements and
omissions in documents disseminated in connection with the Company's initial
public offering and subsequent communications and public filings through
February 1991. Damages of approximately $22.5 million plus prejudgement
interest were alleged.
On August 15, 1994 a preliminary agreement was reached to settle these
lawsuits. A settlement agreement was executed by the parties on October 7,
1994. The settlement was approved by the Court on December 19, 1994 and became
effective January 19, 1995, at which time all claims were fully settled.
Under the terms of the settlement, the Company contributed $5 million,
without any presumption or admission of liability, of a total settlement of $10
million. The Company maintains that its litigation positions have merit, but
has agreed to the settlement to avoid the risk, exposure, and costs of further
legal proceedings.
In January 1993, Alex. Brown & Sons and Piper Jaffray, Inc., the
underwriters of the initial public offering, filed an action against the
Company, demanding that the Company pay the underwriters' attorney fees and
expenses associated with their defense of the securities litigation, in
accordance with the Underwriting Agreement between the Company and the
underwriters. The Court granted the underwriters' motion for summary judgment,
on July 9, 1993, and ordered the Company to pay the underwriters' legal costs as
they were incurred. The Company appealed this decision to the Court of Appeals.
In the interim, pending a decision regarding this appeal, the Company deposited
funds with the Court to cover these costs. Under the terms of the final
settlement of the securities litigation, this deposit was returned by the Court
to the Company on January 20, 1995.
In connection with the securities litigation, the Company has filed a
lawsuit against two insurance companies, demanding coverage against American
Home Assurance Company under a directors and officers liability policy in the
amount of approximately $5.0 million (Canadian), and against The Continental
Insurance Company (Continental Insurance) under a general liability policy and
umbrella policy of approximately $4.0 million (Canadian) and $16.0 million
(Canadian), respectively.
Continental Insurance has agreed to reimburse the Company for reasonable
defense fees and expenses. As of April 3, 1995, Continental Insurance has
advanced $2.2 million of legal costs which represents approximately 37 percent
of the total legal costs incurred to date by the Company in defense of the class
action lawsuit. The Company and Continental Insurance have agreed to negotiate
the amount of the remaining reimbursement. Both parties have further agreed to
submit the matter to binding arbitration if negotiations are not successful.
The Company has submitted approximately $5.9 million of fees and expenses for
reimbursement to Continental Insurance. Any additional reimbursements from
Continental Insurance will be recorded as income when received.
9
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 net
assets or changes in net assets of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Subsequent to the Asset Sale on May 27, 1993, the Company has made
collection on its nonperforming assets and the Purchase Note, has invested its
financial resources, and managed the legal proceedings against the Company. On
December 6, 1994 the remaining nonperforming assets were sold at public auction.
The Board of Directors of the Company approved the Plan of Liquidation, on
May 20, 1994, for submission to the shareholders of the Company. A Special
Meeting of Shareholders was scheduled for August 18, 1994, for shareholders to
consider approval of the Plan of Liquidation. However, on August 15, 1994, the
Company reached a preliminary agreement to settle the securities class action
lawsuits pending against the Company. (See NOTE 3. - Commitments and
Contingencies). Due to the material financial implications of this proposed
settlement, the Special Meeting was adjourned to enable the Company to revise
the Proxy Statement, and provide its shareholders with additional information
concerning the terms of the proposed settlement. No date has been set for the
continuation of the Special Meeting.
On April 3, 1995, a change in control of the Company occurred pursuant to
the closing of the sale of 5,625,000 shares of Class B Common Stock of the
Company by IFC Holdings, Inc. under the terms of a Stock Purchase Agreement,
dated as of April 3, 1995, to Fir Tree Industrial, L.P., a Delaware limited
partnership ("FTI"), Fir Tree Value Fund, L.P., a Delaware limited partnership
("FTV"), F/B/O Jeffrey D. Tannenbaum IRA Neuberger & Berman Custodian ("IRA"),
and Quota Fund, N.V., a foreign investment company ("Quota"); collectively the
("Fir Tree Holders"). FTI, FTV, IRA and Quota purchased 3,135,000, 1,125,000,
72,500 and 1,292,500 shares of the Company's Class B Common Stock, respectively.
The Plan of Liquidation will be effective the date on which it is approved
by the shareholders. The Fir Tree Holders, are record owners, in the
aggregate, of 100 percent of the Company's Class B Common Stock, which
represents 74 percent of the ownership of the Company and 96.6 percent of the
outstanding Common Stock voting rights as of April 3, 1995. FTV and Quota are
beneficial owners, in the aggregate, of 70.1 percent of the Company's Class A
Common Stock, which represents 18.2 percent of the ownership of the Company and
2.4 percent of the outstanding Common Stock voting rights. The Fir Tree Holders
accordingly have a sufficient number of votes to approve the Plan of
Liquidation, regardless of the votes of any other shareholders. The Fir Tree
Holders have advised the Company that they will provide the Company with a
proxy for those shares, to be voted by management in favor of the proposed Plan
of Liquidation, and, consequently, approval of the Plan of Liquidation is
assured.
10
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As a result of the Board's approval to adopt the Plan of Liquidation, the
Financial Statements have been prepared on a liquidation basis of accounting.
Accordingly, assets have been valued at their estimated net realizable value and
liabilities include estimated costs to carry out the Plan of Liquidation. The
net adjustment in 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 $5.5 million which is included in the Consolidated
Statement of Changes in Net Assets in Liquidation. This decrease in the
carrying value of net assets is a result of recording estimated costs to carry
out the Plan. In compliance with generally accepted accounting principles, the
Company has not included in this reserve future revenues from interest,
investment income, or any other miscellaneous income.
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 calls for the orderly liquidation of the Company over a five year
period from the effective date of the Plan. The period may be shorted 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 distributions of the
assets of the Company to its shareholders, the Company will invest its financial
resources and will discharge or otherwise provide for 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
February 28, 1995.
2. Notes Receivable. The Company has the intent and ability to hold this
receivable, acquired in connection with the Asset Sale, to maturity,
which is May 27, 1996. No valuation allowance is deemed necessary.
Interest income will be recognized when earned, calculated at the
stated rate of 6 percent per annum.
3. Preferred stock dividends were accreted through January 26, 1995. The
Company redeemed the preferred stock and accumulated dividends on
January 26, 1995 for a total of $20.8 million, including $297,000 in
dividends accreted during the quarter ended February 28, 1995.
4. The Reserve for estimated costs during the period of liquidation
represent management's estimate of costs to be incurred to liquidate
the Company. Estimated administrative costs have been accrued through
May 27, 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 significant outstanding matters will
be resolved by that time.
All of the above assumptions are subject to change should facts and
circumstances change.
11
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RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO FEBRUARY 28, 1994
As a result of the Board's approval of the Plan of Liquidation, the
Company's financial statements, for the three months ended February 28, 1995 and
1994, have been prepared on the liquidation basis of accounting. Accordingly,
assets have been valued at their estimated net realizable value and the
liabilities include estimated costs to carry out the Plan of Liquidation. The
Company's Net Assets in Liquidation were reduced by $5.5 million for the
estimated costs to implement the Plan of Liquidation as of December 1, 1993.
Revenue for the three months ended February 28, 1995 was $368,000 which
consisted primarily of interest income and gains on sale of investments, as
compared to $363,000 for the three months ended February 28, 1994 which
consisted primarily of interest income and losses on sale of investments
Liquidation costs were $327,000 for the three months ended February 28,
1995, compared to $945,000 for the same period the previous year.
The net adjustment required to convert the quarter ended February 28, 1994
from a going concern basis to a liquidation basis of accounting was a decrease
in the carrying value of the net assets of $5.5 million, which is included in
the consolidated statement of changes in net assets in liquidation.
The Company reported net income of $368,000 for the quarter ended
February 28, 1995, or $.01 per common share, compared to a net loss of $5.1
million, or a loss of $.74 per common share for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no available short-term or long-term debt facilities. The
Company believes that its present cash and cash equivalents, short-term
investments, together with the future collection of its Notes Receivable will
allow it to implement the Plan of Liquidation and manage the collection of its
claims against Continental Insurance for the recovery of legal costs.
DISTRIBUTIONS TO SHAREHOLDERS
Although it is unable to predict the amount or timing of distributions to
holders of the Company's Common Stock if the Plan of Liquidation is approved by
the Company's shareholders, the Company presently estimates the total
distributions may range from $2.30 to $2.77 per share based upon an analysis of
the presently known assets and estimated liabilities of the Company. The
distribution estimate range assumes the collection by the Company of all
principal and interest under the Purchase Note, and the accuracy of the
Company's assumptions regarding its reserve for estimated costs during the
period of liquidation.
The timing and amounts of such distributions will depend upon the receipt
by the Company of payments of principal and interest under the Purchase Note.
As of February 28, 1995, the Purchase Note had a remaining principal balance of
$9.5 million. In accordance with its terms, the remaining principal balance and
interest are payable on May 27, 1995, November 27, 1995 and May 27, 1996.
Additionally, the timing and amounts will be affected by the amount of defense
costs reimbursed by Continental Insurance, the accuracy of the Company's
assumptions regarding its Reserve for estimated costs during the period of
liquidation, the absence of additional liabilities, and determinations regarding
reserves to be established in connection with unknown liabilities. The amount
of any distribution may vary from current estimates and the timing of any
distribution may depend upon a number of factors beyond the control of the
Company.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3, Commitments and Contingencies, in Notes to the Consolidated
Financial Statements, beginning on Page 8.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10.18 Employment agreement from the Company to John W. Pitt dated December
27, 1994.
11.1 Exhibit 11.1 is a statement of computation of per share earnings that
includes the preferred stock dividend.
27. Financial Data Schedule
13
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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: April 12, 1995 By: /s/ John W. Pitt
-------------- ----------------
John W. Pitt
Vice-President - Finance and Secretary
14
<PAGE>
EXHIBIT 10.18
December,27 1994
John W. Pitt
3214 NE 26th
Portland, OR 97212
Dear John:
This letter sets forth the terms and conditions upon which Industrial
Leasing Corporation (the "Employer") agrees to employ John W. Pitt (the
"Employee"), effective December 27, 1994. This letter supersedes and replaces
all written and verbal agreements previously made or existing between the
parties.
1. POSITION AND TERM:
The Employee will be the Vice President of Finance and Corporate Secretary
of the Employer. The Employee will report to an Executive Committee, as
established by the Board of Directors of the Employer. Employee's employment
shall commence with the effective date, and continue until the earlier of the
date of termination by the Employee or the Employer, as hereinafter provided, or
until June 15, 1996 (see #6-"Termination").
2. DUTIES AND RESPONSIBILITIES:
The Employee shall perform duties and have responsibilities prescribed by
the Executive Committee of the Board of Directors. These duties may include
INTER ALIA (a) conducting the business and affairs of the Employer, including,
without limitation, the collection of the Purchase Note in connection with the
Agreement of Purchase and Sale of Assets, dated as of December 10, 1992, between
ILC Acquisition Corp. and Industrial Leasing Corporation, the timely filing of
all SEC reports, the timely filing of all federal and state income and
employment taxes, the maintenance of the Employer's books and records, the
management of the liquidation and disposition of the remaining assets owned by
the Employer, and the investment of liquid assets in accordance with the
Employers Investment Policy (b) reporting to and keeping the Executive Committee
of the Board of Directors fully appraised including the submission of a monthly
reporting package, and the production of certain materials required for
regularly scheduled and special meetings of the Board of Directors; (c) carrying
out such other duties as the Executive Committee may from time to time assign to
the Employee.
<PAGE>
John Pitt
December 27, 1994
Page 2
3. EXCLUSIVE SERVICES:
During the term of employment, the Employer is entitled to the exclusive
services of the Employee. The Employee shall not, without the prior written
consent of Industrial, either directly or indirectly, engage in any other
employment or business activity, or render services to any other person, company
or entity.
4. COMPENSATION AND BENEFITS:
The employee shall receive a salary of $4,400.00 per month, payable in
accordance with the usual payroll practices of the Employer. The Employee
acknowledges that the Employer shall withhold from all salary all withholding
taxes and statutory deductions.
The Employer will also provide the Employee with medical insurance and
other benefits consistent with existing coverage, subject to the availability
and cost of such insurance and benefits. The existing policies of the Employer
expire on December 31, 1995.
The Employee is entitled to 18 days of paid annual vacation, in addition to
statutory holidays. Vacation time will accrue to the Employee at a rate of 1.5
days for each full month of service. As of the date of this agreement, the
Employee has 3.75 days of accrued but unused vacation.
5. EXPENSES:
The Employer shall pay or reimburse the Employee for all travel and out of
pocket expenses reasonably incurred by the Employee in the performance of his
duties, subject to receipt of such supporting documentation as the Employer may
reasonably require.
6. TERMINATION:
The Employee's employment may be terminated at any time by the Employer,
without prior notice and without any further obligation to the Employee, for
just cause or willful misconduct. In any other event, The Employee's employment
may be terminated by the Employer upon the provision of sixty days (60) written
notice by the Employer to the Employee.
The Employee's employment may be terminated by the Employee upon provision
of sixty days (60) written notice by the Employee to the Employer.
Provided that (1) the Employer has not terminated the Employee's employment
for just cause or willful misconduct, or that (2) the Employee has not
terminated his
<PAGE>
John Pitt
December 27, 1994
Page 3
employment, the Employer will pay the Employee a severance payment of $10,000 on
the effective date of the Employee's termination.
7. AMENDMENTS:
This agreement may not be modified or amended in whole or in part except by
written instrument signed by both the Employer and the Employee.
8. APPLICABLE LAW:
This agreement shall be governed by and construed in accordance with the
laws of the State or Oregon.
9. ENTIRE AGREEMENT:
This letter constitutes the entire agreement between the parties with
reference to the employment of the employment of the Employee by the Employer.
There are no promises, representations, collateral agreements or understandings
between the parties in connection with such subject matter except as
specifically set forth in this agreement.
10. INTERPRETATION:
In the event that any provision of this agreement shall be deemed void and
invalid by a court of competent jurisdiction, the remaining provisions shall be
and remain in full force and effect.
11. ACKNOWLEDGMENT:
The Employee acknowledges that: he has had sufficient time to thoroughly
consider this agreement; that he has read and understands its terms; and that he
has entered into this agreement voluntarily and without any pressure.
Please confirm your acceptance of this offer of employment by signing and
returning the attached duplicate copy.
Very truly yours,
Industrial Leasing Corporation
------------------
John J. Estok
President
<PAGE>
John Pitt
December 27, 1994
Page 4
Accepted this____day of_________
- -----------------------
John W. Pitt
<PAGE>
INDUSTRIAL FUNDING CORP.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit 11.1
<TABLE>
<CAPTION>
For The Three Months Ended
February 28, February 28,
------------ ------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994
- -------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION
BASIS BASIS
<S> <C> <C>
Net income (loss) $ 368 $ (5,088)
Cumulative preferred stock dividend (297) (477)
-------------------------------
Earnings (loss) on common stock $ 71 $ (5,565)
Average number of common
shares outstanding 7,504,294 7,500,000
-------------------------------
Earnings (loss) per common share $ 0.01 $ (0.74)
-------------------------------
-------------------------------
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF NET ASSETS AS OF FEBRUARY 28, 1995 AND THE
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE THREE
MONTHS ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 310
<SECURITIES> 7,139
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,797
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,797
<CURRENT-LIABILITIES> 1,222
<BONDS> 0
<COMMON> 0<F1>
0
0
<OTHER-SE> 16,575<F1>
<TOTAL-LIABILITY-AND-EQUITY> 17,797
<SALES> 0
<TOTAL-REVENUES> 368
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 368
<INCOME-TAX> 0
<INCOME-CONTINUING> 368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 368
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<FN>
<F1>The Company is filing under the liquidation basis of accounting
</FN>
</TABLE>
