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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 1995 or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from_________________ to __________________
Commission file number I-91
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INTERCO INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 43-0337683
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314/863-1100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock - $1.00 Stated Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 31, 1995, was approximately 140,924,800.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
50,120,079 shares as of December 31, 1995
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on April 23, 1996................... Part III
PART I
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Item 1. Business
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BUSINESS
GENERAL
INTERCO INCORPORATED, which is to be renamed Furniture Brands International,
Inc., is the largest manufacturer of residential furniture in the United States.
The Company markets its products through its three operating subsidiaries,
Broyhill Furniture Industries, Inc., The Lane Company Incorporated and
Thomasville Furniture Industries, Inc. As used herein, unless the context
indicates otherwise, (i) the "Company" refers to INTERCO INCORPORATED and its
subsidiaries, (ii) "Broyhill" refers to Broyhill Furniture Industries, Inc.,
(iii) "Lane" refers to The Lane Company Incorporated and its subsidiaries, (iv)
"Thomasville" refers to Thomasville Furniture Industries, Inc. and (v) "Action
Industries" refers to Action Industries, Inc., a subsidiary of Lane.
On December 29, 1995, the Company completed the acquisition of Thomasville
from Armstrong World Industries, Inc. for approximately $339 million, consisting
of $331 million in cash and $8 million in assumed indebtedness. The cash portion
of the acquisition of Thomasville was financed through funds obtained under a
secured credit agreement (the "Secured Credit Agreement") and an amended
receivables securitization facility (the "Receivables Securitization Facility").
PRODUCTS
The Company manufactures and distributes (i) case goods, consisting of
bedroom, dining room and living room furniture, (ii) occasional furniture,
consisting of wood tables and accent items and freestanding home entertainment
centers and (iii) upholstered products, consisting of sofas, loveseats,
sectionals, chairs and (iv) recliners, motion furniture and sleep sofas.
The Company's brand name positioning by price and product category are shown
below.
STATIONARY MOTION/
PRICING CATEGORY CASE GOODS OCCASIONAL UPHOLSTERY RECLINER
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PREMIUM Thomasville Thomasville Thomasville
Lane Lane
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BEST Thomasville Thomasville Thomasville Thomasville
Lane Lane Lane Lane
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BETTER Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
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GOOD Broyhill Broyhill Broyhill
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PROMOTIONAL(1) Armstrong
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RTA(1) Armstrong
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(1) Promotional and RTA furniture is currently sold by Thomasville under the
Armstrong name. See "Thomasville Furniture Industries" below.
1
BROYHILL FURNITURE INDUSTRIES
Broyhill produces collections of medium price bedroom, dining room,
upholstered and occasional furniture aimed at middle-income consumers.
Broyhill's wood furniture offerings consist primarily of bedroom, dining room
and living room furniture, occasional tables, accent items and free standing
home entertainment centers. Upholstered products include sofas, sleep sofas,
loveseats, sectionals and chairs, all offered in a variety of fabrics and
leathers. Broyhill's residential furniture divisions produce a wide range of
furnishings in colonial, country, traditional and contemporary styles.
The widely recognized Broyhill trademarks include Broyhill, Broyhill Premier
and Highland House. The flagship Broyhill product line concentrates on bedroom,
dining room, upholstered and occasional furniture designed for the "good" and
"better" price categories. The Broyhill Premier product line enjoys an
excellent reputation for classically styled, complete furniture collections in
the "better" price category. Highland House also manufactures upholstered
products in the "better" price category.
THE LANE COMPANY
Lane manufactures and markets a broad range of high quality furniture
targeting the "better," "best" and "premium" price categories. Lane targets
niche markets with its seven operating divisions, which participate in such
segments of the residential furniture market as 19th century reproductions,
motion furniture, wicker and rattan, cedar chests and finely tailored
upholstered furniture. Using its recently installed, state-of-the-art finishing
system, Lane produces quality high sheen and enhanced grain finishes at
attractive prices.
The Lane Division of Lane manufactures and sells cedar chests, occasional
living room tables, bedroom and dining room furniture, wall systems, desks,
console tables and mirrors and other occasional wood pieces. The Lane Division
has teamed up with widely recognized designers such as Dakota Jackson, as well
as design institutions such as the American Museum of Folk Art in New York, to
design and market furniture collections. The Lane Division furniture is sold in
the "better" and "best" price categories.
Action Industries, a subsidiary of Lane, manufactures and markets reclining
chairs and motion furniture in the "good," "better" and "best" price categories
under the Action by Lane brand name. Motion furniture consists of sofas and
loveseats with recliner-style moving parts and comfort features, wall saver
recliners, pad-over chaise recliners, and motion sectionals. Lane's Royal
Development Company designs and manufactures the mechanisms used in Action
Industries' reclining furniture products.
The Hickory Chair division manufactures and markets traditional styles of
upholstered furniture, dining room chairs and occasional tables in the "best"
and "premium" price categories. The Hickory Chair division has been crafting
fine reproductions of 18th century furniture for over 80 years. For example,
Hickory Chair offers the James River collection which features reproductions of
fine furnishings from Virginia plantations, and more recently the new Mount
Vernon collection, which features reproductions from George Washington's home.
The Pearson division has been manufacturing and selling contemporary and
traditional styles of finely tailored upholstered furniture including sofas,
love seats, chairs and ottomans for over 50 years. Pearson manufactures the
Viceroy collection, which features fine furnishings from the award winning
designer Victoria Moreland. Pearson furniture sells in the "premium" price
category and is distributed to high end furniture stores and interior
designers.
The Lane Upholstery division includes two product lines, one of which is
composed of contemporary and modern upholstered furniture and metal and glass
occasional and dining tables, and the other of which is composed of traditional
and contemporary upholstered furniture, primarily sofas, love seats, chairs and
ottomans.
The Venture Furniture division manufactures and markets moderately priced
wicker, rattan and bamboo upholstered furniture, tables, occasional wood pieces
and other home furnishings accessories. The division manufactures a line of
outdoor and patio furniture featuring fast drying upholstered cushions under
the name WeatherMaster, which has developed significant consumer acceptance.
Hickory Business Furniture manufactures and sells a line of office furniture,
including chairs, tables, conference tables, desks and credenzas, in the upper-
medium price range.
2
THOMASVILLE FURNITURE INDUSTRIES
Thomasville manufactures and markets wood furniture, upholstered products and
RTA/promotional furniture. Thomasville markets its products primarily under the
Thomasville brand name. Thomasville offers an assortment of upholstery under the
Thomasville brand name that targets the "best" and "premium" price categories.
Upholstery is primarily marketed in three major styles: Traditional, American
Traditional/Country and Casual Contemporary. Upholstery style is determined by
both frame style and fabric or leather selection. Thomasville's frame assortment
allows the consumer to select from over 90 different styles within the general
style categories, and as much as 45% of the Thomasville fabric offering changes
in a 12 month period, insuring that the latest styles are available.
Thomasville's RTA/Promotional division offers assembled bedroom sets,
bookcases and home entertainment centers as well as RTA furniture consisting of
home entertainment centers, audio cabinets, television/VCR carts, room
dividers, bookcases, bedroom and kitchen/utility furniture, microwave carts,
computer desks and storage armoires. These products are primarily constructed
from fibreboard or particleboard and are printed or covered with laminated
paper in a variety of finishes and colors.
Thomasville's RTA/Promotional division markets products under the Armstrong
brand name to a variety of retailers for sale to consumer end-users and certain
contract customers. The Company has the right to continue to use the Armstrong
name for 18 months after the closing of the Thomasville acquisition. Management
does not believe that the loss of the Armstrong name will have a material
adverse effect on the Company's sales of RTA and promotional furniture.
DISTRIBUTION
The Company's strategy of targeting diverse distribution channels such as
furniture centers, independent dealers, national and local chain stores,
department stores, specialty stores and decorator showrooms is supported by
dedicated sales forces covering each of these distribution channels. The
Company is also exploring opportunities to expand international sales and to
distribute through non-traditional channels such as electronic retailers,
wholesale clubs, catalog retailers and television home shopping.
The Company's breadth of product and national scope of distribution enable it
to service effectively national retailers such as J.C. Penney, Sears and Levitz
and key regional retailers such as Haverty's and Heilig-Meyers. These large
retailers are commanding an increasing presence in the consolidating furniture
retailing industry and management believes that the Company is better
positioned than its competitors to meet their needs. Additionally, the
consolidation of the retail furniture industry has made access to distribution
channels an important competitive advantage for manufacturers. The Company has
developed dedicated distribution channels by expanding its gallery program and
the network of independently-owned dedicated retail locations, such as
Thomasville Home Furnishings stores. The Company distributes its products
through a diverse network of independently-owned retail locations, which
includes approximately 80 free-standing stores, more than 680 galleries and
more than 410 furniture centers.
Broyhill, Lane and Thomasville have all developed gallery programs with
dedicated dealers displaying furniture in complete room ensembles. These
retailers employ a consistent showcase gallery concept wherein products are
displayed in complete and fully accessorized room settings instead of as
individual pieces. This presentation format encourages consumers to purchase an
entire room of furniture instead of individual pieces from different
manufacturers. As a result, galleries tend to have higher sales per square foot
as well as faster inventory turns than non-gallery locations. The Company
recognizes the importance of the gallery network to its long-term success, and
has developed and maintains close relationships with its dealers. The Company
offers substantial services to retailers to support their marketing efforts,
including coordinated national advertising, merchandising and display programs
and extensive dealer training.
The Thomasville Home Furnishings stores are free-standing retail locations
that exclusively feature Thomasville furniture. The Company believes
distributing its products through dedicated free-standing stores strengthens
brand awareness, provides well-informed and focused sales personnel and
encourages the purchase of multiple items per visit. Management is currently
evaluating similar opportunities to market Lane and Broyhill products.
Showrooms for the national furniture market are located in High Point, North
Carolina and for regional markets in Dallas, Texas, Atlanta, Georgia, Chicago,
Illinois, and San Francisco, California.
3
BROYHILL FURNITURE INDUSTRIES
Broyhill distributes its products through an extensive distribution network of
more than 6,200 independently-owned retail locations. One of Broyhill's
principal distribution channels is the Broyhill Showcase Gallery Program. This
program, developed over the past twelve years, involves more than 330
participating dealer locations. Each dealer in the Broyhill Showcase Gallery
Program owns the gallery and the Broyhill furniture inventory. The program
incorporates a core merchandise program, advertising material support, in-store
merchandising events and educational opportunities for the retail store sales
and management personnel. The average Broyhill Showcase Gallery consists of
7,500 square feet of display space within a 30,000 square foot store. Furniture
is displayed in complete and fully accessorized room settings instead of as
individual pieces.
For the retailer that is currently not a participant in the gallery program,
Broyhill offers the Independent Dealer Program. This concept, initiated in
1987, is designed to strengthen Broyhill's relationship with these retailers
by assisting them in overcoming some of the significant difficulties in
running an independent furniture business. The Company seeks to develop these
relationships so that these retailers may become participants in the Broyhill
Showcase Gallery Program. Participating retailers in the Independent Dealer
Program commit to a minimum pre-selected lineup of Broyhill merchandise and,
in return, receive a detailed, step-by-step, year-round advertising and
merchandising plan. The program includes four major sales events per year,
monthly promotional themes and professionally prepared advertising and
promotional materials at nominal cost in order to help increase consumer
recognition on the local level. As part of the Independent Dealer Program,
Broyhill offers the Broyhill Furniture Center Program for retailers that have
committed at least 2,000 square feet exclusively to Broyhill products. This
program includes all of the benefits of the Independent Dealer Program, plus
additional marketing, designing and advertising assistance.
The Company is currently exploring opportunities to expand its distribution
channels for Broyhill through free-standing retail stores similar to the
Thomasville Home Furnishings stores. A retailer in Memphis, Tennessee recently
opened an independently-owned Broyhill store.
THE LANE COMPANY
Lane distributes its products nationally through a well established network
of approximately 16,000 retail locations. A diverse distribution network is
utilized in keeping with Lane's strategy of supplying customers highly
specialized products in selected niche markets. This distribution network
primarily consists of independent furniture stores, regional chains such as
Haverty's and Art Van, and department store companies such as J.C. Penney,
Sears, May Department Stores, Federated Department Stores and Dillard
Department Stores. Lane has an established specialty gallery program with more
than 200 participating dealers.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at more than 680 independently-owned retail
locations, including more than 410 Thomasville Galleries, approximately 80
Thomasville Home Furnishings stores and more than 180 selected furniture
chains and retailers. The Thomasville Gallery concept was initiated in 1983.
Each Thomasville Gallery has an average 7,500 square feet of retail space
specifically dedicated to the display, promotion and sale of Thomasville
products. Management believes that the gallery concept results in increased
sales of Thomasville products by encouraging the consumer to purchase a
complete collection as opposed to individual pieces from different
manufacturers. The first Thomasville Home Furnishings store opened in 1988.
The typical Thomasville Home Furnishings store is a 15,000 square foot
independently-owned store offering a broad range of Thomasville products,
presented in a home-like setting by specially trained salespersons.
Thomasville's management believes that the gallery and dedicated store
programs have helped create one of the most efficient distribution systems in
the industry.
4
Thomasville's RTA/Promotional division sells promotional and RTA furniture
to a variety of retailers for sale to consumer end-users and certain contract
customers. Promotional furniture is sold to retail chains such as Wal-Mart and
Levitz, as well as independent furniture stores. Promotional furniture is also
sold in the hospitality and health care markets of Thomasville's contract
business. RTA customers include national chains such as Wal-Mart and Ames,
catalog showrooms, discount mass merchandisers, warehouse clubs and home
furnishings retailers.
MARKETING AND ADVERTISING
The Company continues to strengthen its valuable brand names through ongoing
investment in innovative consumer advertising. The Company is one of the
largest advertisers in the residential furniture industry.
Advertising is used to increase consumer awareness of its brand names and is
targeted to specific customer segments through leading shelter magazines. Each
operating company uses focused advertising in major markets to create buying
urgency around specific sale and location information, enabling retailers to be
listed jointly in advertisements for maximum advertising efficiency and shared
costs. The Company seeks to increase consumer buying and strengthen
relationships with retailers through cooperative advertising and selective
promotional programs. The Company focuses its marketing efforts on prime
potential customers utilizing information from databases and from callers to
each operating company's toll-free telephone number. Each of the operating
companies also advertises selectively on television in conjunction with
dealers, and Action and Thomasville also use television advertising
independently.
BROYHILL FURNITURE INDUSTRIES
Broyhill's advertising programs focus on translating its strong consumer
awareness into increased sales.
Broyhill's current marketing strategy features a national print advertising
program in addition to traditional promotional programs such as furniture
"giveaways" on television gameshows and dealer-based promotions such as product
mailings and brochures. The national print advertising program, which consists
of multi-page lay-outs, is designed to appeal to the consumer's desire for
decorating assistance and increased confidence in making the decision to
purchase a big ticket product such as furniture. These advertisements are run
in publications such as Good Housekeeping and Country Living which appeal to
Broyhill's customer base. Game show promotions, a long-standing Broyhill
tradition, include popular programs such as Wheel of Fortune and The Price is
Right.
THE LANE COMPANY
Lane became a well-known brand name through Lane's initial use in the 1920s of
creative advertising to promote its cedar chests. Since then, Lane has continued
to use advertising programs to generate consumer awareness of the Lane brand
name. Through Lane's in-house advertising agency, recent programs have been
developed for print campaigns in national publications such as Country Home,
Country Living, House Beautiful and Architectural Digest. Action Industries is
engaged in selective national and regional television advertising.
5
The Lane Keepsake program has made the Lane cedar chest one of the best-known
furniture products in the industry and contributes to the high level of
consumer recognition. The program enables the 1,100 participating dealers to
establish early personal contact with a large number of women who are about to
enter the bridal market as potential buyers of home furnishings. Information
regarding a graduation gift of a miniature Lane cedar chest, available at the
local participating furniture store, is sent to the parents of graduating high
school women. This Keepsake program is believed to be instrumental in building
consumer recognition and promoting the Lane brand name.
Lane markets its products through the use of well-known designers and
affiliation with institutions. For example, Lane has teamed up with widely
recognized designers such as Mark Hampton and Dakota Jackson, as well as design
institutions such as the American Museum of Folk Art in New York, to design and
market furniture collections.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville's current advertising campaign, featured in household magazines
and periodic television commercials, emphasizes single dramatic, high quality
wood and upholstery pieces to support the emphasis on higher quality.
Thomasville invests in image advertising by placing advertisements in up-front
positions in national household magazines, such as Better Homes and Gardens,
Good Housekeeping and House Beautiful. Thomasville also utilizes focused
advertising in major markets to create buying urgency around specific sale and
location information, enabling retailers to be listed jointly in advertisements
for maximum advertising efficiency and shared costs.
To reach additional customers, Thomasville uses promotional discounts and
dealer cooperative advertising support. Thomasville has two major retailer
promotions, the Winter and Summer Thomasville Sales, which coincide with
traditional industry sale periods and are supported by eight page color
circulars and full page advertisements in USA Today. Typically, six to eight
million circulars are mailed by retailers during these periods to draw
customers to Thomasville Galleries and Thomasville Home Furnishings stores.
MANUFACTURING
Broyhill operates 16 finished case goods and upholstery production and
warehouse facilities totalling over 4.9 million square feet of manufacturing
and warehouse space. All finished goods plants are located in North Carolina.
Broyhill pioneered the use of mass production techniques in the furniture
industry and continues to be a leader in this area by utilizing longer
production runs to achieve economies of scale. Short set-up times and long
production runs have allowed for a reduction of both manufacturing cost and
overhead over the last five years. Broyhill recently completed construction of
a state-of-the-art particleboard manufacturing facility that provides a
captive, cost-effective source of high quality particleboard, a primary
material used in the Company's products.
6
Lane operates 15 finished case goods and upholstery production and warehouse
facilities in Virginia, North Carolina and Mississippi. Since the late 1980s,
significant capital expenditures have been made to acquire technologically
advanced manufacturing equipment which has increased factory productivity. In
1993, Lane completed a new 396,000 square foot plant, located in Mississippi,
which manufactures motion furniture as well as a new sleep sofa product line.
This facility added approximately $100 million of annual production capacity.
Lane recently installed a state-of-the-art flat-line finishing system that
produces quality high sheen and enhanced grain finishes at attractive prices.
Thomasville manufactures or assembles its products at 16 finished case goods
and upholstery production and warehouse facilities located in North Carolina,
Virginia, Tennessee and Mississippi, close to sources of raw materials and
skilled craftsmen. Each plant is specialized, manufacturing limited product
categories, allowing longer, more efficient production runs and economies of
scale. During recent years, Thomasville has focused on reducing manufacturing
costs by closing less efficient plants, reducing labor costs and establishing
process improvement programs.
The manufacturing process for Thomasville's RTA/promotional product line is
highly automated. Large fiberboard and particleboard sheets are machine-
finished in long production runs, then stored and held for assembly using
highly automated assembly lines. Completed goods are stored in an automated
warehouse to provide quicker delivery to customers. All plant operations use
automated manufacturing processes and inventory management systems. Ninety
percent of Thomasville's RTA/promotional products are shipped within 14 days
of production.
RAW MATERIALS AND SUPPLIERS
The raw materials used by the Company in manufacturing its products are
lumber, veneers, plywood, fiberboard, particleboard, paper, hardware,
adhesives, finishing materials, glass, mirrored glass, fabrics, leathers and
upholstered filling material (such as synthetic fibers, foam padding and
polyurethane cushioning). The various types of wood used in the Company's
products include cherry, oak, maple, pine and pecan, which are purchased
domestically, and mahogany, which is purchased abroad. Fabrics, leathers and
other raw materials are purchased both domestically and abroad. Management
believes that its supply sources for those materials are adequate.
The Company has no long-term supply contracts and has experienced no
significant problems in supplying its operations. Although the Company has
strategically selected suppliers of raw materials, the Company believes that
there are a number of other sources available, contributing to its ability to
obtain competitive pricing for raw materials. Raw materials prices fluctuate
over time depending upon factors such as supply, demand and weather. Increases
in prices may have a short-term impact on the Company's margins for its
products.
The majority of supplies for RTA and promotional products is purchased
domestically, although paper and certain hardware is purchased abroad.
Management believes, however, that its proximity to and relationships with
suppliers are advantageous for the sourcing of such materials. In addition, by
combining the purchase of various raw materials (such as foam, cartons,
springs and fabric) and services, Lane and Broyhill have been able to realize
cost savings. Management believes that the Company's position as the largest
residential furniture manufacturer will create opportunities for additional
cost savings.
7
ENVIRONMENTAL MATTERS
The Company is subject to a wide-range of federal, state and local laws and
regulations relating to protection of the environment, worker health and
safety and the emission, discharge, storage, treatment and disposal of
hazardous materials. These laws include the Clean Air Act of 1970, as amended,
the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act and the Comprehensive Environmental, Response, Compensation and
Liability Act ("Superfund"). Certain of the Company's operations use glues and
coating materials that contain chemicals that are considered hazardous under
various environmental laws. Accordingly, management closely monitors the
Company's environmental performance at all of its facilities. Management
believes that the Company is in substantial compliance with all environmental
laws.
Under the provisions of the Clean Air Act Amendments of 1990 (the "CAA"), in
December 1995, the Environmental Protection Agency (the "EPA") promulgated air
emission standards for the wood furniture industry. These regulations, known
as National Emission Standards for Hazardous Air Pollutants ("NESHAPs"),
govern the levels of emission of certain designated chemicals into the air and
will require that the Company reduce emissions of certain volatile organic
compounds ("VOCs") by November 1997. Management is investigating and evaluating
techniques to meet these standards at all facilities to which the NESHAPs
standards will apply. While the Company may be required to make capital
investments at some of its facilities to ensure compliance, the Company believes
that it will meet all applicable requirements in a timely fashion and that the
amount of money required to meet the NESHAP requirements will not materially
affect its financial condition or its results of operations.
The Company has been identified as a potentially responsible party ("PRP") at
a number of superfund sites. The Company believes that its liability with
respect to most of the sites is de minimis, and the Company is entitled to
indemnification by others with respect to liability at certain sites. The
Company also accrued a reserve for such environmental liabilities in connection
with the acquisition of Thomasville. Management believes that any liability as a
PRP with regard to the superfund sites will not have a material adverse effect
on the financial condition or results of operations of the Company.
COMPETITION
The furniture manufacturing industry is highly competitive. The Company's
products compete with products made by a number of furniture manufacturers,
including Masco Corporation, La-Z-Boy Chair Company, Ladd Furniture, Inc.,
Bassett Furniture Industries, Inc., and Ethan Allen Interiors, Inc., as well
as approximately 600 smaller producers. The elements of competition include
pricing, styling, quality and marketing.
8
EMPLOYEES
As of December 31, 1995, the Company employed approximately 20,700 people.
None of the Company's employees is represented by a union.
BACKLOG
The combined backlog of the Company's operating companies as of December 31,
1995 aggregated approximately $194 million, compared to approximately $209
million as of December 31, 1994. The backlog calculations for each year have
been adjusted to include the backlog for Thomasville. Substantially all of the
decrease in backlog is attributable to a change in the Company's method of
calculating backlog with regard to certain operations. Management believes
that if it had reported its backlog on a consistent basis, the year end
backlog would have been substantially the same for each of the years ended
December 31, 1994 and 1995.
Item 2. Properties
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The Company owns or leases the following principal plants, offices and
warehouses:
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
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INTERCO St. Louis, MO Headquarters 26,800 Leased
Broyhill Lenoir, NC Headquarters 136,000 Leased
Broyhill Lenoir, NC Plant/Warehouse 312,632 Owned
Broyhill Newton, NC Plant/Warehouse 382,626 Owned
Broyhill Lenoir, NC Plant/Warehouse 628,000 Owned
Broyhill Rutherfordton, NC Plant/Warehouse 575,656 Owned
Broyhill Lenoir, NC Plant/Warehouse 419,000 Owned
Broyhill Lenoir, NC Plant/Warehouse 364,000 Owned
Broyhill Conover, NC Plant/Warehouse 316,542 Owned
Broyhill Lenoir, NC Plant 345,439 Owned
Broyhill Lenoir, NC Plant 165,640 Owned
Broyhill Lenoir, NC Plant/Warehouse 252,380 Owned
Broyhill Taylorsville,NC Plant/Warehouse 212,754 Owned
Broyhill Lenoir, NC Plant 124,700 Leased
Broyhill Hickory, NC Plant/Warehouse 215,500 Leased
Broyhill Marion, NC Plant 22,712 Owned
Broyhill Lenoir, NC Warehouse 96,000 Owned
Broyhill Lenoir, NC Warehouse 503,250 Leased
Lane Altavista, VA Plant/Warehouse 1,091,600 Owned
Lane Altavista, VA Headquarters 62,000 Owned
Lane Conover, NC Plant/Warehouse 212,000 Owned
Lane Conover, NC Plant/Warehouse 348,180 Owned
Lane Conover, NC Plant 150,130 Owned
Lane Hickory, NC Plant/Warehouse 641,214 Owned
Lane Hickory, NC Plant/Warehouse 169,902 Owned
Lane High Point, NC Plant 187,162 Owned
Lane High Point, NC Plant/Warehouse 156,000 Owned
9
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
- -------- -------- -------- --------- ------
Lane Pontotoc, MS Plant/Warehouse 352,740 Owned
Lane Rocky Mount, VA Plant/Warehouse 598,962 Owned
Lane Verona, MS Plant/Warehouse 395,050 Owned
Lane Saltillo, MS Plant/Warehouse 567,500 Owned
Lane Tupelo, MS Plant/Warehouse 396,175 Owned
Lane Rocky Mount, VA Plant 50,300 Owned
Lane Smyrna, TN Plant 28,300 Owned
Thomasville Thomasville, NC Office 256,000 Owned
Thomasville Thomasville, NC Plant/Warehouse 599,600 Owned
Thomasville Thomasville, NC Plant 240,000 Owned
Thomasville Thomasville, NC Plant 387,624 Owned
Thomasville Thomasville, NC Plant 374,490 Owned
Thomasville Lenoir, NC Plant/Warehouse 828,000 Owned
Thomasville Winston-Salem, NC Plant/Warehouse 706,000 Owned
Thomasville West Jefferson, NC Plant/Warehouse 223,545 Owned
Thomasville Brookneal, VA Plant 195,260 Owned
Thomasville Johnson City, TN Plant/Warehouse 284,120 Owned
Thomasville Statesville, NC Plant 155,000 Owned
Thomasville Troutman, NC Plant 211,295 Owned
Thomasville Conover, NC Plant 120,250 Owned
Thomasville Hickory, NC Plant 84,384 Owned
Thomasville Hickory, NC Plant 93,500 Owned
Thomasville Appomattox, VA Plant/Warehouse 808,000 Owned
Thomasville Carysbrook, VA Plant 188,750 Owned
- ------------------
Substantially all of the owned properties listed above are encumbered by a first
priority lien and mortgage pursuant to the Secured Credit Agreement. In
addition, the Tupelo, Mississippi facility is encumbered by a mortgage and first
lien securing industrial revenue bonds.
The Company believes its properties are generally well maintained, suitable for
its present operations and adequate for current production requirements.
Productive capacity and extent of utilization of the Company's facilities are
difficult to quantify with certainty because in any one facility maximum
capacity and utilization varies periodically depending upon the product that is
being manufactured, the degree of automation and the utilization of the labor
force in the facility. In this context, the Company estimates that overall its
production facilities were effectively utilized during calendar 1995 at
moderate to high levels of productive capacity and believes that in general its
facilities have the capacity, if necessary, to expand production to meet
anticipated product requirements.
Item 3. Legal Proceedings
- --------------------------
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the
opinion of management, the ultimate liability, if any, of the Company from
all such proceedings will not have a material adverse effect upon the
consolidated financial position or results of operations of the Company and
its subsidiaries.
The Company is also subject to regulation regarding environmental matters,
and is a party to certain actions related thereto. For information
regarding environmental matters, see "Item 1. Business -- Environmental
Matters."
10
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
Part II
-------
Item 5. Market for The Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------
Matters
- -------
As of December 31, 1995, there were approximately 3,000 holders of record
of Common Stock.
Shares of the Company's Common Stock are traded on the New York Stock
Exchange. The reported high and low sale prices for the Company's Common
Stock on the New York Stock Exchange is included in Note 16 to the
consolidated financial statements of the Company.
The Company has not paid cash dividends on its Common Stock during the two
years ended December 31, 1994 and December 31, 1995.
A discussion of restrictions on the Company's ability to pay cash dividends
is included in Note 10 to the consolidated financial statements of the
Company.
11
Item 6. Selected Financial Data
- -------------------------------
YEAR ENDED FIVE MONTHS ENDED(1) YEAR ENDED DECEMBER 31,
--------------- --------------------------- ------------------------------
FEBRUARY 29, AUGUST 2, | DECEMBER 31,
1992 1992 | 1992 1993 1994 1995
--------------- ------------ | ------------ -------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
|
SUMMARY OF OPERATIONS: |
Net sales.............. $ 819,359 $ 356,705 | $394,873 $980,532 $1,072,696 $1,073,889
Gross profit........... 229,219 96,849 | 108,858 275,323 298,712 291,237
Interest expense....... 88,310 29,689 | 16,358 38,621 37,886 33,845
Earnings (loss) before |
income tax expense |
(benefit), |
discontinued |
operations, |
extraordinary item and |
cumulative effect of |
accounting change..... (39,087) 247,716 | 18,045 37,266 48,841 57,038
Income tax expense |
(benefit)............. (3,589) (1,206) | 6,807 15,924 20,908 22,815
Net earnings (loss) |
from continuing |
operations............ (35,498) 248,922 | 11,238 21,342 27,933 34,223(4)
Discontinued |
operations............ (13,394) (136,347) | 10,088 24,026 10,339 --
Extraordinary item..... -- 1,075,466 | -- -- -- (5,815)
Cumulative effect of |
accounting change..... -- (1,719) | -- -- -- --
|
Net earnings (loss) |
applicable to |
common stock.......... $ (48,892) $1,186,322 | $ 21,326 $ 45,368 $ 38,272 $ 28,408
|
Per share of common |
stock--fully diluted: |
Net earnings (loss) |
from continuing |
operations.......... $ (0.92) $ 6.42 | $ 0.23 $ 0.41 $ 0.54 $ 0.65(4)
Discontinued |
operations.......... (0.34) (3.52) | 0.20 0.47 0.20 --
Extraordinary item... -- 27.72 | -- -- -- (0.11)
Cumulative effect of |
accounting change... -- (0.04) | -- -- -- --
|
Net earnings (loss) |
applicable to common |
stock................. $ (1.26) $ 30.58 | $ 0.43 $ 0.88 $ 0.74 $ 0.54
|
Weighted average common |
and common equivalent |
shares outstanding-- |
fully diluted (in |
thousands)............ 38,731 38,796 | 50,000 51,397 51,506 52,317
Other Information |
(continuing |
operations): |
Working capital........ $ 426,852 $ 261,357 | $261,967 $271,588 $ 308,323 $ 455,036
Property, plant and |
equipment, net........ 114,239(2) 189,039(2)| 186,046 191,581 181,393 306,406
Capital expenditures... 20,099 7,041 | 8,850 30,197 21,108 35,616
Total assets........... 800,840 893,012 | 870,115 858,163 881,735 1,291,739
Long-term debt......... --(3) 443,165 | 407,898 403,255 409,679 705,040
Shareholders' equity |
(deficit)............. $(1,186,522) $ 275,400 | $293,114 $338,557 $ 275,394 $ 301,156
(1) Effective December 31, 1992, the Company changed its fiscal year to end on
December 31. The Company's adoption of fresh-start reporting required
reporting calendar 1992 results in two 22 week periods.
(2) In connection with the adoption of fresh-start reporting, property, plant
and equipment was adjusted to fair value resulting in an increase of
approximately $77,500 as of August 2, 1992.
(3) Long-term debt (including debt pertaining to discontinued operations)
totaling $1,055,132 was reclassified to liabilities subject to compromise as
of February 29, 1992.
(4) Net earnings from continuing operations before gain on insurance settlement,
net of income tax expense, and net earnings per common share from continuing
operations before gain on insurance settlement, net of income tax expense,
were $29,463 and $0.56, respectively.
12
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
- --------------------------------------------------------------------------------
of Operstions
- -------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this document. In addition
management believes that the following four factors have had a significant
effect on its recent financial statements.
Acquisition of Thomasville. During the year ended December 31, 1995, the
Company had two primary operating subsidiaries, Broyhill and Lane. On December
29, 1995, the Company acquired Thomasville. The transaction was accounted for
as a purchase and, since the acquisition occurred as of the last business day
of 1995, has been reflected in the Company's consolidated balance sheet. The
Company's results of operations for 1995 do not include any of the operations
of Thomasville. The cash portion of the acquisition of Thomasville was financed
through funds obtained under the Secured Credit Agreement and the Receivables
Securitization Facility.
Recent Industry Conditions. During 1995, residential furniture manufacturers'
results were adversely affected by industry-wide price discounting and
promotional activity in response to weaker consumer demand for durable goods.
The Company believes that it minimized the impact of these factors on its
operations by introducing new products and continued support of its brand
names.
1994 Spin-Off Transactions. In order to focus on its core furniture
operations, the Company completed a spin-off of its footwear subsidiaries in
1994. On November 17, 1994, the Company simultaneously refinanced the majority
of its outstanding indebtedness and distributed to its stockholders all the
stock of its former footwear subsidiaries, Converse Inc. and The Florsheim Shoe
Company. Upon completion of this restructuring, the Company retained no
ownership interest in or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all applicable periods.
1992 Asset Revaluation (Fresh-Start Reporting). Included in the Company's
statement of operations are depreciation and amortization charges related to
adjustments of assets and liabilities to fair value made in 1992. These
adjustments are a result of the Company's 1992 reorganization and the adoption
of AICPA SOP 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" (commonly referred to as "fresh-start" reporting) and are not
the result of historical capital expenditures.
13
RESULTS OF OPERATIONS
As an aid to understanding the Company's results of operations on a
comparative basis, the following table has been prepared to set forth certain
statements of operations and other data for fiscal 1993, 1994 and 1995. The
results for these periods do not include any of the operations of Thomasville.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- ----------------- --------------------
% OF NET % OF NET % OF NET
DOLLARS SALES DOLLARS SALES DOLLARS SALES
--------- --------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
Net sales............... $ 980.5 100.0% $1,072.7 100.0% $1,073.9 100.0%
Cost of operations...... 685.7 69.9 752.5 70.2 760.4 70.8
Selling, general and ad-
ministrative expenses.. 186.2 19.0 199.3 18.6 198.3 18.5
Depreciation and amorti-
zation................. 34.5 3.5 35.8 3.3 36.1 3.3
--------- -------- -------- ----- -------- -----
Earnings from opera-
tions.................. 74.1 7.6 85.1 7.9 79.1 7.4
Interest expense........ 38.6 3.9 37.9 3.5 33.9 3.2
Other income, net:
Gain on insurance set-
tlement.............. -- -- -- -- 7.9 0.7
Other................. 1.8 0.1 1.6 0.1 3.9 0.4
--------- -------- -------- ----- -------- -----
Earnings before income
tax expense, discontin-
ued operations and ex-
traordinary item....... 37.3 3.8 48.8 4.5 57.0 5.3
Income tax expense...... 15.9 1.6 20.9 1.9 22.8 2.1
--------- -------- -------- ----- -------- -----
Net earnings from
continuing operations.. $ 21.4 2.2% $ 27.9 2.6% $ 34.2(2) 3.2%
========= ======== ======== ===== ======== =====
Gross profit (1)........ $275.3 28.1% $ 298.7 27.8% $ 291.2 27.1%
- --------
(1) The Company believes that gross profit provides useful information
regarding a company's financial performance. Gross profit should not be
considered in isolation or as an alternative to net earnings, an indicator
of the Company's operating performance, or an alternative to the Company's
cash flow from operating activities as a measure of liquidity. Gross profit
has been calculated by subtracting cost of operations and the portion of
depreciation associated with cost of goods sold from net sales.
(2) Net earnings from continuing operations before gain on insurance settlement,
net of income tax expense was $29.5 million.
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
------ -------- --------
(DOLLARS IN MILLIONS)
Net sales......................................... $980.5 $1,072.7 $1,073.9
Cost of operations................................ 685.7 752.5 760.4
Depreciation (associated with cost of goods
sold)............................................ 19.5 21.5 22.3
------ -------- --------
Gross profit...................................... $275.3 $ 298.7 $ 291.2
====== ======== ========
14
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for 1995 were $1.07 billion, approximately unchanged from 1994. The
Company was able to maintain comparable net sales despite soft industry
conditions and weaker consumer demand for durable goods through new product
introductions at both Broyhill and Lane and continued support of its brand
names.
Cost of operations for 1995 was $760.4 million, compared to $752.5 million
for 1994, an increase of 1.0%. The increase in cost of operations as a
percentage of net sales from 70.2% in 1994 to 70.8% in 1995, was primarily the
result of unfavorable overhead absorption rates reflecting the Company's effort
to maintain manufacturing utilization rates at levels necessary to balance
inventory with incoming orders.
Selling, general and administrative expenses decreased to $198.3 million in
1995 from $199.3 million in 1994, a reduction of 0.5%. In 1995, such expenses
included $2.7 million non-cash expense related to stock options. As a percentage
of net sales, selling, general and administrative expenses were 18.5% in 1995
compared to 18.6% in 1994, reflecting the Company's successful implementation of
its ongoing cost reduction programs.
Depreciation and amortization for 1995 was $36.1 million, compared to $35.8
million in 1994, an increase of 0.9%. The amount of depreciation and
amortization attributable to the "fresh-start" reporting was $15.9 million and
$16.9 million, in 1995 and 1994, respectively.
Interest expense for 1995 totaled $33.9 million and reflects twelve months
of interest expense on the Company's debt structure, which was substantially
refinanced as of December 29, 1995. Interest expense for 1995 was not
comparable to interest expense for 1994 as a result of the previous
refinancing of substantially all of the Company's debt in November 1994.
Other income, net for 1995 totaled $11.8 million, compared to $1.6 million
in 1994. For 1995, other income, consisted of a gain on insurance settlement
of $7.9 million pertaining to the November 1994 destruction of a particleboard
plant, interest income on short-term investments of $2.4 million and other
miscellaneous income and (expense) items totaling $1.5 million.
For 1995, the Company provided for income taxes totaling $22.8 million on
earnings before income tax expense, discontinued operations and extraordinary
item, producing an effective tax rate of 40.0%, compared to an effective tax
rate for 1994 of 42.8%. The effective tax rates for such years were adversely
impacted by certain nondeductible expenses incurred and provisions for state
and local income taxes. The effective income tax rate for 1995 was favorably
impacted by special state income tax incentives granted in connection with the
issuance of certain industrial revenue bonds on behalf of one of the Company's
subsidiaries.
Net earnings per common share for continuing operations on a fully diluted
basis were $0.65 and $0.54 for 1995 and 1994, respectively. Net earnings per
common share for continuing operations before gain on insurance settlement net
of income tax expense on a fully diluted basis was $0.56 and $0.54 for 1995
and 1994, respectively.
Weighted average shares used in the calculation of primary and fully diluted
net earnings per common share for 1995 were 50,639,000 and 52,317,000,
respectively.
Gross profit for 1995 was $291.2 million, compared to $298.7 million for
1994, a decrease of 2.5%. Gross profit as a percentage of net sales declined
from 27.8% in 1994 to 27.1% in 1995, and was primarily a result of lower
factory utilization rates at certain of the Company's manufacturing facilities
to balance inventories with incoming orders.
15
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales for 1994 were $1.07 billion, representing an increase of 9.4% over
net sales of $980.5 million in 1993. The net sales increase for 1994 reflected
an improving U.S. economy and favorable industry conditions as well as new
product offerings and marketing programs that were well received by customers.
Cost of operations for 1994 was $752.5 million, compared to $685.7 million for
1993, an increase of 9.7%. The increase in cost of operations as a percentage of
net sales from 69.9% in 1993 to 70.2% in 1994, was primarily the result of
start-up costs at a new motion upholstery manufacturing facility, the testing of
a new state-of-the-art finishing facility and the impact of an explosion and
fire that destroyed a particleboard plant in November 1994, partially offset by
favorable factory utilization rates.
Selling, general and administrative expenses for 1994 was $199.3 million,
representing an increase of 7.0% over selling, general and administrative
expenses for 1993 of $186.2 million. Selling, general and administrative
expenses as a percentage of net sales, decreased to 18.6% from 19.0%. The
reduction in selling, general and administrative expenses as a percentage of
net sales was attributable to the Company's emphasis on control and reduction
of operating expenses, as well as a nonrecurring $2.6 million charge included
in 1993 related to the Company's 1992 reorganization.
Depreciation and amortization for 1994 was $35.8 million, compared to $34.5
million in 1993, an increase of 3.8%. The amount of depreciation and
amortization attributed to the "fresh-start" reporting was $16.9 million and
$16.5 million, in 1994 and 1993, respectively.
Interest expense for 1994 totaled $37.9 million compared to $38.6 million in
1993. The reduction in interest expense was primarily due to refinancing the
Company's long-term debt in conjunction with the November 17, 1994 spin-off
distribution to shareholders of the Company's footwear segment.
Other income, net for 1994 and 1993 totaled $1.6 million and $1.8 million,
respectively.
The Company's effective tax rate for 1994 and 1993 was 42.8% and 42.7%,
respectively. The effective tax rates for such years were adversely impacted by
certain nondeductible expenses incurred and provisions for state and local
income taxes.
Net earnings per common share from continuing operations on a fully diluted
basis were $0.54 and $0.41 for 1994 and 1993, respectively.
Gross profit for 1994 was $298.7 million, representing an increase of 8.5%
over gross profit for 1993 of $275.3 million. The increase resulted from an
increase in net sales, partially offset by a reduction in gross profit margin.
The reduction in gross profit margin, to 27.8% in 1994 from 28.1% for 1993, was
primarily a result of start-up costs at a new motion upholstery manufacturing
facility, the testing of a state-of-the-art finishing facility and the impact
of an explosion and fire that destroyed a particleboard plant in November 1994,
partially offset by favorable factory utilization rates.
16
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents at December 31, 1995 totaled $26.4 million,
compared to $32.1 million at December 31, 1994. For 1995, net cash provided by
operating activities totaled $92.0 million. Net cash used by investing
activities totaled $370.5 million, including $335.4 million related to the
acquisition of Thomasville and $35.6 million of capital expenditures incurred
to add, upgrade or replace property, plant and equipment. Net cash provided by
financing activities during 1995 totaled $272.8 million.
Working capital was $455.0 million at December 31, 1995, compared to $308.3
million at December 31, 1994. The current ratio was 4.4 to 1 at December 31,
1995, compared to 4.2 to 1 at December 31, 1994. The increase in working
capital between years is primarily the result of the acquisition of
Thomasville.
At December 31, 1995, long-term debt, including current maturities, totaled
$723.7 million, compared to $426.3 million at December 31, 1994. The increase
in long-term debt resulted from entering into the Secured Credit Agreement and
the Receivables Securitization Facility in conjunction with the December 29,
1995 Thomasville acquisition. The Company's debt-to-capitalization ratio was
70.6% at December 31, 1995, compared to 60.8% at December 31, 1994.
To meet short-term working capital and other financial requirements, the
Company maintains a $180 million revolving credit facility as part of its
Secured Credit Agreement with a group of financial institutions. The revolving
credit facility allows for both issuance of letters of credit and cash
borrowings. Letter of credit outstandings are limited to no more than $60.0
million. Cash borrowings are limited only by the facility's maximum availability
less letters of credit outstanding. See Note 8 of the notes to consolidated
financial statements for additional information. At December 31, 1995, there was
$71.0 million of cash borrowings outstanding under the revolving credit facility
and $28.3 million in letters of credit outstanding, leaving an excess of $80.7
million available under the revolving credit facility.
In addition to the revolving credit facility, the Company also had $20.5
million of excess availability under its Receivables Securitization Facility
as of December 31, 1995.
The Company believes its revolving credit facility, together with cash
generated from operations, will be adequate to meet liquidity requirements for
the foreseeable future.
The Company maintains a significant capital expenditure program focusing on
increasing manufacturing efficiency and expanding capacity as required. The
Company's total capital expenditures were $35.6 million, $21.1 million and $30.2
million for the years ended December 31, 1995, 1994 and 1993, respectively.
These figures do not include the capital expenditures of Thomasville.
Significant new projects during the past three years included a new upholstery
manufacturing facility at Action Industries to meet the increased demand for the
Company's recliners, motion furniture and sleep sofas and a state-of-the-art
flat line finishing system at Lane. The capital expenditures for 1995 include
$18.2 million to construct a new state-of-the-art particleboard manufacturing
facility at Broyhill, which was funded by proceeds from an insurance settlement,
to replace the Company's facility that was destroyed by fire in November 1994.
The Company believes that as a result of the availability of excess capacity in
the Lane and Thomasville manufacturing facilities, the Company will be able to
pursue its growth strategy over the next several years without the necessity of
making significant additional capital expenditures to expand capacity.
17
ACCOUNTING STANDARDS NOT YET IMPLEMENTED
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under SFAS
No. 123, companies can either measure the compensation cost of equity
instruments issued under employee compensation plans using a fair value based
method, or can continue to recognize compensation cost under the provisions of
Accounting Principles Board Opinion No. 25 ("Opinion No. 25"). However, if the
provisions of Opinion No. 25 are continued, pro forma disclosures of net income
and earnings per share must be presented in the financial statements as if the
fair value method had been applied. The Company intends to continue to recognize
compensation costs under the provisions of Opinion No. 25, and upon adoption of
SFAS No. 123 as of January 1, 1996, will disclose the effects of SFAS No. 123 on
net earnings and earnings per share for 1995 and 1996.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
SFAS No. 121 requires that long-lived assets, certain identifiable intangibles
and goodwill to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. SFAS No. 121 is effective for the Company in 1996.
The Company believes the adoption of this accounting standard will not have a
material impact on its operating results or financial condition.
18
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 32,145 $ 26,412
Receivables, less allowances of $5,062 and $20,724
at December 31, 1994 and 1995 (Note 9)............. 202,270 276,116
Inventories (Note 6)................................ 155,031 269,677
Prepaid expenses and other current assets........... 14,325 17,888
-------- ----------
Total current assets.............................. 403,771 590,093
Property, plant and equipment:
Land................................................ 11,933 16,635
Buildings and improvements.......................... 111,076 166,214
Machinery and equipment............................. 115,407 206,580
-------- ----------
238,416 389,429
Less accumulated depreciation....................... 57,023 83,023
-------- ----------
Net property, plant and equipment................. 181,393 306,406
Intangible assets (Note 7)........................... 275,767 370,307
Other assets......................................... 20,804 24,933
-------- ----------
$881,735 $1,291,739
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 9)....... $ 16,574 $ 18,639
Accounts payable.................................... 37,721 53,093
Accrued employee compensation....................... 19,771 29,020
Accrued interest expense............................ 1,652 1,304
Other accrued expenses.............................. 19,730 33,001
-------- ----------
Total current liabilities......................... 95,448 135,057
Long-term debt, less current maturities (Note 9)..... 409,679 705,040
Other long-term liabilities.......................... 101,214 150,486
Shareholders' equity:
Preferred stock, authorized 10,000,000 shares, no
par value--issued, none............................ -- --
Common stock, authorized 100,000,000 shares, $1.00
stated value (no par value)--issued 50,076,515 and
50,120,079 shares at December 31, 1994 and 1995
(Note 10).......................................... 50,076 50,120
Paid-in capital..................................... 220,788 218,156
Retained earnings................................... 4,530 32,880
-------- ----------
Total shareholders' equity........................ 275,394 301,156
-------- ----------
$881,735 $1,291,739
======== ==========
See accompanying notes to consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995
------------- -------------- ---------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales...................... $ 980,532 $ 1,072,696 $ 1,073,889
Costs and expenses:
Cost of operations........... 685,749 752,528 760,393
Selling, general and
administrative expenses..... 186,205 199,333 198,321
Depreciation and amortization
(includes $16,463, $16,900
and $15,922 related to fair
value adjustments).......... 34,455 35,776 36,104
------------- --------------- ---------------
Earnings from operations....... 74,123 85,059 79,071
Interest expense............... 38,621 37,886 33,845
Other income, net:
Gain on insurance settlement
(Note 15)................... -- -- 7,882
Other........................ 1,764 1,668 3,930
------------- --------------- ---------------
Earnings before income tax
expense, discontinued
operations and extraordinary
item.......................... 37,266 48,841 57,038
Income tax expense (Note 11)... 15,924 20,908 22,815
------------- --------------- ---------------
Net earnings from continuing
operations.................... 21,342 27,933 34,223
Discontinued operations (Note
4):
Earnings from operations, net
of taxes.................... 24,026 25,443 --
Loss on distribution, net of
taxes....................... -- (15,104) --
------------- --------------- ---------------
Net earnings before
extraordinary item............ 45,368 38,272 34,223
Extraordinary item--early
extinguishment of debt,
net of tax benefit (Note 5)... -- -- (5,815)
------------- --------------- ---------------
Net earnings................... $ 45,368 $ 38,272 $ 28,408
============= =============== ===============
Net earnings per common share--
primary (Note 3):
Net earnings from continuing
operations ................. $ 0.41 $ 0.54 $ 0.67
Discontinued operations...... 0.47 0.20 --
Extraordinary item--early
extinguishment of debt...... -- -- (0.11)
------------- --------------- ---------------
Net earnings per common share--
primary....................... $ 0.88 $ 0.74 $ 0.56
============= =============== ===============
Net earnings per common share--
fully diluted (Note 3):
Net earnings from continuing
operations.................. $ 0.41 $ 0.54 $ 0.65
Discontinued operations...... 0.47 0.20 --
Extraordinary item--early
extinguishment of debt...... -- -- (0.11)
------------- --------------- ---------------
Net earnings per common share--
fully diluted................. $ 0.88 $ 0.74 $ 0.54
============= =============== ===============
See accompanying notes to consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
-------- --------- --------
(DOLLARS IN THOUSANDS)
Cash Flows from Operating Activities:
Net earnings.................................. $ 45,368 $ 38,272 $ 28,408
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Net loss on early extinguishment of debt.... -- -- 5,815
Net earnings from discontinued operations... (24,026) (10,339) --
Depreciation of property, plant and
equipment.................................. 24,304 25,675 26,371
Amortization of intangible and other
assets..................................... 10,151 10,101 9,733
Noncash interest and other expense.......... 2,097 196 2,150
(Increase) decrease in receivables.......... (3,237) (27,979) 165
(Increase) decrease in inventories.......... (11,072) (20,553) 3,340
(Increase) decrease in prepaid expenses and
other assets............................... (714) 2,648 1,179
Increase (decrease) in accounts payable,
accrued interest expense and other accrued
expenses................................... (3,866) 15,788 6,133
Increase (decrease) in income taxes......... 3,938 (17,021) 8,661
Increase (decrease) in net deferred tax
liabilities................................ 969 7,904 (211)
Increase (decrease) in other long-term
liabilities................................ (886) (2,676) 246
-------- --------- --------
Net cash provided by continuing operations.... 43,026 22,016 91,990
Net cash used by discontinued operations...... (11,993) (16,695) --
-------- --------- --------
Net cash provided by operating activities..... 31,033 5,321 91,990
-------- --------- --------
Cash Flows from Investing Activities:
Acquisition of business (Note 2).............. -- -- (335,438)
Proceeds from the disposal of assets.......... 358 5,621 519
Additions to property, plant and equipment.... (30,197) (21,108) (35,616)
-------- --------- --------
Net cash used by investing activities......... (29,839) (15,487) (370,535)
-------- --------- --------
Cash Flows from Financing Activities:
Payments for debt issuance costs.............. -- (11,455) (14,026)
Additions to long-term debt................... -- 423,000 576,000
Payments of long-term debt.................... (20,940) (404,741) (286,574)
Proceeds from the issuance of common stock.... 42 698 201
Payments for the repurchase of common stock
warrants..................................... -- -- (2,789)
-------- --------- --------
Net cash provided (used) by financing
activities................................... (20,898) 7,502 272,812
-------- --------- --------
Net decrease in cash and cash equivalents....... (19,704) (2,664) (5,733)
Cash and cash equivalents at beginning of
period......................................... 54,513 34,809 32,145
-------- --------- --------
Cash and cash equivalents at end of period...... $ 34,809 $ 32,145 $ 26,412
======== ========= ========
Supplemental Disclosure:
Cash payments for income taxes, net........... $ 11,115 $ 37,127 $ 14,386
======== ========= ========
Cash payments for interest.................... $ 38,454 $ 39,345 $ 32,010
======== ========= ========
See accompanying notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
Balance December 31, 1992.............. $50,000 $225,400 $ 17,714 $ 293,114
Net earnings........................... 45,368 45,368
Common stock activity:
Stock option grants and exercises
(Note 10)........................... 4 988 992
Warrant exercises--282 shares........ 3 3
Foreign currency translations.......... (920) (920)
------- -------- -------- ---------
Balance December 31, 1993.............. 50,004 226,391 62,162 338,557
Net earnings........................... 38,272 38,272
Common stock activity:
Stock option exercises (Note 10)..... 71 615 686
Warrant exercises--983 shares........ 1 11 12
Foreign currency translations.......... 2,659 2,659
Distribution of discontinued operations
to shareholders....................... (6,229) (98,563) (104,792)
------- -------- -------- ---------
Balance December 31, 1994.............. 50,076 220,788 4,530 275,394
Net earnings........................... 28,408 28,408
Common stock activity:
Stock option exercises (Note 10)..... 43 153 196
Warrant exercises--564 shares........ 1 4 5
Warrants purchased--1,489,422
shares.............................. (2,789) (2,789)
Foreign currency translations.......... (58) (58)
------- -------- -------- ---------
Balance December 31, 1995.............. $50,120 $218,156 $ 32,880 $ 301,156
======= ======== ======== =========
See accompanying notes to consolidated financial statements.
22
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. THE COMPANY
INTERCO INCORPORATED (the "Company") is a major manufacturer of residential
furniture. During the year ended December 31, 1995, the Company had two
primary operating subsidiaries, Broyhill Furniture Industries, Inc. and The
Lane Company, Incorporated. On December 29, 1995, the Company acquired
Thomasville Furniture Industries, Inc. ("Thomasville"). In conjunction with
the acquisition, the Company refinanced its Secured Credit Agreement and
amended its Receivables Securitization Facility.
Substantially all of the Company's sales are made to unaffiliated furniture
retailers. The Company has a diversified customer base with no one customer
accounting for 10% or more of consolidated sales and no particular
concentration of credit risk in one economic section. Foreign operations and
sales are not material.
On November 17, 1994, the Company simultaneously refinanced the majority of
its outstanding indebtedness and distributed to holders of its common stock
the common stock of The Florsheim Shoe Company and the common stock of
Converse Inc. (which, in aggregate, represented the Company's footwear
segment). Upon completion of this restructuring, the Company retained no
ownership interest or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all applicable periods.
2. ACQUISITION OF BUSINESS
On December 29, 1995, the Company acquired all of the outstanding stock of
Thomasville Furniture Industries, Inc. The purchase price totaled $331,200
plus the assumption of $8,000 of long-term debt. The purchase price, including
capitalized expenses which approximated $4,200, was paid in cash. The
transaction was accounted for as a purchase and, since the acquisition
occurred as of the last business day of 1995, has been reflected in the
Company's consolidated balance sheet. The Company's results of operations for
1995 do not include any of the operations of Thomasville. The total
acquisition cost exceeded the estimated fair value of the net assets acquired
by $105,764 with such amount being recorded as an intangible asset.
The following unaudited summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company for 1994 and 1995 with those
of Thomasville as if the transaction occurred at the beginning of each year
presented.
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Net sales.......................................... $1,599,339 $1,624,116
Net earnings from continuing operations............ 30,963 37,422
Net earnings....................................... 41,302 31,607
Net earnings per common share--fully diluted:
Continuing operations............................ 0.60 0.72
Total............................................ 0.80 0.61
The pro forma data has been adjusted, net of income taxes, to reflect
interest expense and the amortization of the excess of cost over net assets
acquired. Such pro forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisition
had been effective at the beginning of each year presented.
23
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are set forth below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all its subsidiaries, the majority of which are wholly owned. All material
intercompany transactions are eliminated in consolidation. The Company's
fiscal year ends on December 31. The operating companies included in the
consolidated financial statements report their results of operations as of the
Saturday closest to December 31. Accordingly, the results of operations will
periodically include a 53 week fiscal year. 1993, 1994 and 1995 all represent
52 week fiscal years.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. Short-term investments are
recorded at amortized cost, which approximates market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized while normal repairs and
maintenance are expensed as incurred. When properties are disposed of, the
related cost and accumulated depreciation or amortization are removed from the
accounts, and gains or losses on the dispositions are reflected in results of
operations. For financial reporting purposes, the Company utilizes both
accelerated and straight-line methods of computing depreciation and
amortization. Such expense is computed based on the estimated useful lives of
the respective assets, which generally range from 3 to 45 years for buildings
and improvements and from 3 to 12 years for machinery and equipment.
Intangible Assets
The Company emerged from Chapter 11 reorganization effective with the
beginning of business on August 3, 1992. In accordance with generally accepted
accounting principles, the Company was required to adopt "fresh-start"
reporting which included adjusting all assets and liabilities to their fair
values as of the effective date. The ongoing impact of the adoption of fresh-
start reporting is reflected in the financial statements for all years
presented.
As a result of adopting fresh-start reporting, the Company recorded
reorganization value in excess of amounts allocable to identifiable assets of
approximately $146,000. This intangible asset is being amortized on a
straight-line basis over a 20 year period.
Also in connection with the adoption of fresh-start reporting, the Company
recorded approximately $156,800 in fair value of trademarks and trade names
based upon an independent appraisal. Such trademarks and trade names are being
amortized on a straight-line basis over a 40 year period.
24
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The excess of cost over net assets acquired in connection with the
acquisition of Thomasville totaled approximately $105,764. This intangible
asset is being amortized on a straight-line basis over a 40 year period.
Income Tax Expense
Income tax expense is based on results of operations before discontinued
operations and extraordinary items. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
Extraordinary Item
In conjunction with the December 29, 1995 acquisition of Thomasville, the
Company refinanced its Secured Credit Agreement and amended its Receivables
Securitization Facility. As a result thereof, the Company charged to results
of operations, as an extraordinary item, the deferred financing fees and
expenses pertaining to such credit facilities.
Net Earnings Per Common Share
Net earnings per common share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. The stock options and warrants outstanding (Note 10) are considered
common stock equivalents. Weighted average shares used in the calculation of
primary and fully diluted net earnings per common share for 1995 were
50,639,000 and 52,317,000, respectively.
Reclassification
Certain 1993 and 1994 amounts have been reclassified to conform to the 1995
presentation.
4. DISCONTINUED OPERATIONS
On November 17, 1994, the Company distributed the common stock of each of
The Florsheim Shoe Company and Converse Inc. (which, in aggregate, represented
the Company's footwear segment) to its shareholders. In accordance with
generally accepted accounting principles, the financial results for the
footwear segment are reported as "Discontinued Operations" and the Company's
financial results of prior periods were restated. Condensed results of the
discontinued operations were as follows:
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, NOVEMBER 17,
1993 1994
------------ -------------
Net sales............................................ $ 676,282 $663,637
========= ========
Earnings before income tax expense................... $ 38,706 $ 40,047
Income tax expense................................... 14,680 14,604
--------- --------
Net earnings......................................... $ 24,026 $ 25,443
========= ========
Loss on distribution, net of taxes of $4,564......... $ -- $(15,104)
========= ========
25
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The loss on distribution reflects expenses related to: the distribution of
the common stock of The Florsheim Shoe Company and Converse Inc. to the
Company's shareholders, including certain expenses associated with
establishing the capital structure of each company; compensation expense
accrued as a result of adjustments required to be made to exercisable employee
stock options; interest expense on certain long-term debt defeased, net of
estimated interest income to be received from the trustees; and applicable
income taxes.
Prior to the distribution of the common stock of The Florsheim Shoe Company
to its shareholders, the Company had guaranteed certain of Florsheim's retail
store operating leases. At December 31, 1995, the Company had guarantees
outstanding on 101 retail store leases with a contingent liability totaling
approximately $37,400. The Florsheim Shoe Company has agreed to indemnify the
Company against any losses incurred as a result of the lease guarantees.
5. EXTRAORDINARY ITEM--EARLY EXTINGUISHMENT OF DEBT
In conjunction with the December 29, 1995 acquisition of Thomasville, the
Company refinanced its Secured Credit Agreement and amended its Receivables
Securitization Facility. As a result thereof, the Company charged to results
of operations $5,815, net of taxes of $3,478, representing the deferred
financing fees and expenses pertaining to such credit facilities. The charge
was recorded as an extraordinary item.
6. INVENTORIES
Inventories are summarized as follows:
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Finished products.................................. $ 66,445 $114,857
Work-in-process.................................... 36,365 51,259
Raw materials...................................... 52,221 103,561
-------- --------
$155,031 $269,677
======== ========
7. INTANGIBLE ASSETS
Intangible assets include the following:
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Intangible assets, at cost:
Reorganization value in excess of amounts
allocable to identifiable assets............... $146,063 $146,063
Trademarks and trade names...................... 156,828 156,828
Excess of cost over net assets acquired......... -- 105,764
-------- --------
302,891 408,655
Less accumulated amortization..................... 27,124 38,348
-------- --------
$275,767 $370,307
======== ========
8. SHORT-TERM FINANCING
In conjunction with the December 29, 1995 acquisition of Thomasville and
related refinancing of certain long-term debt, the Company entered into a
$630,000 Secured Credit Agreement which includes a $180,000
26
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
revolving credit facility. The revolving credit facility allows for issuance
of letters of credit and cash borrowings. Letter of credit outstandings are
limited to no more than $60,000, with cash borrowings limited only by the
facility's maximum availability less letters of credit outstanding. On
December 29, 1995, $71,000 in cash borrowings were outstanding under the
revolving credit facility as a result of the acquisition of Thomasville. Cash
borrowings from the revolving credit facility have no fixed amortization and,
since the facility does not mature until December 2001, are classified as
long-term debt.
As part of the Secured Credit Agreement, the revolving credit facility is
secured by a first priority lien on and security interest in substantially all
of the Company's assets except for trade receivables. See Note 9--Long-Term
Debt for further information regarding the Secured Credit Agreement.
The outstanding cash borrowings under the revolving credit facility bear
interest at a base rate plus 1.125% or at an adjusted Eurodollar rate plus
2.125%, depending upon the type of loan the Company executes. The "spread" or
margin over the base rate and Eurodollar rate is subject to a "step-down" or
reduction when the Company achieves certain financial performance ratios. At
December 31, 1995, there was $71,000 of cash borrowings outstanding under the
revolving credit facility, all of which are classified as long-term debt.
Under the letter of credit facility, a fee of 2.125% per annum (subject to
the same "step-down" as noted earlier) is assessed for the account of the
lenders ratably. A further fee of 0.25% is assessed on stand-by letters of
credit representing a facing fee. A customary administrative charge for
processing letters of credit is also payable to the relevant issuing bank.
Letter of credit fees are payable quarterly in arrears. At December 31, 1995,
there were $28,300 in letters of credit outstanding under the revolving credit
facility.
9. LONG-TERM DEBT
Long-term debt consisted of the following:
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Secured credit agreement........................... $285,000 $521,000
Receivables securitization facility................ 130,000 185,000
Other.............................................. 11,253 17,679
-------- --------
426,253 723,679
Less current maturities............................ 16,574 18,639
-------- --------
$409,679 $705,040
======== ========
On December 29, 1995, in conjunction with the acquisition of Thomasville,
the Company refinanced its Secured Credit Agreement by entering into a new
$630,000 facility with a group of financial institutions. The Company also
amended its Receivables Securitization Facility to increase its maximum
availability to $225,000. Proceeds from these loan facilities were used to
repay the existing secured credit facility and to acquire Thomasville.
The following discussion summarizes certain provisions of the long-term
debt.
Secured Credit Agreement
The common stock of the Company's principal subsidiaries, substantially all
of the Company's cash, working capital (other than trade receivables) and
property, plant and equipment, have been pledged or mortgaged as security for
the Secured Credit Agreement. The Secured Credit Agreement contains a number
of restrictive covenants and events of default, including covenants limiting
capital expenditures and incurrence of debt, and requires the Company to
achieve certain financial ratios, some of which become more restrictive over
time.
27
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Secured Credit Agreement consists of the revolving credit facility
discussed in Note 8 and three term loan facilities with the following terms:
INTEREST RATE MARGIN
-------------------------
DECEMBER 31, 1995 MATURITY
BALANCE DATE BASE RATE EURODOLLAR RATE
----------------- ----------------- --------- ---------------
Term loan "A" facility.. $250,000 December 29, 2001 1.125% 2.125%
Term loan "B" facility.. 100,000 March 29, 2003 1.625% 2.625%
Term loan "C" facility.. 100,000 March 29, 2004 2.125% 3.125%
Similar to the revolving credit facility, the "spread" or margin over the
base rate and Eurodollar rate is subject to a "step-down" or reduction when
the Company achieves certain financial performance ratios. Interest is payable
based upon the type (base rate or Eurodollar rate) of the loan the Company
executes; however, interest is payable quarterly at a minimum. At December 31,
1995, all loans outstanding under the Secured Credit Agreement were based on
the Eurodollar rate.
Mandatory principal payments of the term loan "A" facility are semi-annual
(last business day of June and December). Mandatory principal payments of the
term loan "B" facility are semi-annual through 2001 and convert to quarterly
payments beginning in March 2002. Mandatory principal payments of the term
loan "C" facility are semi-annual through 2002 and convert to quarterly
payments beginning in June 2003. Annual mandatory principal payments are as
follows:
TERM LOAN FACILITY
-----------------------
YEAR A B C TOTAL
---- ------- ------- ------- -------
1996......................................... $15,000 $ 1,000 $ 1,000 $17,000
1997......................................... 20,000 1,000 1,000 22,000
1998......................................... 25,000 1,000 1,000 27,000
1999......................................... 50,000 1,000 1,000 52,000
2000......................................... 65,000 1,000 1,000 67,000
2001......................................... 75,000 1,000 1,000 77,000
2002......................................... -- 75,200 1,000 76,200
2003......................................... -- 18,800 69,750 88,550
2004......................................... -- -- 23,250 23,250
In addition to mandatory principal payments, the term loan facilities
require principal payments from excess cash flow (as defined in the Secured
Credit Agreement), and a portion of the net proceeds realized from (i) the
sale, conveyance or other disposition of collateral securing the debt or (ii)
the sale by the Company for its own account of additional subordinated debt
and/or shares of its preferred and/or common stock. The revolving credit
facility has no mandatory principal payments prior to its maturity date.
Receivables Securitization Facility
The amended Receivables Securitization Facility is an obligation of the
Company which matures on December 29, 2000 and is secured by substantially all
of the Company's trade receivables. The facility operates through use of a
special purpose subsidiary (Interco Receivables Corp.) which "buys" trade
receivables from the operating companies and "sells" interests in same to a
third party financial institution, which uses the interests as collateral for
borrowings in the commercial paper market to fund the purchases. The Company
accounts for this facility as long-term debt.
The Company pays a commercial paper index rate on all funds received
(outstanding) on the facility. In addition, a program fee of 0.75% per annum
on the entire $225,000 facility is payable on a monthly basis. The balance
outstanding
28
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
at December 31, 1995 was $185,000. The Company may increase or decrease its
use of the facility on a monthly basis subject to the availability of
sufficient trade receivables and the facility's maximum amount ($225,000). As
of December 31, 1995, the Company had $20,474 in excess availability under the
facility.
Other
Other long-term debt consists of various industrial revenue bonds and other
debt instruments with interest rates ranging from approximately 4.0% to 9.0%.
Annual mandatory principal payments are required through 2004.
Other Information
Maturities of long-term debt are $18,639, $23,709, $28,531, $52,800 and
$252,800 for years 1996 through 2000, respectively.
10. COMMON STOCK
The Company's restated certificate of incorporation includes authorization
to issue up to 100.0 million shares of common stock with a $1.00 per share
stated value. As of December 31, 1995, 50,120,079 shares of common stock were
issued and outstanding. It is not presently anticipated that dividends will be
paid on common stock in the foreseeable future and certain of the debt
instruments to which the Company is a party restrict the payment of dividends.
Shares of common stock were reserved for the following purposes at December
31, 1995:
NUMBER
OF SHARES
----------
Common stock options:
Granted......................................................... 2,498,000
Available for grant............................................. 740,000
Common stock warrants............................................. 6,907,198
----------
10,145,198
==========
Under the Company's 1992 Stock Option Plan, certain key employees may be
granted nonqualified options, incentive options or combinations thereof.
Nonqualified and incentive options may be granted to expire up to ten years
after the date of grant. Options granted become exercisable at varying dates
depending upon the achievement of certain performance targets and/or the
passage of certain time periods.
The 1992 Stock Option Plan authorizes grants of options to purchase common
shares at less than fair market value on the date of grant. During 1993, an
option grant of 250 thousand common shares was made by the Company at less
than market value resulting in a credit to paid-in capital and a charge to
compensation expense of approximately $1.0 million.
Changes in options granted and outstanding are summarized as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------ ------------------- ------------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- ---------- ------- --------- -------
Beginning of period..... 2,500,000 $7.00 2,915,000 $ 7.39 2,643,000 $4.64
Granted................. 461,000 9.58 917,000 7.85 125,000 6.42
Exercised............... (4,000) 7.00 (71,250) 7.00 (43,000) 3.38
Cancelled............... (42,000) 7.92 (1,117,750) 7.82 (227,000) 4.68
--------- ---------- ---------
End of period........... 2,915,000 $7.39 2,643,000 $ 4.64 2,498,000 $4.75
========= ===== ========== ====== ========= =====
Exercisable at end of
period................. 586,750 954,750 1,346,750
========= ========== =========
29
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of the November 17, 1994 distribution of the common stock of The
Florsheim Shoe Company and Converse Inc. to the Company's shareholders,
options granted to the employees of those operating companies were cancelled.
In addition, the exercise prices of the remaining options were adjusted to
reflect the distribution in accordance with the antidilution provisions of the
1992 Stock Option Plan.
As of December 31, 1995, the Company had outstanding approximately 6.9
million warrants to purchase common stock. Each warrant entitles the holder
thereof to purchase one share of common stock at $7.13 per share (as adjusted
for the November 17, 1994 distribution to shareholders of the Company's former
footwear segment). The warrants, which expire on August 3, 1999, were issued
in two series; Series 1 warrants include a five year call protection, whereas
Series 2 warrants do not include such a feature. All other terms and
conditions of the two series of warrants are identical. The warrants trade on
the over-the-counter market.
11. INCOME TAXES
Income tax expense was comprised of the following:
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
Current:
Federal........................................... $11,788 $10,095 $20,499
State and local................................... 3,167 2,909 2,527
------- ------- -------
14,955 13,004 23,026
Deferred............................................ 969 7,904 (211)
------- ------- -------
$15,924 $20,908 $22,815
======= ======= =======
The following table reconciles the differences between the Federal corporate
statutory rate and the Company's effective income tax rate:
YEAR ENDED
DECEMBER 31,
----------------
1993 1994 1995
---- ---- ----
Federal corporate statu-
tory rate.............. 35.0% 35.0% 35.0%
State and local income
taxes, net of Federal
tax benefit............ 4.2 2.9 2.6
Amortization of excess
reorganization value... 6.8 5.2 4.5
Other................... (3.3) (0.3) (2.1)
---- ---- ----
Effective income tax
rate................... 42.7% 42.8% 40.0%
==== ==== ====
30
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The sources of the tax effects for temporary differences that give rise to
the deferred tax assets and liabilities were as follows:
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Deferred tax assets:
Employee postretirement benefits other than
pensions...................................... $ 833 $ 10,954
Expense accruals............................... 6,109 9,267
Valuation reserves............................. 3,027 5,147
Inventory costs capitalized.................... 1,534 1,785
Other.......................................... 1,571 919
-------- --------
Total gross deferred tax assets.............. 13,074 28,072
Valuation allowance............................ -- --
-------- --------
Total net deferred tax assets................ 13,074 28,072
Deferred tax liabilities:
Fair value adjustments......................... (70,690) (84,263)
Employee pension plans......................... (6,139) (1,990)
Depreciation................................... (4,441) (9,029)
Other.......................................... (7,575) (8,350)
-------- --------
Total deferred tax liabilities............... (88,845) (103,632)
-------- --------
Net deferred tax liabilities................. $(75,771) $(75,560)
======== ========
The net deferred tax liabilities are included in the consolidated balance
sheets as follows:
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Prepaid expenses and other current assets.......... $ 11,292 $ 14,328
Other long-term liabilities........................ (87,063) (89,888)
-------- --------
$(75,771) $(75,560)
======== ========
The Federal income tax returns of the Company and its major subsidiaries
have been examined by the Internal Revenue Service ("IRS") through February
23, 1991.
12. EMPLOYEE BENEFITS
The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 1993, 1994 and
1995 was $5,716, $6,303 and $7,070, respectively.
Company-Sponsored Defined Benefit Plans
Annual cost for defined benefit plans is determined using the projected unit
credit actuarial method. Prior service cost is amortized on a straight-line
basis over the average remaining service period of employees expected to
receive benefits.
It is the Company's practice to fund pension costs to the extent that such
costs are tax deductible and in accordance with ERISA. The assets of the
various plans include corporate equities, government securities,
31
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
corporate debt securities and insurance contracts. The table below summarizes
the funded status of the Company-sponsored defined benefit plans.
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Actuarial present value of benefit obligations:
Vested benefit obligation...................... $179,006 $217,879
======== ========
Accumulated benefit obligation................. $182,903 $222,256
======== ========
Projected benefit obligation................... $202,148 $254,815
Plan assets at fair value........................ 217,535 252,810
-------- --------
Projected benefit obligation less than (greater
than) plan assets............................... 15,387 (2,005)
Unrecognized net loss............................ 3,886 5,211
Unrecognized prior service cost.................. (515) 1,267
-------- --------
Prepaid pension cost............................. $ 18,758 $ 4,473
======== ========
Net periodic pension cost for 1993, 1994 and 1995 includes the following
components:
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
Service cost-benefits earned during the peri-
od.......................................... $ 4,575 $ 4,758 $ 3,544
Interest cost on the projected benefit obli-
gation...................................... 12,818 13,682 17,005
Actual return on plan assets................. (16,863) (159) (49,272)
Net amortization and deferral................ 1,377 (16,297) 31,566
-------- -------- --------
Net periodic pension cost.................... $ 1,907 $ 1,984 $ 2,843
======== ======== ========
Employees are covered primarily by noncontributory plans, funded by Company
contributions to trust funds, which are held for the sole benefit of
employees. Monthly retirement benefits are based upon service and pay with
employees becoming vested upon completion of five years of service.
The expected long-term rate of return on plan assets was 8.0%-9.5% in 1993
and 1994 and 8.5% in 1995. Measurement of the projected benefit obligation was
based upon a weighted average discount rate of 7.25%, 8.0% and 7.25% and a
long-term rate of compensation increase of 4.5%, 4.5% and 4.5% for 1993, 1994
and 1995, respectively.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company makes contributions to a
defined contribution plan and sponsors employee savings plans. The cost of
these plans is included in the total cost for all plans reflected above.
In addition to pension and other supplemental benefits, certain employees
and retirees are currently provided with specified health care and life
insurance benefits. Eligibility requirements generally state that benefits are
available to employees who retire after a certain age with specified years of
service if they agree to contribute a portion of the cost. The Company has
reserved the right to modify or terminate these benefits. Health care and life
insurance benefits are provided to both retired and active employees through
medical benefit trusts, third-party administrators and insurance companies.
32
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the financial status of postretirement
benefits other than pensions as of December 31, 1995. Until the acquisition of
Thomasville as of December 29, 1995, postretirement benefits other than
pensions were considered immaterial and not previously reported.
DECEMBER 31,
1995
------------
Accumulated postretirement benefit obligation:
Retirees.................................................... $ 9,546
Fully eligible plan participants............................ 2,094
Other active plan participants.............................. 20,181
-------
Total..................................................... 31,821
Plan assets at fair value..................................... --
-------
Accumulated postretirement benefit obligation in excess of
plan assets.................................................. 31,821
Unrecognized net gain......................................... 85
-------
Accrued postretirement benefit obligation..................... $31,906
=======
For measurement purposes, a 11.0% annual rate of increase in the cost of
health care benefits for pre-age 65 retirees and 11.0% for post-age 65
retirees was assumed for 1995. For 1995, the rates are assumed to decrease
gradually to 6.0% in the year 2000 and remain at those levels thereafter.
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, 1995 of approximately $3,098 and the net
periodic cost by $6 for the year.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for 1995.
13. LEASE COMMITMENTS
Certain of the Company's real properties and equipment are operated under
lease agreements expiring at various dates through the year 2005. Leases
covering equipment generally require, in addition to stated minimums,
contingent rentals based on usage. Generally, the leases provide for renewal
for various periods at stipulated rates.
Rental expense under operating leases was as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
Basic rentals........................................ $10,704 $11,553 $11,516
Contingent rentals................................... 570 385 779
------- ------- -------
11,274 11,938 12,295
Less sublease rentals................................ 132 54 54
------- ------- -------
$11,142 $11,884 $12,241
======= ======= =======
Future minimum lease payments under operating leases, reduced by minimum
rentals from subleases of $616 at December 31, 1995, aggregate $36,023. Annual
minimum payments under operating leases are $10,715, $7,840, $6,470, $5,005
and $2,852 for 1996 through 2000, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of cash and cash equivalents,
receivables and accounts payable to approximate fair value because of the
short maturity of these financial instruments.
33
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amounts outstanding under the Secured Credit Agreement and Receivables
Securitization Facility are also considered to be carried on the financial
statements at their estimated fair values because they were entered into
recently and both accrue interest at rates which generally fluctuate with
interest rate trends.
Amounts outstanding under the other long-term debt is considered special
purpose financing as an incentive to acquire specific real estate and for
settlement of certain claims. Accordingly, the Company believes the carrying
amounts approximate fair value given the circumstances under which such
financings were acquired.
15. GAIN ON INSURANCE SETTLEMENT
On November 20, 1994, an explosion and fire destroyed a particleboard plant
owned and operated by the Company. During 1995, the Company rebuilt the plant
with proceeds received from the insurance settlement. As a result thereof, a
gain on insurance settlement, totaling $7,882, was recorded during the fourth
quarter of 1995. The gain includes all costs associated with the claim with no
further expenses or liability anticipated.
16. LITIGATION
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the
opinion of management, the ultimate liability, if any, of the Company from all
such proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its
subsidiaries.
34
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Following is a summary of unaudited quarterly information:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- -------------
Year ended December 31,
1994:
Net sales............. $ 268,753 $ 272,203 $ 254,496 $ 277,244
Gross profit.......... 74,184 75,894 71,697 76,937
Net earnings:
Continuing opera-
tions.............. 5,908 5,863 5,366 10,796
Discontinued opera-
tions.............. 9,769 5,480 7,042 (11,952)
Total............. $ 15,677 $ 11,343 $ 12,408 $ (1,156)
Net earnings per
common share--primary
and fully diluted:
Continuing opera-
tions.............. $ 0.11 $ 0.12 $ 0.10 $ 0.21
Discontinued opera-
tions.............. 0.19 0.10 0.14 (0.23)
Total............. $ 0.30 $ 0.22 $ 0.24 $ (0.02)
Common stock price
range (High-Low)..... $15 3/4-13 1/8 $14 7/8-12 3/8 $15 3/4-13 3/4 $14 7/8-6 1/8
============== ============== ============== =============
Year ended December 31,
1995:
Net sales............. $ 285,904 $ 250,336 $ 258,626 $ 279,023
Gross profit.......... 76,349 67,399 70,557 76,932
Net earnings:
Continuing opera-
tions.............. 7,743 5,487 6,196 14,797
Extraordinary item.. -- -- -- (5,815)
Total............. $ 7,743 $ 5,487 $ 6,196 $ 8,982
Net earnings per com-
mon share--primary:
Continuing opera-
tions.............. $ 0.15 $ 0.11 $ 0.12 $ 0.29
Extraordinary item.. -- -- -- (0.11)
Total............. $ 0.15 $ 0.11 $ 0.12 $ 0.18
Net earnings per
common share--fully
diluted:
Continuing opera-
tions.............. $ 0.15 $ 0.11 $ 0.12 $ 0.27
Extraordinary item.. -- -- -- (0.11)
Total............. $ 0.15 $ 0.11 $ 0.12 $ 0.16
Common stock price
range (High-Low)..... $ 6 1/8-7 1/8 $ 5 3/4-6 7/8 $ 5 3/4-8 1/8 $ 7-9 1/8
============== ============== ============== =============
The 1994 fourth quarter common stock price range reflects the impact of the
November 17, 1994 distribution of the discontinued operations to the Company's
shareholders.
The Company has not paid cash dividends on its common stock during the two
years ended December 31, 1995. The closing market price of the Company's common
stock on December 31, 1995 was $9.00 per share.
35
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The section entitled "Nominees and Continuing Directors" of the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on April 23,
1996 is incorporated herein by reference.
Executive Officers of the Registrant
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Richard B. Loynd 68 Chairman of the Board of
the Former Subsidiary -
Converse Inc. 1982
Vice President 1987
Director X 1987
President X 1989
Chief Operating Officer 1989
Chief Executive Officer X 1989
Chairman of the Board X 1990
Brent B. Kincaid 64 President and Chief Exec-
utive Officer of the Sub-
sidiary - Broyhill Furni-
ture Industries, Inc. X 1992
Frederick B. Starr 63 President and Chief Exec-
utive Officer of the Sub-
sidiary - Thomasville
Furniture Industries, Inc. X 1982
K. Scott Tyler, Jr. 56 President of the Subsidiary
- The Lane Company, In-
corporated X 1989
Chief Executive Officer of
the Subsidiary - The Lane
Company, Incorporated X 1991
David P. Howard 45 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Lynn Chipperfield 44 General Counsel X 1993
Vice-President and
Secretary X 1996
Steven W. Alstadt 41 Controller X 1994
The following officer retired on January 30, 1996
Duane A. Patterson 63 Secretary 1973
Director 1991
Vice-President 1992
_________________________
* Member of the Executive Committee
There are no family relationships between any of the executive officers of
the Registrant.
The executive officers are elected at the organizational meeting of the
Board of Directors which follows the annual meeting of stockholders and
serve for one year and until their successors are elected and qualified.
Each of the executive officers has held the same position or other
positions with the same employer during the past five years.
36
Item 11. Executive Compensation
- --------------------------------
The sections entitled "Executive Compensation", "Executive Compensation and
Stock Option Committee Report on Executive Compensation", "Compensation
Committee Interlocks and Insider Participation", "Stock Options", "Retirement
Plans", "Employment and Incentive Agreements" and "Performance Graph" of the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on
April 23, 1996, are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The section entitled "Security Ownership" of the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders on April 23, 1996, is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The section entitled "Certain Business Relationships" of the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on April 23,
1996, is incorporated herein by reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) List of documents filed as part of this report:
1. Financial Statements:
Consolidated balance sheets, December 31, 1994 and 1995.
Consolidated statements of operations for each of the years in the
three-year period ended December 31, 1995.
Consolidated statement of cash flows for each of the years in the
three-year period ended December 31, 1995.
Consolidated statement of shareholders' equity for each of the years in
the three-year period ended December 31, 1995.
Notes to consolidated financial statements.
Independent Auditors' Report
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II).
All other schedules are omitted as the required information is presented in
the consolidated financial statements or related notes or are not
applicable.
37
3. Exhibits:
3(a) Restated Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 4(a) to INTERCO
INCORPORATED's Quarterly Report on Form 10-Q for the quarter
ended on March 31, 1993.)
3(b) By-Laws of the Company revised and amended to May 5, 1993.
(Incorporated by reference to Exhibit 4(b) to INTERCO
INCORPORATED's Quarterly Report on Form 10-Q for the quarter
ended on March 31, 1993.)
4(a) Credit Agreement, dated as of November 17, 1994, as amended and
restated as of December 29, 1995, 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. (Incorporated by reference to Exhibit 99(a)
to INTERCO INCORPORATED's Current Report on Form 8-K, dated
January 12, 1996.)
4(b) Purchase and Contribution Agreement, dated as of November 15,
1994, as amended and restated as of December 29, 1995 among The
Lane Company, Incorporated, Action Industries, Inc., Broyhill
Furniture Industries, Inc. and Thomasville Furniture Industries
as Sellers and Interco Receivables Corp. as Purchaser.
4(c) 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. (Incorporated by reference to Exhibit 99(b) to
INTERCO INCORPORATED's Current Report on Form 8-K, dated January
12, 1996.)
4(d) Warrant Agreement, dated as of August 3, 1992, between the
Company and Society National Bank, as Warrant Agent.
(Incorporated by reference to Exhibit 4.5 to INTERCO
INCORPORATED's Current Report on Form 8-K, dated August 18,
1992.)
4(e) Agreement to furnish upon request of the Commission copies of
other instruments defining the rights of holders of long-term
debt of the Company and its subsidiaries which debt does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. (Incorporated by reference
to Exhibit 4(c) to INTERCO INCORPORATED's Annual Report on Form
10-K for the year ended February 28, 1981.)
38
10(a) INTERCO INCORPORATED's 1992 Stock Option Plan. (Incorporated by
reference to Exhibit 10(b) to INTERCO INCORPORATED's Annual
Report on Form 10-K for the year ended December 31, 1992.)
10(b) Form of Indemnification Agreement between the Company and Richard
B. Loynd, Donald E. Lasater and Lee M. Liberman. (Incorporated by
reference to Exhibit 10(h) to INTERCO INCORPORATED's Annual
Report on Form 10-K for the year ended February 29, 1988.)
10(c) Consulting Agreement, dated as of September 23, 1992, between the
Company and Apollo Advisors, L.P. as amended on February 20,
1995.
10(d) Registration Rights Agreement, dated as of August 3, 1992,
between the Company and Apollo Interco Partners, L.P.
(Incorporated by reference to Exhibit 10(g) to INTERCO
INCORPORATED's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10(e) Written description of bonus plan for management personnel of the
Lane Company, Incorporated.
10(f) Retirement Plan for directors. (Incorporated by reference to
Exhibit 10(g) to INTERCO INCORPORATED's Annual Report on Form
10-K for the year ended December 31, 1994.)
10(g) INTERCO Corporate Executive Incentive Plan. (Incorporated by
reference to Exhibit 10(h) to INTERCO INCORPORATED's Annual
Report on Form 10-K for the year ended December 31, 1994.)
10(h) Broyhill Furniture Industries, Inc. Executive Incentive Plan.
(Incorporated by reference to Exhibit 10(i) to INTERCO
INCORPORATED's Annual Report on Form 10-K for the year ended
December 31, 1994.)
11 Statement regarding computation of per share earnings.
21 List of Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99(a) Distribution and Services Agreement, dated November 17, 1994,
between the Company and Converse Inc. (Incorporated by reference
to Exhibit 99(a) to INTERCO INCORPORATED's Annual Report on Form
8-K, dated December 2, 1994.)
99(b) Tax Sharing Agreement, dated November 17, 1994, between the
Company and Converse Inc. (Incorporated by reference to Exhibit
99(b) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated
December 2, 1994.
99(c) Distribution and Services Agreement, dated November 17, 1994,
among the Company, The Florsheim Shoe Company and certain of its
subsidiaries. (Incorporated by reference to Exhibit 99(c) to
INTERCO INCORPORATED's Annual Report on Form 8-K, dated December
2, 1994.
99(d) INTERCO/Florsheim Tax Sharing Agreement, dated November 17, 1994,
among the Company, The Florsheim Shoe Company and certain of its
subsidiaries. (Incorporated by reference to Exhibit 99(d) to
INTERCO INCORPORATED's Annual Report on Form 8-K, dated December
2, 1994.)
(b) Reports on Form 8-K.
A Form 8-K was filed on November 27, 1995, reporting the signing of an
agreement to acquire Thomasville Furniture Industries, Inc., a Form 8-K
was filed on January 12, 1996, as amended by Form 8-K/A-1 filed on January
16, 1996 and Form 8-K/A-2 filed on February 1, 1996, reporting the
acquisition of Thomasville Furniture Industries, Inc., summarizing the
Company's amended credit agreements and filing the agreements as exhibits
thereto and a Form 8-K was filed on January 31, 1996 reporting information
in the Company's press releases dated January 30, 1996.
SHAREHOLDERS REQUESTING COPIES OF EXHIBITS TO FORM 10-K
WILL BE SUPPLIED ANY OR ALL SUCH EXHIBITS AT A CHARGE OF
TEN CENTS PER PAGE.
39
INTERCO INCORPORATED AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
PAGE
CONSOLIDATED FINANCIAL STATEMENTS: ----
Consolidated Balance Sheets as of December 31, 1994 and 1995 19
Consolidated Statements of Operations for each of the years in the three
year period ended December 31, 1995..................................... 20
Consolidated Statement of Cash Flows for each of the years in the three
year period ended December 31, 1995..................................... 21
Consolidated Statement of Shareholders' Equity for each of the years in
the three year period ended December 31, 1995........................... 22
Notes to Consolidated Financial Statements............................... 23
Financial Statement Schedule............................................. 41
Independent Auditors' Report............................................. 42
40
INTERCO INCORPORATED AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in Thousands)
------------------------------------------------------------------
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and from Acquired End of
Description of Period Expenses Reserves Company Period
- ----------- --------- ---------- ---------- -------- ----------
Year Ended December 31, 1995
- ----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 4,814 $ 1,672 $(1,475) (a) $12,950 $17,961
Allowance for cash discounts/chargebucks 248 271 (278) (b) 2,522 2,763
------- ------- -------- ------- -------
$ 5,062 $ 1,943 $(1,753) $15,472 $20,724
======= ======= ======== ======= =======
Year Ended December 31, 1994
- ----------------------------
Allowances deducted from
receivables on balance sheet
Allowance for doubtful accounts $ 3,847 $ 3,372 $ (2,405) (a) $ 4,814
Allowance for cash discounts 213 306 (271) (b) 248
------- ------- -------- -------
$ 4,060 $ 3,678 $ (2,676) $ 5,062
======= ======= ======== =======
Year Ended December 31, 1993
- ----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 3,372 $ 1,723 $ (1,248) (a) $ 3,847
Allowance for cash discounts 385 103 (275) (b) 213
------- ------- -------- -------
$ 3,757 $ 1,826 $ (1,523) $ 4,060
======= ======= ======== =======
(a) Uncollectible accounts written off, net of recoveries.
(b) Cash discounts taken by customers.
See accompanying independent auditors' report.
41
Independent Auditors' Report
The Board of Directors and Shareholders
INTERCO INCORPORATED:
We have audited the consolidated financial statements of INTERCO INCORPORATED
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of INTERCO INCORPORATED
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
St. Louis, Missouri
January 30, 1996
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERCO INCORPORATED
-------------------------
(Registrant)
By Richard B. Loynd
----------------------
Richard B. Loynd
Chairman of the Board
Date: February 1, 1996
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 1, 1996.
Signature Title
--------- -----
Richard B. Loynd Chairman of the Board,
- ----------------------------- President and Director
(Richard B. Loynd) (Principal Executive Officer)
Donald E. Lasater Director
- -----------------------------
(Donald E. Lasater)
Lee M. Liberman Director
- -----------------------------
(Lee M. Liberman)
Leon D. Black Director
- -----------------------------
(Leon D. Black)
Joshua J. Harris Director
- -----------------------------
(Joshua J. Harris)
Michael S. Gross Director
- -----------------------------
(Michael S. Gross)
John J. Hannan Director
- -----------------------------
(John J. Hannan)
Bruce A. Karsh Director
- -----------------------------
(Bruce A. Karsh)
John H. Kissick Director
- -----------------------------
(John H. Kissick)
John J. Ryan III Director
- -----------------------------
(John J. Ryan III)
Michael D. Weiner Director
- -----------------------------
(Michael D. Weiner)
David P. Howard Vice President
- ----------------------------- (Principal Financial Officer)
(David P. Howard)
Steven W. Alstadt Controller
- ----------------------------- (Principal Accounting Officer)
(Steven W. Alstadt)
43