Item 1. Business ----------------- (a) General development of business
On November 17, 1994 the Company spun off to its shareholders the common stock of its wholly-owned subsidiaries, Converse Inc. and The Florsheim Shoe Company. The Company continues to operate its furniture businesses, Broyhill Furniture Industries, Inc. and The Lane Company, Incorporated as a single industry segment.
(c) Narrative Description of Business:
(1) The Company is a major manufacturer of residential furniture through its two primary operating subsidiaries, Broyhill Furniture Industries, Inc. and The Lane Company, Incorporated.
Broyhill Furniture Industries, Inc. ---------------------------------- Broyhill began in 1926 as The Lenoir Chair Company and has grown through acquisitions of local furniture factories and internally generated expansion. Broyhill was acquired by the Company in 1980 and employs approximately 6,900 people.
Products -------- Broyhill produces medium-priced bedroom, dining room, living room, occasional and stationary and reclining upholstered furniture aimed at the middle-income consumer. Its residential furniture divisions produce a wide range of furnishings in colonial, country, traditional and contemporary styles. The widely recognized Broyhill trademarks include Broyhill, Broyhill Premier, Highland House and Broyhill Showcase Gallery. Broyhill considers these trademarks and trade names to be material to its business.
The flagship Broyhill product line concentrates on bedroom, dining room and living room furniture, as well as upholstered and occasional furniture.
The Broyhill Premier product line enjoys an excellent reputation for classically styled, complete furniture collections in the upper-medium price range.
Highland House, a division of Broyhill, operates in an upper-medium to high niche with premium bench-made upholstered products.
The Broyhill Showcase Gallery program provides selected dealers with a merchandise stocking program, advertising and marketing support and educational opportunities.
Marketing and Distribution -------------------------- Broyhill's management has been innovative in designing new programs to promote the Broyhill line. Key elements of the marketing program include a focused effort on Broyhill's department store and national and regional chain accounts, expansion of the Broyhill Showcase Gallery dealer network and expansion of the Independent Dealer Program.
Broyhill furniture products are sold primarily through approximately 4,000 retail furniture dealers. Broyhill maintains showrooms in High Point, North Carolina and Chicago, Illinois.
The corporate effort with national and regional chains has resulted in increased business from major regional and national accounts. New merchandise assortments and selective distribution commitments have generated promotional and advertising activities with this retailer group which have resulted in improved rates of sales.
Initiatives to profile the Broyhill consumer and identify their needs, wants, lifestyles and product use habits are providing insight into activities ranging from product development to channels of distribution to communication methods. Broyhill communicates with its targeted consumers through an extensive print media campaign.
Through its Consumer Assistance Center 800 number, Broyhill provides assistance to almost 100,000 consumers annually by answering product questions, supplying literature and making referrals to retailers for product presentations.
The Broyhill Showcase Gallery program has over 325 participating dealer locations. A showcase gallery, which averages over 6,000 square feet, displays Broyhill furniture in complete, fully-accessorized room settings. This program incorporates a core merchandise stocking program, advertising material support, in-store merchandising events and educational opportunities for the retail store sales and management personnel. New retailers are attracted to the program because it provides for continuity of product and service. Broyhill believes retailers can substantially increase their sales per square foot by conversion to a gallery format. Inventory stock turns for galleries are also normally higher than those for non-gallery programs because more complete room settings are sold from fully- accessorized displays.
For the smaller Broyhill dealer unable to make a gallery commitment, the Independent Dealer Program was developed. This concept was designed to overcome some of the significant difficulties in running a small independent furniture business and to provide smaller dealers with many of the same advantages of product and service continuity available to larger competitors. Participating retailers commit to a minimum preselected lineup of Broyhill merchandise and receive a detailed advertising and merchandising plan. The program includes three major sales events per year and monthly promotional themes. Professionally-prepared advertising and promotional materials are provided to the dealer at nominal cost to help attract consumer attention at the local level. The program currently has more than 650 retail locations enrolled. In 1992, Broyhill launched an upgraded version of the Independent Dealer Program called the Broyhill Furniture Center. This program includes all the benefits of the Independent Dealer Program plus additional marketing, designing, advertising and financing assistance provided the dealer agrees to commit at least 2,000 square feet of retail floor space to displaying Broyhill products.
Broyhill also offers a complete line of hospitality furnishings to the hotel, motel and health care industries.
Many of Broyhill's large retail customers have reduced the level of furniture inventory they hold and now look to manufacturers to provide short turnaround delivery availability. Broyhill has developed a customer sales forecasting system that is designed to enhance customer service while addressing the need for aggressive inventory management. Broyhill's business is not highly seasonal by nature.
Competition ----------- Based on published industry information, management believes Broyhill is one of the largest and best known brands in the furniture industry. The majority of furniture manufacturers in the United States are small specialty firms with limited market identity.
The furniture manufacturing business is highly competitive and furniture industry sales have historically been cyclical in nature. Broyhill products compete with products made by a number of furniture manufacturers, including Masco Corporation's furniture divisions, Thomasville Furniture Industries, Inc. (a subsidiary of Armstrong World Industries, Inc.), La-Z-Boy Chair Company, Ladd Furniture, Inc., Bassett Furniture Industries, Inc. and Singer Furniture, as well as numerous smaller producers. The elements of competition include pricing, styling, quality and marketing. Broyhill furniture products are priced in a popular price range and styled to appeal to the growing young to middle-aged adult population. Product quality is monitored carefully through the use of quality assurance programs and customer feedback. Broyhill designers follow the marketplace closely to detect trends in product design. Broyhill believes it is a major manufacturer in the mid- price range in terms of sales volume and product selection offered.
Manufacturing ------------- Broyhill is a leader in automated furniture manufacturing. To meet the demand for affordable quality products, Broyhill has emphasized the use of mass production techniques.
Modern facilities, state-of-the-art technology and economies of scale make Broyhill an efficient producer. The mid-price range products in which it specializes are well suited to automated assembly line techniques. Short set-up times and flexible manufacturing test runs have reduced both manufacturing costs and overhead.
Broyhill believes it is one of the lowest-cost producers in the industry and the most efficient producer in the medium- priced segment of the industry in which it competes because of the degree of automation in its manufacturing facilities, the close proximity of its manufacturing facilities to each other and the size of the company. Its large size enables it to negotiate more favorable agreements with suppliers for raw materials and to achieve economies of scale by utilizing longer productions runs. The high degree of automation also results in additional capacity which can be utilized by adding labor to the present shift and by implementing selected second or third shifts.
In addition to the Broyhill brand products, Broyhill also manufactures furniture-related products such as particleboard, drawer sides and veneer for internal use and limited sale within the furniture industry.
Broyhill operates 16 finished goods production and warehouse facilities totalling over 4.9 million square feet of manufacturing and warehouse space. Several supply factories are also maintained for parts production. All but one of the plants are located within 60 miles of Broyhill's Lenoir, North Carolina headquarters, which coordinates centralized accounting, purchasing, credit, traffic and data processing services.
Broyhill's major raw materials include lumber products, glass, finishing materials, adhesive and upholstered goods, such as foam and fabrics. Raw materials are generally abundant and available from many suppliers.
The Lane Company, Incorporated ------------------------------
Lane was founded by E.H. Lane in 1912 as a cedar chest maker and has grown internally and by acquiring other furniture companies. Lane was acquired by the Company in 1987. It employs approximately 6,900 people.
Lane designs and produces furniture through seven operating divisions -- Action Industries, Inc. ("Action Industries"), Lane Division, Hickory Chair Company ("Hickory Chair"), The Pearson Company, Lane Upholstery, Venture Furniture Company ("Venture") and Hickory Business Furniture ("HBF"). All divisions benefit from Lane's management systems, marketing expertise and well-known corporate name. Management believes this decentralized strategy allows the divisions to focus on their competitive strengths and has been a key source of Lane's historical success.
Products -------- Lane manufactures and sells wood, metal and upholstered (both stationary and reclining) furniture and related furniture components. The collections of related groups of furniture and other products currently include more than 3,000 different items. Lane's product mix is approximately 25% wood furniture and 75% upholstered furniture and other items. Products are sold under the Lane name and other trademarks. Lane considers the Lane, Action, Hickory Chair and James River Collection trademarks and trade names to be material to its business.
Action Industries manufactures and markets reclining chairs and other motion furniture in the medium price range. Based on published industry information, management believes it is the second largest manufacturer of reclining chairs in the United States, with an approximate 20% share of the market. Action Industries' line of "motion furniture", which incorporates a recliner within a sofa or loveseat, has produced strong sales since its introduction in early 1991. Management believes it is now the largest producer of motion furniture in the industry. To meet the increasing demand for its motion furniture, Action Industries completed construction of an approximately 400,000 square foot manufacturing facility in 1993. Lane's Royal Development Company designs and manufactures the mechanisms used in Action Industries' reclining furniture products. In 1994, Action introduced the Comfort Max sleep sofa which management believes, by use of a new exclusive mechanism and other features, will address the deficiencies consumers have noted over the years about sleep sofas, in general. Regular shipments of this product began in late 1994.
Lane Division manufactures and sells cedar chests, occasional living room tables, bedroom and dining room furniture, wall systems, desks, console tables and mirrors and other occasional wood pieces. Lane Division furniture is sold in the medium to higher price ranges. In 1993, Lane Division positioned itself for future growth with the installation of a state-of-the-art finishing system that will produce excellent product quality at attractive prices. Products using this new technology were introduced in 1994 and were well received by the consumer.
Hickory Chair manufactures and sells traditional styles of upholstered furniture, dining room chairs and occasional tables, principally in the higher price range. Hickory Chair has been crafting fine 18th century-style furniture for the past 80 years, including its James River Collection of dining room, bedroom and occasional furniture, consisting of reproductions inspired by heirlooms from historical James River plantation homes in Virginia. It also manufactures and markets the Mark Hampton Collection of fine home furnishings. In 1993, Hickory Chair was selected as the licensee for furniture reproductions from George Washington's Mount Vernon home. Hickory Chair has recently expanded its product line to other traditional styles to appeal to a broader market.
The Pearson Company for over 50 years has been manufacturing and selling contemporary and traditional styles of upholstered furniture including sofas, love seats, chairs and ottomans in the upper-medium price range. The Viceroy Collection, by designer Victoria Moreland, has been a successful product line for the company which is known for its hand tailoring and use of fashion fabrics.
Lane Upholstery includes two product lines, one of which is composed of contemporary and modern upholstered furniture and metal and glass occasional and dining tables, and the other of which is composed of traditional and contemporary upholstered furniture, primarily sofas, love seats, chairs and ottomans. Lane Upholstery sells in the medium price range.
Venture markets a product line composed of upholstered furniture made from wicker, rattan and bamboo, together with tables, occasional wood pieces and other home furnishing accessories. Venture manufactures and sells an exclusive line of premium all-weather wicker and upholstered outdoor furniture under the WeatherMaster trademark.
HBF manufactures and sells a line of office chairs, tables, desks and credenzas in the upper-medium price range.
Marketing and Distribution -------------------------- Lane's furniture products are distributed nationally, principally to retail outlets, including department stores, leading chain stores, individual retail furniture stores and decorating studios. Lane generally manufactures to order, so that large inventory build-ups are avoided. Lane serves a broad-based clientele of over 12,000 active accounts.
Lane's sales force, which is organized by division, is comprised of approximately 220 straight-commission salesmen, most of whom represent Lane exclusively. Lane maintains showrooms for the national furniture market in High Point, North Carolina. Lane operates Lane Group Showrooms for the design trade in Chicago, Illinois; Atlanta, Georgia; and San Francisco, California.
Lane has a growing gallery program in which selected dealers commit floor space to a Lane furniture gallery. The dealers own the galleries and the Lane furniture inventory, while Lane is responsible for decorating the gallery and charges dealers for this service. Approximately 150 dealers currently participate in Lane's gallery program.
Lane advertises heavily in national magazines. Lane believes its long-standing Lane "Keepsake" promotional program has made the Lane cedar chest one of the best-known furniture products in the industry and contributes to the high level of consumer recognition which Lane enjoys.
Lane's business is not highly seasonal in nature except for some seasonality in the retailing of recliner products with peaks in June (Father's Day) and December (Christmas).
Competition ----------- Lane competes in the medium to high price range, where styling and quality considerations are more important competitive factors than price. Lane maintains a policy of providing its customers with high quality and current styles. To meet changing consumer tastes, Lane updates its product offerings on a continuous basis, combining its line of traditional models with up-to-date styles. Lane's primary competitors are other manufacturers of furniture, including La-Z-Boy Chair Company, Thomasville Furniture Industries, Inc. (a subsidiary of Armstrong World Industries, Inc.), Masco Corporation's furniture divisions, Century Furniture Co. and Ladd Furniture, Inc.
Manufacturing ------------- Lane operates 15 production and warehouse facilities totaling over 5.0 million square feet. Recent investment in advanced technology manufacturing equipment has increased factory productivity. Lane's company headquarters is located in Altavista, Virginia, with major plants located there and in Rocky Mount, Virginia and Hickory and High Point, North Carolina. Action Industries' main plant and headquarters is located in Verona, Mississippi with three other plants in Tupelo, Pontotoc and Saltillo, Mississippi.
Lane's major raw materials include lumber products, glass, paints and stains, adhesives and upholstery components, such as foam and fabrics. In addition, Lane purchases finished furniture goods made to its specifications, which are then sold to Lane customers. Raw materials are generally abundant and available from many suppliers.
Backlog ------- The combined order backlog of the operating companies at the end of December, 1994 aggregated approximately $150 million, compared to approximately $152 million at the end of December, 1993.
Trademarks and Trade Names -------------------------- Each of the operating companies utilizes trademarks and trade names extensively to promote brand loyalty among consumers. The Company aggressively protects its trademarks and trade names by taking appropriate legal action against anyone who infringes upon or misuses them.
Governmental Regulations ------------------------ The Company does not believe compliance by it with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material effect upon capital expenditures, earnings or competitive position. See - "Legal Proceedings".
Employees --------- As of December 31, 1994, the Company and its subsidiaries employed approximately 13,800 people, of which approximately 40 are located at Company headquarters in St. Louis, Missouri.
Item 2.
Item 2. Properties ------------------- The Company owns or leases the following principal plants, offices and warehouses:
Floor Owned Type of Space or Division Location Facility (Sq. Ft.) Leased -------- -------- -------- --------- ------ INTERCO St. Louis, MO Headquarters 26,800 Leased
Broyhill Lenoir, NC Headquarters 136,000 Leased
Broyhill Lenoir, NC Plant/Warehouse 312,632 Owned
Broyhill Newton, NC Plant/Warehouse 382,626 Owned
Broyhill Lenoir, NC Plant/Warehouse 628,000 Owned
Broyhill Rutherfordton, NC Plant/Warehouse 575,656 Owned
Broyhill Lenoir, NC Plant/Warehouse 419,000 Owned
Broyhill Lenoir, NC Plant/Warehouse 364,000 Owned
Broyhill Conover, NC Plant/Warehouse 316,542 Owned
Broyhill Lenoir, NC Plant 345,439 Owned
Broyhill Lenoir, NC Plant 165,640 Owned
Broyhill Lenoir, NC Plant/Warehouse 252,380 Owned
Broyhill Taylorsville, NC Plant/Warehouse 212,754 Owned
Broyhill Lenoir, NC Plant 124,700 Leased
Broyhill Hickory, NC Plant/Warehouse 215,500 Leased
Broyhill Marion, NC Plant 22,712 Owned
Broyhill Lenoir, NC Warehouse 96,000 Owned
Broyhill Lenoir, NC Warehouse 503,250 Leased
Lane Altavista, VA Plant/Warehouse1,091,600 Owned
Lane Altavista, VA Headquarters 62,000 Owned
Lane Conover, NC Plant/Warehouse 212,000 Owned
Lane Conover, NC Plant/Warehouse 348,180 Owned
Lane Conover, NC Plant 150,130 Owned
Lane Hickory, NC Plant/Warehouse 641,214 Owned
Lane Hickory, NC Plant/Warehouse 169,902 Owned
Lane High Point, NC Plant 187,162 Owned
Lane High Point, NC Plant/Warehouse 156,000 Owned
Floor Owned Type of Space or Division Location Facility (Sq. Ft.) Leased -------- -------- -------- --------- ------ Lane Pontotoc, MS Plant/Warehouse 352,740 Owned
Lane Rocky Mount, VA Plant/Warehouse 598,962 Owned
Lane Verona, MS Plant/Warehouse 395,050 Owned
Lane Saltillo, MS Plant/Warehouse 567,500 Owned
Lane Tupelo, MS Plant/Warehouse 396,175 Owned
Lane Rocky Mount, VA Plant 50,300 Owned
Lane Smyrna, TN Plant 28,300 Owned
_______________
Substantially all of the owned properties listed above are encumbered by a first priority lien and mortgage pursuant to the Company's Secured Credit Agreement with Bankers Trust Company, as Agent, and the banks named therein, dated as of November 17, 1994. In addition, the Tupelo, Mississippi facility is encumbered by a mortgage and first lien securing industrial revenue bonds.
The Company believes its properties are generally well maintained, suitable for its present operations and adequate for current production requirements. Productive capacity and extent of utilization of the Company's facilities are difficult to quantify with certainty because in any one facility maximum capacity and utilization varies periodically depending upon the product that is being manufactured, the degree of automation and the utilization of the labor force in the facility. In this context, the Company estimates that overall its production facilities were effectively utilized during calendar 1994 at moderate to high levels of productive capacity and believes that in general its facilities have the capacity, if necessary, to expand production to meet anticipated product requirements.
Item 3.
Item 3. Legal Proceedings --------------------------
Notwithstanding the confirmation and effectiveness of the Company's Amended Joint Plan of Reorganization under Chapter 11 (the "Plan"), the Court continues to have jurisdiction to, among other things, resolve disputed pre-petition claims against the Company, resolve matters related to the assumption, assumption and assignment, or rejection of executory contracts pursuant to the Plan, and to resolve other matters that may arise in connection with or relate to the Plan. Pursuant to the Plan, the Company, on the effective date, paid into a Disputed Claims Trust the face amount of certain claims still to be resolved. Since those unresolved claims were funded at their face amounts, the Company has no further financial exposure with respect to those claims.
The Company is or may become a defendant in a number of pending or threatened legal proceedings in the ordinary course of business. In the opinion of management, the ultimate liability, if any, of the Company from all such proceedings will not have a material adverse effect upon the consolidated financial position or results of operations of the Company and its subsidiaries.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ Not applicable.
PART II -------
Item 5.
Item 5. Market for The Registrant's Common Equity and Related -------------------------------------------------------------- Stockholder Matters ------------------- As of February 28, 1995, there were approximately 3,015 holders of record of Common Stock.
Shares of the Company's Common Stock are traded on the New York Stock Exchange. The reported high and low sale prices for the Company's Common Stock on the New York Stock Exchange is included in Note 16 to the consolidated financial statements of the Company.
The Company has not paid cash dividends on its Common Stock during the two years ended December 31, 1993 and December 31, 1994.
A discussion of restrictions on the Company's ability to pay cash dividends is included in Note 10 to the consolidated financial statements of the Company.
Item 7.
Item 7. Management's Discussion and Analysis of Financial ----------------------------------------------------------------- Condition and Results of Operations -----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
INTERCO INCORPORATED (the "Company") is a major manufacturer of residential furniture. The Company has two primary operating subsidiaries, Broyhill Furniture Industries, Inc. and The Lane Company, Incorporated.
On November 17, 1994, the Company simultaneously refinanced the majority of its outstanding indebtedness and distributed to holders of its common stock the common stock of The Florsheim Shoe Company and the common stock of Converse Inc. (which, in aggregate, represented the Company's footwear segment). Upon completion of this restructuring, the Company retained no ownership interest or management control of the footwear businesses. Accordingly, the financial results of the footwear businesses have been reflected as discontinued operations for all periods presented, and the Company's financial results of prior years have been restated.
Effective December 31, 1992, the Company changed its fiscal year end to December 31. For purposes of this discussion, calendar 1994 refers to the 12 month period ended December 31, 1994, calendar 1993 refers to the 12 month period ended December 31, 1993 and calendar 1992 refers to the two five month periods ended December 31, 1992 and August 2, 1992.
On January 24, 1991, INTERCO INCORPORATED and its domestic subsidiaries filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri (the "Court"). The Company emerged from Chapter 11 effective with the beginning of business on August 3, 1992. In general, the Plan of Reorganization (the "Plan") provided for resolution of all claims against the Company as of January 24, 1991, the Chapter 11 filing date, as well as resolution of certain legal disputes, in exchange for cash, new indebtedness and/or new common equity securities. The Plan provided for no distributions to the holders of the Company's Series D Preferred Stock, Series E Preferred Stock or common stock, and all outstanding shares of those equity securities were cancelled as of the effective date of the Plan.
As of August 2, 1992, in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", the Company was required to adopt "fresh-start" reporting and reflect the effects of such adoption in the financial statements as of August 2, 1992. Accordingly, a vertical black line is shown to separate post-emergence operations from those prior to August 3, 1992 in the consolidated financial statements since they have not been prepared on a comparable basis.
Net Sales
Sales for calendar 1994 were $1.07 billion, an increase of 9.4% over calendar 1993 which had sales of $0.98 billion. Calendar 1993 sales represented an increase of 10.3% over the comparable (12 month) period in 1992. For calendar 1992 (ten month period), sales increased 10.2% over the same period in the prior year. The sales performance for all periods reflects an improving U.S. economy, favorable industry conditions and product offerings and marketing programs that were well received by customers.
Gross Profit
Gross profit for calendar 1994 was $298.7 million, compared to $275.3 million for calendar 1993, an increase of 8.5%. The increase in gross profit resulted from an increase in sales, partially offset by a reduction in gross profit margin. The reduction in gross profit margin, from 28.1% in calendar 1993 to 27.8% in calendar 1994, was primarily a result of start-up costs at a new $10 million motion upholstery manufacturing facility, the testing of an $8 million state- of-the-art finishing facility and the impact of an explosion and fire that destroyed a particleboard plant in November 1994, partially offset by favorable factory utilization rates.
Gross profit for calendar 1993 increased 13.4% over the comparable (12 month) period in 1992. The increase resulted from increases in sales and gross profit margin. The increase in gross profit margin, to 28.1% in calendar 1993 from 27.3% for the comparable (12 month) period in 1992, was a result of favorable factory utilization and sales of higher margin products resulting from internal profit improvement programs, partially offset by increased depreciation expense related to fair value adjustments recorded at August 2, 1992.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $213.6 million in calendar 1994 from $201.2 million in calendar 1993, an increase of 6.2%. As a percent of net sales, selling, general and administrative expenses decreased to 19.9% in calendar 1994 from 20.5% in calendar 1993. The reduction in selling, general and administrative expenses as a percent of net sales is attributable to the Company's continuing emphasis on control and reduction of operating expenses, as well as a nonrecurring $2.6 million charge included in calendar 1993 related to the Company's 1992 reorganization.
Selling, general and administrative expenses for calendar 1993 increased 10.6% over the comparable (12 month) period in 1992, and, as a percent of net sales, remained unchanged at 20.5%. Selling, general and administrative expenses increased due to sales growth and additional depreciation and amortization related to fair value adjustments recorded at August 2, 1992, partially offset by the Company's ongoing efforts to manage expenses relative to revenue growth.
Interest Expense
Interest expense for calendar 1994 totaled $37.9 million and reflects approximately one and one-half months of interest expense on the Company's new debt structure and approximately ten and one-half months of interest expense on the refinanced long-term debt.
Interest expense for calendar 1993 totaled $38.6 million. As of August 3, 1992, the Company, in connection with its emergence from Chapter 11 and pursuant to the Plan, issued long-term debt (along with cash, common stock and warrants to purchase common stock) to settle pre-petition liabilities. As a result, interest expense for calendar 1993 was based on the Company's post-emergence debt structure and, therefore, is not comparable to the same periods of the prior year.
Interest expense for the five months ended December 31, 1992, which totaled $16.4 million, was also based on the Company's post- emergence debt structure whereas interest expense for the five months ended August 2, 1992, which totaled $29.7 million, was based on the Company's pre-emergence debt structure.
Other Income, Net
Other income, net for calendar 1994, 1993 and 1992 (ten months) totaled $1.7 million, $1.8 million and $2.9 million, respectively. For calendar 1994, other income, net consisted of interest income on short-term investments of $0.8 million and other miscellaneous income and (expense) items totaling $0.9 million.
Reorganization Items
Reorganization items consist of: adjustments to record assets and liabilities at fair value in connection with the Company's implementation of fresh-start reporting; and income, expenses and other costs directly related to the reorganization of the Company from the Chapter 11 filing date to its emergence from bankruptcy effective August 3, 1992. Additional information is presented in Note 4 of the Notes to Consolidated Financial Statements.
Income Tax Expense (Benefit)
For calendar 1994, the Company provided for income taxes totaling $20.9 million on earnings before income tax expense totaling $48.8 million, producing an effective tax rate of 42.8%, compared to an effective tax rate for calendar 1993 of 42.7%. The effective tax rates for both years were adversely impacted by certain nondeductible expenses incurred (amortization of excess reorganization value) and provisions for state and local taxes, partially offset by certain deductible expenses provided for in prior years.
The effective tax rate for calendar 1992 was adversely impacted by certain nondeductible expenses incurred, including a substantial portion of the expenses relating to the reorganization items, and provisions for state and local taxes. Extraordinary Item - Gain on Extinguishment of Debt
Pursuant to the Plan, on the effective date (August 3, 1992) the Company distributed cash, debt securities, common stock and warrants to purchase common stock in settlement of its pre-petition liabilities. The book value of cash and securities distributed was approximately $1.1 billion less than the pre-petition liabilities, and the resultant gain was recorded as an extraordinary item.
Cumulative Effect of Accounting Changes
In connection with the adoption of fresh-start reporting, the Company was required to adopt SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions", as of August 2, 1992. The Company recognized the full amount of the initial liability upon adoption of SFAS No. 106. The cumulative effect of the change on retained earnings prior to the adoption of fresh-start reporting at August 2, 1992 was a charge of $1.7 million, net of income taxes of $0.9 million. In addition, the Company was required to adopt SFAS No. 109, "Accounting for Income Taxes", as of August 2, 1992. The adoption of SFAS No. 109 had no impact on calendar 1992 continuing operations.
Net Earnings Per Common Share
Net earnings per common share from continuing operations on both a primary and fully diluted basis were $0.54 and $0.41 for calendar 1994 and 1993, respectively. Pursuant to the Plan, the Company cancelled all outstanding equity securities effective with the beginning of business on August 3, 1992 and issued new common stock. Accordingly, net earnings per common share for periods prior to August 3, 1992 are not comparable.
Weighted average shares used in the calculation of primary and fully diluted net earnings per common share for calendar 1994 were 51,495,000 and 51,506,000, respectively.
Financial Condition
Working Capital
Cash and cash equivalents at December 31, 1994 totaled $32.1 million, compared to $34.8 million at December 31, 1993. For calendar 1994, net cash used by operating activities (including net cash used by discontinued operations) totaled $6.1 million. Net cash used by investing activities totaled $15.5 million, including $21.1 million of capital expenditures incurred to add, upgrade or replace property, plant and equipment. Net cash provided by financing activities during calendar 1994 totaled $18.9 million, the majority of which pertained to increases in long-term debt as a result of the Company's refinancing and distribution of discontinued operations to the Company's shareholders.
Working capital was $307.0 million at December 31, 1994, compared to $271.6 million (excluding net current assets of discontinued operations) at December 31, 1993. The current ratio was 4.1 to 1 at December 31, 1994 and December 31, 1993. The increase in working capital between years is a result of the Company's growth as demonstrated by the improved sales and earnings performance described previously.
Financing Arrangements
At December 31, 1994, long-term debt, including current maturities, totaled $426.3 million, compared to $408.0 million (excluding long-term debt allocated to discontinued operations) at December 31, 1993. The increase in long-term debt, totaling $18.3 million, was primarily a result of fees paid by the Company to complete the shareholder distribution and debt refinancing noted earlier. The Company's debt-to-capitalization ratio was 60.8% at December 31, 1994, compared to 54.7% at December 31, 1993. However, excluding the net equity of discontinued operations (which was subsequently distributed to the Company's shareholders), the debt-to- capitalization ratio at December 31, 1993 would have been 60.8%, the same as reported at December 31, 1994.
To meet short-term working capital and other financial requirements, the Company maintains a $75 million revolving credit facility as part of its Secured Credit Agreement with a group of banks. The revolving credit facility allows for both issuance of letters of credit and cash borrowings. Letter of credit outstandings are limited to no more than $35 million for the first year of the facility, with $5 million annual increases up to a maximum limitation of $50 million. Cash borrowings are limited only by the facility's maximum availability less letters of credit outstanding. See Note 8 of the Notes to Consolidated Financial Statements for additional information. At December 31, 1994, there were no cash borrowings outstanding under the revolving credit facility; however, there were $21.7 million in letters of credit outstanding.
In addition to the revolving credit facility, the Company also had $20 million of excess availability under its Receivables Securitization Facility as of December 31, 1994.
The Company believes its revolving credit facility, together with cash generated from operations, will be adequate to meet liquidity requirements for the foreseeable future.
The loss on distribution reflects expenses related to: the distribution of the common stock of The Florsheim Shoe Company and Converse Inc. to the Company's shareholders, including certain expenses associated with establishing the capital structure of each company; compensation expense accrued as a result of adjustments required to be made to exercisable employee stock options; interest expense on certain long-term debt defeased, net of estimated interest income to be received from the trustees; and applicable income taxes.
Prior to the distribution of the common stock of The Florsheim Shoe Company to its shareholders, the Company had guaranteed certain of Florsheim's retail store operating leases. At December 31, 1994, the Company had guarantees outstanding on 148 retail store leases with a contingent liability totaling approximately $49,400. The Florsheim Shoe Company has agreed to indemnify the Company against any losses incurred as a result of the lease guarantees.
4. Reorganization Items Reorganization items included in the consolidated statement of operations are summarized as follows:
Adjustments to fair value reflect the net change to state assets and liabilities at fair value in accordance with the provisions of SOP 90-7.
5. Extraordinary Item - Gain on Extinguishment of Debt
The Plan resulted in the discharge of approximately $2,200,000 of pre-petition liabilities against the Company through the distribution to creditors of $293,100 in cash, $642,300 in various debt instruments, 50.0 million shares of common stock and 5.0 million warrants to purchase common stock. The book value of cash and securities distributed was approximately $1,100,000 less than the pre-petition liabilities, and the resultant gain was recorded as an extraordinary item for the five months ended August 2, 1992.
6. Cumulative Effect of Accounting Changes
In connection with the adoption of fresh-start reporting, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions", as of August 2, 1992. The cumulative effect of the change on retained earnings, prior to the adoption of fresh-start reporting at August 2, 1992, was approximately $1,700, net of approximately $900 in income taxes. The Company also adopted SFAS No. 109, "Accounting for Income Taxes", as of August 2, 1992. The adoption of SFAS No. 109 had no impact on calendar 1992 continuing operations.
7. Inventories
Inventories are summarized as follows:
8. Short-Term Financing
In conjunction with the November 17, 1994 distribution of the common stock of The Florsheim Shoe Company and Converse Inc. to the Company's shareholders, the Company refinanced the majority of its indebtedness. As part of this refinancing, the Company entered into a $360,000 Secured Credit Agreement which includes a $75,000 revolving credit facility.
The revolving credit facility allows for both issuance of letters of credit and cash borrowings. Letter of credit outstandings are limited to no more than $35,000, with the limitation increasing by $5,000 annually to a maximum of $50,000. Cash borrowings are limited only by the facility's maximum availability less letters of credit outstanding.
As part of the Secured Credit Agreement, the revolving credit facility is secured by a first priority lien on and security interest in substantially all of the Company's assets except for trade receivables. See Note 9 - Long-Term Debt - for further information regarding the Secured Credit Agreement.
The outstanding cash borrowings under the revolving credit facility bear interest at a base (prime) rate plus 0.75% or at an adjusted Eurodollar rate plus 1.75%, depending upon which type of loan the Company executes. The "spread" or margin over the base rate and Eurodollar rate is subject to a "step down" or reduction when the Company achieves certain financial performance ratios. At December 31, 1994, there were no cash borrowings outstanding under the revolving credit facility.
Under the letter of credit facility, a fee of 1.75% per annum (subject to the same "step down" as noted earlier) is assessed for the account of the lenders ratably. A further fee of 0.25% is assessed on stand-by letters of credit representing a facing fee. A customary administrative charge for processing letters of credit is also payable to the relevant issuing bank. Letter of credit fees are payable quarterly in arrears. At December 31, 1994, there were $21,720 in letters of credit outstanding under the revolving credit facility.
9. Long-Term Debt
Long-term debt consisted of the following:
On November 17, 1994, the Company refinanced the majority of its long-term debt by entering into a $360,000 Secured Credit Agreement ($285,000 term loan facility and $75,000 revolving credit facility) with a group of banks and a $150,000 Receivables Securitization Facility. Proceeds from these loan facilities were used to repay or defease (in the case of the 10.0% Secured Notes) the majority of the Company's outstanding indebtedness. In addition, a certain portion of the Company's long-term debt was allocated to discontinued operations which was repaid in conjunction with the refinancing of those operations at the time of their distribution to the Company's shareholders.
The following discussion summarizes certain provisions of the long-term debt.
Secured Credit Agreement
The common stock of the Company's principal subsidiaries, substantially all of the Company's cash, working capital (other than trade receivables) and property, plant and equipment, have been pledged or mortgaged as security for the Secured Credit Agreement. The Secured Credit Agreement contains a number of restrictive covenants and events of default, including covenants limiting capital expenditures and incurrence of debt, and requires the Company to achieve certain financial ratios, some of which become more restrictive over time.
Borrowings under the $285,000 term loan facility bear interest at a base (prime) rate plus 0.75% or at an adjusted Eurodollar rate plus 1.75%, depending upon which type of loan the Company executes. Similar to the revolving credit facility, the "spread" or margin over the base rate and Eurodollar rate is subject to a "step down" or reduction when the Company achieves certain financial performance ratios.
The Secured Credit Agreement (term loan facility and revolving credit facility) matures on November 17, 2001. Interest is payable based upon the type (base rate or Eurodollar rate) of loan the Company executes; however, interest is payable quarterly at a minimum. At December 31, 1994, all loans outstanding under the Secured Credit Agreement were based on the Eurodollar rate.
Mandatory principal payments of the term loan facility are due on the last business day of March and September. Annual principal payments are as follows:
Year Amount Year Amount ---- ------ ---- ------ 1995 $15,000 1998 $40,000 1996 20,000 1999 50,000 1997 30,000 2000 65,000 2001 65,000
In addition to mandatory principal payments, the term loan facility requires principal payments from excess cash flow (as defined in the Secured Credit Agreement), and a portion of the net proceeds realized from (i) the sale, conveyance, or other disposition of collateral securing the debt or (ii) the sale by the Company for its own account of additional subordinated debt and/or shares of its preferred and/or common stock.
Receivables Securitization Facility
The Receivables Securitization Facility is an obligation of the Company which matures on November 15, 1999 and is secured by substantially all of the Company's trade receivables. The facility operates through use of a special purpose subsidiary (Interco Receivables Corp.) which "buys" trade receivables from the operating companies and "sells" interests in same to a third party financial institution, which uses the interests as collateral for borrowings in the commercial paper market to fund the purchases. The Company has accounted for this transaction as long-term debt.
The Company pays a commercial paper index rate on all funds received (outstanding) on the facility. In addition, a program fee of 0.65% per annum on the entire $150,000 facility is paid on a monthly basis. The $130,000 balance outstanding at December 31, 1994 was unchanged from the original amount drawn under the facility. The Company may increase or decrease its use of the facility on a monthly basis subject to the availability of sufficient trade receivables and the facility's maximum amount ($150,000). As of December 31, 1994, the Company had $20,000 in excess availability under the facility.
Industrial Revenue Bonds
On January 21, 1994, the Company entered into a secured obligation with the Mississippi Business Finance Corporation to finance the construction of a new furniture manufacturing facility in Tupelo, Mississippi. The industrial revenue bonds totaled $8,000 and bear interest at 8.82% per annum. The bonds mature in annual installments of $800 beginning January 15, 1995 and are secured by the facility and equipment included therein. Because of special tax incentives granted by the State of Mississippi, the Company will receive certain state income tax credits based upon the interest and principal payments made on the bonds.
Federal Tax Obligation
In settlement of certain Federal tax obligations, the Company entered into an unsecured obligation with the Internal Revenue Service which matures on August 3, 1998, and bears interest at 8.0%. Interest and principal are paid quarterly based upon a predetermined amortization schedule.
Other Information
Maturities of long-term debt are $16,574, $21,639, $31,709, $41,531 and $180,800 for calendar years 1995 through 1999, respectively.
10. Common Stock
The Company's restated certificate of incorporation includes authorization to issue up to 100.0 million shares of common stock with a $1.00 per share stated value. As of December 31, 1994, 50,076,515 shares of common stock were issued and outstanding. It is not presently anticipated that dividends will be paid on common stock in the foreseeable future and certain of the debt instruments to which the Company is a party restrict the payment of dividends.
Shares of common stock were reserved for the following purposes at December 31, 1994:
On May 5, 1993, shareholders approved the 1992 Stock Option Plan including an amendment thereto which increased the number of common shares reserved for issuance from 2.5 million shares to 3.5 million shares. Under the Company's 1992 Stock Option Plan, certain key employees may be granted nonqualified options, incentive options or combinations thereof. Nonqualified and incentive options may be granted to expire up to ten years after the date of grant. Options granted become exercisable at varying dates depending upon the achievement of certain performance targets and/or the passage of certain time periods.
Shareholders also approved an amendment to the 1992 Stock Option Plan authorizing grants of options to purchase common shares at less than fair market value on the date of grant. During calendar 1993, an option grant of 250 thousand common shares was made by the Company at less than market value resulting in a credit to paid-in capital and a charge to compensation expense of approximately $1.0 million.
Changes in options granted and outstanding are summarized as follows:
As a result of the November 17, 1994 distribution of the common stock of The Florsheim Shoe Company and Converse Inc. to the Company's shareholders, options granted to the employees of those operating companies were cancelled. In addition, the exercise prices of the remaining options were adjusted to reflect the distribution in accordance with the antidulution provisions of the 1992 Stock Option Plan.
The Company issued, upon emergence from Chapter 11 status, approximately 5.0 million warrants to purchase common stock. Each warrant entitled the holder thereof to purchase one share of common stock at $12.00 per share; provided however, that in the event of certain distributions of assets, the purchase price and number of shares of common stock would be subject to adjustment in accordance with the antidilution provisions of the warrant agreement. The November 17, 1994 distribution to shareholders resulted in the number of warrants increasing by approximately 3.4 million and the exercise price decreasing to $7.13 per share. The warrants, which expire on August 3, 1999, were issued in two series; Series 1 warrants include a five year call protection, whereas Series 2 warrants do not include such a feature. All other terms and conditions of the two series of warrants are identical. The warrants trade on the over-the-counter market.
In accordance with the Plan, all shares of the Company's common stock outstanding prior to the Plan's effective date were cancelled, as were all option shares outstanding, shares available for grant, existing stock option plans and common share purchase rights.
11. Income Taxes
Income tax expense (benefit) was comprised of the following:
The following table reconciles the differences between the Federal corporate statutory rate and the Company's effective income tax rate:
The sources of the tax effects for temporary differences that give rise to the deferred tax assets and liabilities were as follows:
The Federal income tax returns of the Company and its major subsidiaries have been examined by the Internal Revenue Service ("IRS") through February 23, 1991. For tax periods beginning January 1, 1982 and ending February 23, 1991, the Company settled claims by the IRS by entering into an unsecured obligation of approximately $4,800 (See Note 9).
12. Employee Benefits
The Company sponsors or contributes to retirement plans covering substantially all employees. The total cost of all plans for calendar 1994, calendar 1993 and calendar 1992 (ten months) was $6,303, $5,716 and $4,085, respectively.
Company-Sponsored Defined Benefit Plans
Annual cost for defined benefit plans is determined using the projected unit credit actuarial method. Prior service cost is amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.
It is the Company's practice to fund pension costs to the extent that such costs are tax deductible and in accordance with ERISA. The assets of the various plans include corporate equities, government securities, corporate debt securities and insurance contracts. The table below summarizes the funded status of the Company- sponsored defined benefit plans.
Net periodic pension cost for calendar 1994, 1993 and 1992 includes the following components:
Employees are covered primarily by noncontributory plans, funded by Company contributions to trust funds, which are held for the sole benefit of employees. Monthly retirement benefits are based upon service and pay with employees becoming vested upon completion of five years of service.
The expected long-term rate of return on plan assets was 8.0%-9.5% in calendar 1994, 1993 and 1992. Measurement of the projected benefit obligation was based upon a weighted average discount rate of 8.00%, 7.25% and 7.75% and a long-term rate of compensation increase of 4.5%, 4.5% and 5.0% for calendar 1994, 1993 and 1992, respectively.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company makes contributions to a defined contribution plan and sponsors an employee savings plan. The cost of these plans is included in the total cost for all plans reflected above.
13. Lease Commitments
Certain of the Company's real properties and equipment are operated under lease agreements expiring at various dates through the year 2005. Leases covering equipment generally require, in addition to stated minimums, contingent rentals based on usage. Generally, the leases provide for renewal for various periods at stipulated rates.
Future minimum lease payments under operating leases, reduced by minimum rentals from subleases of $830 at December 31, 1994, aggregate $32,226. Annual minimum payments under operating leases are $9,248, $7,697, $4,749, $3,595 and $2,712 for 1995 through 1999, respectively.
14. Fair Value of Financial Instruments
The Company considers the carrying amounts of cash and cash equivalents, receivables and accounts payable to approximate fair value because of the short maturity of these financial instruments.
The Secured Credit Agreement and Receivables Securitization Facility are also considered to be carried on the financial statements at their estimated fair values because they were entered into recently (November 17, 1994) and both accrue interest at rates which generally fluctuate with interest rate trends.
The Industrial Revenue Bonds and Federal Tax Obligation are considered special purpose financing as an incentive to acquire specific real estate and for settlement of certain claims. Accordingly, the Company believes the carrying amounts approximate fair value given the circumstances under which such financings were acquired.
15. Litigation
Notwithstanding the confirmation and effectiveness of the Plan, the Court continues to have jurisdiction, among other things, to resolve disputed pre-petition claims against the Company, to resolve matters related to the assumption, assumption and assignment, or rejection of executory contracts pursuant to the Plan, and to resolve other matters that may arise in connection with or relate to the Plan. Pursuant to the Plan, the Company, on the effective date, paid into a Disputed Claims Trust the face amount of certain claims still to be resolved. Since those unresolved claims were funded at their face amounts, the Company has no further financial exposure with respect to those claims.
The Company is or may become a defendant in a number of pending or threatened legal proceedings in the ordinary course of business. In the opinion of management, the ultimate liability, if any, of the Company from all such proceedings will not have a material adverse effect upon the consolidated financial position or results of operations of the Company and its subsidiaries.
16. Quarterly Financial Information (Unaudited)
The Company has not paid cash dividends on its common stock during the two years ended December 31, 1994. The closing market price of the Company's common stock on December 31, 1994 was $6.75 per share.
The 1994 fourth quarter common stock price range reflects the impact of the November 17, 1994 distribution of the discontinued operations to the Company's shareholders.
Item 9.
Item 9. Changes in and Disagreements with Accountants on ------------------------------------------------------------ Accounting and Financial Disclosure ----------------------------------- Not applicable.
PART III --------
Item 10.
Item 10. Directors and Executive Officers of the Registrant ----------------------------------------------------------- Pages 4 to 6 of the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on April 27, 1995 are incorporated herein by reference.
Executive Officers of the Registrant
Current Appointed Name Age Position Positions or Elected ---- --- -------- --------- ---------- *Richard B. Loynd 67 Chairman of the Board of the Former Subsidiary - Converse Inc. 1982 Vice-President 1987 Director X 1987 President X 1989 Chief Operating Officer 1989 Chief Executive Officer X 1989 Chairman of the Board X 1990
Brent B. Kincaid 63 President and Chief Executive Officer of the Subsidiary - Broyhill Furniture Industries, Inc. X 1992
K. Scott Tyler, Jr.55 President of the Subsidiary - The Lane Company, Incorporated X 1989 Chief Executive Officer of the Subsidiary - The Lane Company, Incorporated X 1991
David P. Howard 44 Controller 1990 Vice-President X 1991 Chief Financial Officer X 1994
Duane A. Patterson 63 Secretary X 1973 Director 1991 Vice-President X 1992
Steven W. Alstadt 40 Controller X 1994
The following officer retired on September 1, 1994.
Eugene F. Smith 62 Senior Vice-President, Finance 1982 Executive Vice-President 1989
The following officers are no longer executive officers of the Company as of November 17, 1994 because of the spin-off of The Florsheim Shoe Company and Converse Inc.
Ronald J. Mueller 60 President and Chief Executive Officer of the Division - The Florsheim Shoe Company 1985 Vice-President 1987
Gilbert Ford 63 President and Chief Executive Officer of the Subsidiary - Converse Inc. 1986 _________________________ * Member of the Executive Committee
There are no family relationships between any of the executive officers of the Registrant.
The executive officers are elected at the organizational meeting of the Board of Directors which follows the annual meeting of stockholders and serve for one year and until their successors are elected and qualified.
Each of the executive officers has held the same position or other positions with the same employer during the past five years.
Item 11.
Item 11. Executive Compensation ------------------------------- Pages 6 to 12 of the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on April 27, 1995, are incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and ------------------------------------------------------------ Management ---------- Pages 2 to 4 of the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on April 27, 1995, are incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions ------------------------------------------------------- Page 6 of the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on April 27, 1995, is incorporated herein by reference.
PART IV -------
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and ------------------------------------------------------------ Reports on Form 8-K ------------------- (a) List of documents filed as part of this report:
1. Financial Statements:
Consolidated balance sheet, December 31, 1994 and December 31, 1993.
Consolidated statement of operations for the year ended December 31, 1994, for the year ended December 31, 1993, and for the five months ended December 31, 1992 and August 2, 1992.
Consolidated statement of cash flows for the year ended December 31, 1994, for the year ended December 31, 1993, and for the five months ended December 31, 1992 and August 2, 1992.
Consolidated statement of shareholders' equity for the year ended December 31, 1994, for the year ended December 31, 1993 and for the ten months ended December 31, 1992.
Notes to consolidated financial statements.
Independent Auditors' Report
Financial statements of the Registrant have been omitted since there are no restrictions as to the transfer of funds from its subsidiaries and the net assets of the subsidiaries are generally not restricted. Separate financial statements and other disclosures with respect to the Company's subsidiaries are omitted as such separate financial statements and other disclosures are not deemed material to investors.
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II).
All other schedules are omitted as the required information is presented in the consolidated financial statements or related notes or are not applicable.
3. Exhibits:
3(a) Restated Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 4(a) to INTERCO INCORPORATED's Quarterly Report on Form 10-Q for the quarter ended on March 31, 1993.)
3(b) By-Laws of the Company revised and amended to May 5, 1993. (Incorporated by reference to Exhibit 4(b) to INTERCO INCORPORATED's Quarterly Report on Form 10-Q for the quarter ended on March 31, 1993.)
4(a) Credit Agreement, dated as of November 17, 1994, among the Company, Broyhill Furniture Industries, Inc., The Lane Company, Incorporated, Various Banks, and Bankers Trust Company, as Agent. (Incorporated by reference to Exhibit 10(a) to INTERCO INCORPORATED's Current Report on Form 8-K, dated January 24, 1995.)
4(b) Purchase and Contribution Agreement, dated as of November 15, 1994, among The Lane Company, Incorporated, Action Industries, Inc. and Broyhill Furniture Industries, Inc. as Sellers and Interco Receivables Corp. as Purchaser. (Incorporated by reference to Exhibit 10(b) to INTERCO INCORPORATED's Current Report on Form 8-K, dated January 24, 1995.)
4(c) Receivables Purchase Agreement, dated as of November 15, 1994 among Interco Receivables Corp. as the Seller and Atlantic Asset Securitization Corp. as an Investor and Credit Lyonnais New York Branch as the Agent. (Incorporated by reference to Exhibit 10(c) to INTERCO INCORPORATED's Current Report on Form 8-K, dated January 24, 1995.)
4(d) Warrant Agreement, dated as of August 3, 1992, between the Company and Society National Bank, as Warrant Agent. (Incorporated by reference to Exhibit 4.5 to INTERCO INCORPORATED's Current Report on Form 8-K, dated August 18, 1992.)
4(e) Agreement to furnish upon request of the Commission copies of other instruments defining the rights of holders of long-term debt of the Company and its subsidiaries which debt does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. (Incorporated by reference to Exhibit 4(c) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended February 28, 1981.)
10(a) INTERCO INCORPORATED's 1992 Stock Option Plan. (Incorporated by reference to Exhibit 10(b) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1992.)
10(b) Form of Indemnification Agreement between the Company and Richard B. Loynd, Donald E. Lasater and Lee M. Liberman. (Incorporated by reference to Exhibit 10(h) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended February 29, 1988.)
10(c) Consulting Agreement, dated as of September 23, 1992, between the Company and Apollo Advisors, L.P. (Incorporated by reference to Exhibit 10(e) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1992.)
10(d) Registration Rights Agreement, dated as of August 3, 1992, among the Company, Apollo Investment Fund, L.P. and Altus Finance. (Incorporated by reference to Exhibit 10(f) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1992.)
10(e) Registration Rights Agreement, dated as of August 3, 1992, between the Company and Apollo Interco Partners, L.P. (Incorporated by reference to Exhibit 10(g) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1992.)
10(f) Written description of bonus plan for management personnel of the Lane Company, Incorporated.
10(g) Retirement Plan for directors.
10(h) INTERCO Corporate Executive Incentive Plan.
10(i) Broyhill Furniture Industries, Inc. Executive Incentive Plan.
11 Statement regarding computation of per share earnings.
21 List of Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99(a) Distribution and Services Agreement, dated November 17, 1994, between the Company and Converse Inc. (Incorporated by reference to Exhibit 99(a) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994.)
99(b) Tax Sharing Agreement, dated November 17, 1994, between the Company and Converse Inc. (Incorporated by reference to Exhibit 99(b) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994.)
99(c) Distribution and Services Agreement, dated November 17, 1994, among the Company, The Florsheim Shoe Company and certain of its subsidiaries. (Incorporated by reference to Exhibit 99(c) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994.)
99(d) INTERCO/Florsheim Tax Sharing Agreement, dated November 17, 1994, among the Company, The Florsheim Shoe Company and certain of its subsidiaries. (Incorporated by reference to Exhibit 99(d) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994.)
(b) Reports on Form 8-K.
A Form 8-K was filed on December 2, 1994 reporting the dispositions of Converse Inc. and The Florsheim Shoe Company and a Form 8-K was filed on January 24, 1995 summarizing the Company's credit agreements and filing the agreements as exhibits thereto.
SHAREHOLDERS REQUESTING COPIES OF EXHIBITS TO FORM 10-K WILL BE SUPPLIED ANY OR ALL SUCH EXHIBITS AT A CHARGE OF TEN CENTS PER PAGE.
INTERCO INCORPORATED AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Consolidated Financial Statements:
Consolidated balance sheet, December 31, 1994 and December 31, 1993.
Consolidated statement of operations for the year ended December 31, 1994, for the year ended December 31, 1993, and for the five months ended December 31, 1992 and August 2, 1992.
Consolidated statement of cash flows for the year ended December 31, 1994, for the year ended December 31, 1993, and for the five months ended December 31, 1992 and August 2, 1992.
Consolidated statement of shareholders' equity for the year ended December 31, 1994, for the year ended December 31, 1993 and for the ten months ended December 31, 1992.
Notes to consolidated financial statements.
Independent Auditors' Report
Consolidated Financial Statement Schedules:
Schedule --------
Valuation and qualifying accounts II
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders INTERCO INCORPORATED:
We have audited the consolidated financial statements of INTERCO INCORPORATED and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of INTERCO INCORPORATED and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for the year ended December 31, 1994, year ended December 31, 1993, five months ended December 31, 1992 and five months ended August 2, 1992 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, effective August 2, 1992, INTERCO INCORPORATED was required to adopt "fresh-start" reporting principles in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." As a result, the financial statements for the period subsequent to the adoption of fresh-start reporting are presented on a different cost basis than that for prior periods and, therefore, are not comparable.
As discussed in Notes 2 and 6 to the consolidated financial statements, the company changed its method of accounting for postretirement benefits and income taxes in calendar year 1992.
KPMG PEAT MARWICK LLP
St. Louis, Missouri January 31, 1995
SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTERCO INCORPORATED --------------------------- (Registrant)
By Richard B. Loynd ------------------------ Richard B. Loynd Chairman of the Board
Date: March 29, 1995
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 1995.
Signature Title --------- -----
Richard B. Loynd Chairman of the Board, --------------------------- President and Director (Richard B. Loynd) (Principal Executive Officer)
Donald E. Lasater Director --------------------------- (Donald E. Lasater)
Lee M. Liberman Director --------------------------- (Lee M. Liberman)
Leon D. Black Director --------------------------- (Leon D. Black)
Craig M. Cogut Director --------------------------- (Craig M. Cogut)
Robert H. Falk Director --------------------------- (Robert H. Falk)
Michael S. Gross Director --------------------------- (Michael S. Gross)
John J. Hannan Director --------------------------- (John J. Hannan)
Bruce A. Karsh Director --------------------------- (Bruce A. Karsh)
John H. Kissick Director --------------------------- (John H. Kissick)
Matthew J. Morahan Director --------------------------- (Matthew J. Morahan)
Eric B. Siegel Director --------------------------- (Eric B. Siegel)
Basil Vasiliou Director --------------------------- (Basil Vasiliou)
David P. Howard Vice President --------------------------- (Principal Financial Officer) (David P. Howard)
Steven W. Alstadt Controller --------------------------- (Principal Accounting Officer) (Steven W. Alstadt)