FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994 or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 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 issuer's
classes of common stock, as of the close of the period covered by
this report.
50,027,754 Shares
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended March 31,
1994.
Consolidated Balance Sheet
Consolidated Statement of Operations:
Three Months Ended March 31, 1994
Three Months Ended March 31, 1993
Consolidated Statement of Cash Flows:
Three Months Ended March 31, 1994
Three Months Ended March 31, 1993
Notes to Consolidated Financial Statements
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.
The financial statements are unaudited, but include all
adjustments (consisting of normal recurring adjustments) which
the management of the Company considers necessary for a fair
presentation of the results of the period. The results for the
three months ended March 31, 1994 are not necessarily indicative
of the results to be expected for the full year.
INTERCO INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
March 31, December 31,
1994 1993
ASSETS ___________ ___________
Current assets:
Cash and cash equivalents....................... $ 33,698 $ 45,286
Receivables, less allowances of $8,557
($7,208 at December 31, 1993)................. 318,844 277,691
Inventories...........................(Note 1).. 363,769 341,808
Prepaid expenses and other current assets....... 36,408 36,159
___________ ___________
Total current assets.......................... 752,719 700,944
___________ ___________
Property, plant and equipment..................... 263,296 254,998
Less accumulated depreciation................... 47,384 38,697
___________ ___________
Net property, plant and equipment............. 215,912 216,301
___________ ___________
Reorganization value in excess of amounts
allocable to identifiable assets, net........... 95,801 97,107
Trademarks and trade names, net................... 152,254 153,248
Other assets...................................... 41,276 38,079
___________ ___________
$ 1,257,962 $ 1,205,679
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and loans payable......................... $ 20,000 $ -
Current maturities of long-term debt............ 9,544 9,305
Accrued interest expense........................ 10,719 4,731
Accounts payable and other accrued expenses..... 153,276 139,910
Income taxes payable............................ 13,893 13,083
___________ ___________
Total current liabilities..................... 207,432 167,029
___________ ___________
Long-term debt, less current maturities.(Note 2).. 572,435 576,804
Other long-term liabilities....................... 123,517 123,289
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 - issued 50,027,754
shares at March 31, 1994 and 50,004,282
shares at December 31, 1993................... 50,028 50,004
Paid-in capital................................. 226,597 226,391
Retained earnings............................... 77,953 62,162
___________ ___________
Total shareholders' equity.................... 354,578 338,557
___________ ___________
$ 1,257,962 $ 1,205,679
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INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1994 1993
____________ ____________
Net sales..................................... $ 462,743 $ 416,863
Cost of sales................................. 310,290 279,269
____________ ____________
Gross profit.................................. 152,453 137,594
Selling, general and administrative expenses.. 115,046 103,447
Royalty income................................ 2,848 2,734
____________ ____________
Earnings from operations...................... 40,255 36,881
Interest expense.............................. 13,594 13,929
Other income, net............................. 3 345
____________ ____________
Earnings before income tax expense............ 26,664 23,297
Income tax expense............................ 10,987 8,899
____________ ____________
Net earnings.................................. $ 15,677 $ 14,398
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Net earnings per common share:
Primary..................................... $ 0.30 $ 0.28
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Fully diluted............................... $ 0.30 $ 0.28
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Weighted average common and common equivalent
shares outstanding:
Primary..................................... 51,788,883 50,599,923
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Fully diluted............................... 51,814,255 51,156,783
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INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1994 1993
_________ _________
Cash Flows from Operating Activities:
Net earnings..................................$ 15,677 $ 14,398
Adjustments to reconcile net earnings to net
cash used by operating activities:
Depreciation of property, plant and
equipment............................... 8,888 7,599
Amortization of intangible assets......... 1,758 1,758
Increase in receivables................... (41,153) (37,006)
Increase in inventories................... (21,961) (15,734)
(Increase) decrease in prepaid expenses and
other assets............................ (2,187) 137
Increase in accounts payable, accrued interest
expense and other accrued expenses...... 19,354 12,996
Increase in income taxes payable.......... 810 8,992
Decrease in net deferred tax liabilities.. (242) (624)
Increase (decrease) in other long-term
liabilities............................. (119) 353
_________ __________
Net cash used by operating activities......... (19,175) (7,131)
_________ __________
Cash Flows from Investing Activities:
Proceeds from the disposal of assets.......... 132 3
Additions to property, plant and equipment.... (8,645) (7,910)
_________ __________
Net cash used by investing activities......... (8,513) (7,907)
_________ __________
Cash Flows from Financing Activities:
Net change in notes and loans payable......... 20,000 -
Addition to long-term debt.................... 8,000 -
Payments of long-term debt.................... (12,130) (25,218)
Proceeds from the issuance of common stock.... 230 -
_________ __________
Net cash provided (used) by financing
activities.................................. 16,100 (25,218)
_________ __________
Net decrease in cash and cash equivalents....... (11,588) (40,256)
Cash and cash equivalents at beginning of period. 45,286 68,055
_________ __________
Cash and cash equivalents at end of period......$ 33,698 $ 27,799
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Supplemental Disclosure:
Cash payments for income taxes, net...........$ 9,943 $ 123
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Cash payments for interest expense............$ 7,566 $ 8,010
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Inventories are summarized as follows, in thousands:
March 31, December 31,
1994 1993
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Retail merchandise $ 69,818 $ 67,690
Finished products 177,002 164,958
Work-in-process 41,500 41,419
Raw materials 75,449 67,741
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$ 363,769 $ 341,808
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(2) 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 $8.0 million and bear interest at 8.82% per
annum. The bonds mature in annual installments of $0.8
million beginning January 15, 1995 and are secured by the
facility and equipment included therein.
On February 11, 1994 and March 11, 1994, the Company made
optional prepayments on the Secured Term Loan and 8.5%
Secured Notes totaling $10.0 million. The optional
prepayments were made on a pro rata basis among these debt
instruments and were applied to the forward order of
maturity of each such instrument in accordance with the
provisions of the credit agreement and indenture.
Item 2. 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 and one of the leading manufacturers and
retailers of footwear through two operating segments. The
furniture segment consists of Broyhill Furniture Industries, Inc.
and The Lane Company, Incorporated and the footwear segment
consists of The Florsheim Shoe Company and Converse Inc.
Comparison of Three Months Ended March 31, 1994 and 1993
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Net sales of the operating companies, by segment, were as
follows, in millions:
Three Months Ended March 31,
1994 1993
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Furniture segment $ 268.7 $ 246.3
Footwear segment 194.0 170.6
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$ 462.7 $ 416.9
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For the three months ended March 31, 1994, sales by the furniture
segment increased $22.4 million, or 9.1%, compared to an increase
for the three months ended March 31, 1993 of 13.4%. The improved
sales performance occurred at both Broyhill and Lane and reflects
favorable industry conditions and continued customer acceptance
of new product offerings and marketing programs.
In the footwear segment, sales for the three months ended March
31, 1994 were up $23.4 million, or 13.7%, from the same period in
the prior year which reflected a decrease of 1.8%. The sales
increase occurred at Converse and was primarily attributable to
higher shipments of performance basketball, athleisure (canvas)
and children's footwear to domestic accounts. Converse's
international business continues to reflect the weak overseas
economies, particularly in Japan. Florsheim's sales were
generally flat with those of the prior year with improved retail
operations being offset by softer wholesale performance.
Earnings from operations were as follows, in millions:
Three Months Ended March 31,
1994 1993
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Earnings before interest expense, income taxes,
depreciation and amortization, and other
income and expense (EBITDA):
Furniture segment $ 32.3 $ 30.5
Footwear segment 21.7 18.6
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54.0 49.1
Corporate administration (2.5) (2.4)
Miscellaneous expenses (0.6) (0.5)
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50.9 46.2
Depreciation and amortization (10.6) (9.3)
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Earnings from operations $ 40.3 $ 36.9
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EBITDA of the combined operating segments for the three months
ended March 31, 1994 was 11.7% of net sales, compared to 11.8% for
the same period last year. Furniture segment EBITDA for the three
months ended March 31, 1994 was 12.0% of net sales, compared to
12.4% in the prior year. The EBITDA performance of the furniture
operations reflects sales of higher margin products, primarily at
Broyhill, offset by start-up costs attributable to Lane's new
Tupelo, Mississippi furniture factory and Altavista, Virginia
finishing system. As a percent of net sales, footwear segment
EBITDA for the three months ended March 31, 1994 was 11.2%,
compared to 10.9% last year. Footwear operation's EBITDA
performance was favorably impacted by sales of higher margin
products, primarily at Converse, partially offset by increased
spending on advertising and promotional programs at both Converse
and Florsheim.
Interest expense totaled $13.6 million for the three months ended
March 31, 1994, compared to $13.9 million for the same period last
year. The decrease in interest expense resulted from a reduction
of long-term debt outstanding versus the prior year, partially
offset by an increase in loans attributable to seasonal borrowings
from the Company's working capital facility. Interest rates on
substantially all of the long-term debt are fixed and, therefore,
do not materially impact year-to-year comparisons of interest
expense.
For the three months ended March 31, 1994, the Company provided for
income taxes of $11.0 million on pretax earnings of $26.7 million
resulting in an effective tax rate of 41.2%. The Company provided
for income taxes of $8.9 million on pretax earnings of $23.3
million for the three months ended March 31, 1993 which represented
an effective tax rate of 38.2%. The effective tax rates for each
period were adversely impacted by certain nondeductible expenses
incurred and provisions for state, local and foreign taxes.
Net earnings per common share on both a primary and fully diluted
basis were $0.30 for the three months ended March 31, 1994,
compared to $0.28 for the same period last year. Average common
and common equivalent shares outstanding used in the calculation of
net earnings per common share on a primary and fully diluted basis
were 51,788,883 and 51,814,255, respectively, for the three months
ended March 31, 1994 and 50,599,923 and 51,156,783, respectively,
for the three months ended March 31, 1993.
FINANCIAL CONDITION
Working Capital
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Cash and cash equivalents at March 31, 1994 amounted to $33.7
million, compared to $45.3 million at December 31, 1993. During
the three months ended March 31, 1994, net cash used by operating
activities totaled $19.2 million, net cash used by investing
activities totaled $8.5 million and net cash provided by financing
activities totaled $16.1 million.
Working capital was $545.3 million at March 31, 1994, compared to
$533.9 million at December 31, 1993. The current ratio was 3.6 to
1 at March 31, 1994, compared to 4.2 to 1 at December 31, 1993.
Financing Arrangements
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As of March 31, 1994, long-term debt, including current maturities,
consisted of the following, in millions:
Principal
Amount
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10.0% Secured Notes Due 2001 $ 104.7
9.0% Secured Notes Due 2004 149.2
8.5% Secured Notes Due 1997 9.1
Secured Term Loan 279.9
ILGWU Fund Note 14.6
Industrial Revenue Bonds 20.7
Federal Tax Obligation 3.8
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$ 582.0
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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 $8.0 million and
bear interest at 8.82% per annum. The bonds mature in annual
installments of $0.8 million beginning on January 15, 1995 and are
secured by the facility and equipment included therein.
On February 11, 1994 and March 11, 1994, the Company made optional
prepayments on the Secured Term Loan and 8.5% Secured Notes
totaling $10.0 million. The optional prepayments were made on a
pro rata basis among these debt instruments and were applied to the
forward order of maturity of each such instrument in accordance
with the provisions of the credit agreement and indenture.
To meet short-term working capital and other financial
requirements, the Company maintains a $148 million working capital
facility with a group of banks. The working capital facility,
which was increased during the three months ended March 31, 1994
from its previous level of $135 million, allows for both issuance
of letters of credit and cash borrowings. Letter of credit
issuances are limited to no more than $100 million; cash borrowings
are limited only by the facility's maximum availability less
letters of credit outstanding. Maximum availability under the
facility is determined by the amount of eligible accounts
receivable and inventory at each month end (referred to in
aggregate as a "borrowing base"). As of March 31, 1994, the
Company's borrowing base pertaining to the facility totaled $312.1
million.
At March 31, 1994, $20.0 million in cash borrowings and $59.0
million in letters of credit were outstanding under the working
capital facility.
The Company believes its working capital facility, together with
cash generated from operations, will be adequate to meet liquidity
requirements for the foreseeable future.
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(a) 4(a). Second Amendment, dated as of April 20, 1994, to the
Secured Term Loan Agreement, dated as of July 16,
1992, among the Company, certain Subsidiary
Obligors, Morgan Guaranty Trust Company of New York,
as Agent, and as Administrative Agent, and the banks
named therein.
11. Statement re Computation of Net Earnings Per Common
Share.
(b) A form 8-K was not required to be filed during the
quarter ended March 31, 1994.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERCO INCORPORATED
(Registrant)
By David P. Howard
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David P. Howard
Vice-President, Controller and
Chief Accounting Officer
Date: May 12, 1994