CopyrightINTERCOHARVARD BUSINESS SCHOOLCase Software2-296-720Copyright 1991 by the President and Fellows of Harvard College.Research Associate Susan L. Rother prepared this case under the supervision of Professor Scott P. Masonas the basis for class discussion rather than to illustrate either effective or ineffective handling of anadministrative situation.

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Exhibit 1Exhibit 1 Board of Directors as of May 16, 1988Harvey SaligmanChairman of the Board and CEO of IntercoHarry M. KroghPresident and COO of IntercoRonald L. AylwardVice Chairman of the Board of IntercoR. Stuart MooreVice President of Interco; President of The Lane Company, Inc., a subsidiary of IntercoMark H. LiebermanVice President of Interco; President of Londontown, a division of IntercoRichard B. LoyndVice President of Interco; Chairman of the Board of Converse, Inc., a subsidiary of IntercoCharles J. Rothschild, Jr.Vice President of Interco; Chairman of the Board of Megastar Apparel Group, a division of IntercoZane E. BarnesChairman of the Board, President, CEO and director of Southwestern Bell Corporation, engaged in the general telecommunications businessDonald E. LasaterChairman of the Board, CEO and director of Mercantile Bancorporation, Inc., a bank holding company, and Chairman of the Board and director of Mercantile Bank National AssociationLee M. LibermanChairman of the Board, President, CEO and director of Laclede Gas Company, a gas public utilityRobert H. QuenonPresident, CEO and director of Peabody Holding Company, Inc., which is engaged in coal mining and salesWilliam E. CorneliusPresident, CEO and director of Union Electric Company, an electric public utilityMarilyn S. LewisCivic leader and volunteerThomas H. O'LearyVice Chairman of the Board and director of Burlington Northern Inc., a holding company with transportation, energy and natural resources concernsAs of April 15, 1988 all directors, nominees and officers of Interco, as a group (24 persons) beneficially owned 1.14% of the outstanding shares of Interco's common stock.

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Exhibit 2Exhibit 2 SubsidiariesAbe Schrader Corp.Big Yank Corp.Bowen Shoe Co., Inc.Broyhill Furniture Industries, Inc.Campco Holdings, S.A.Campus Pacific Ltd.Central Hardware Co.Clayton Operations, S.A.College-Town, Inc.Converse Inc.Delmar Sportswear, Inc.Ethan Allen Inc.Factory Outlet Co.Fine's Men's Shops, Inc.Florsheim Inc.Florsheim Shoe Store Co. of HawaiiFlorsheim Shoe Store Co.MidwestFlorsheim Shoe Store Co.NorthwestFlorsheim Shoe Store Co.SouthFlorsheim Shoe Store Co.WestGolde's Department Stores, Inc.Grand Entry Hat Corp.Highland House, Inc.Highland Transport, Inc.Hy-Test, Inc.Interco Subsidiary, Inc.Keith O'brien Investment Co.Lane Co., Inc.Lease Management, Inc.Julius Marlow Holdings, Ltd.L. J. O'neill Shoe Co.ORC Financial AgPatriot Investment Co.Queen Casuals, Inc.Senack Shoes, Inc.Sky City Stores, Inc.Stuffed Shirt Inc.United Shirt Distributors, Inc.Walton Road Management Co.Source: Lotus One Source

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Exhibit 3Exhibit 3 Common Stock Price History (Monthly)Month End Prices (adjusted for stock splits)198630-Jan-82$35.1327-Feb-823930-Mar-8239.2529-Apr-8239.62529-May-8243.529-Jun-8247.18830-Jul-8241.37528-Aug-8243.7529-Sep-824030-Oct-8243.7527-Nov-8244.12530-Dec-8236.875198729-Jan-8339.7526-Feb-8342.62530-Mar-8344.12529-Apr-8339.62528-May-8340.12529-Jun-8345.37530-Jul-8351.2530-Aug-8353.2529-Sep-8347.529-Oct-833629-Nov-833030-Dec-8332.25198828-Jan-8437.12528-Feb-844230-Mar-844228-Apr-8441.12530-May-8443.87529-Jun-8444.7528-Jul-8468.5Source: Interactive Data Corporation

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Exhibit 4Exhibit 4 Common Stock Price History (Daily)Daily Closing Prices1-May-84$40.2530-Jun-8444.6252-May-8441.53-Jul-84N.A.3-May-84414-Jul-8445.3754-May-8441.6255-Jul-8444.55-May-8440.6256-Jul-8444.6258-May-8440.8757-Jul-84459-May-8441.7510-Jul-8445.2510-May-8441.62511-Jul-8445.37511-May-844212-Jul-8446.37512-May-8442.12513-Jul-844915-May-8442.2514-Jul-8454.37516-May-844217-Jul-8454.517-May-8441.518-Jul-8458.37518-May-8440.62519-Jul-8458.12519-May-8440.62520-Jul-8457.87522-May-8440.37521-Jul-8457.2523-May-8441.524-Jul-845824-May-8442.525-Jul-8458.87525-May-8442.62526-Jul-8459.37526-May-8441.2527-Jul-8467.7529-May-84N.A.28-Jul-8468.530-May-8443.87531-Jul-8468.87531-May-8443.51-Aug-8467.6251-Jun-8442.8752-Aug-84672-Jun-8444.1253-Aug-8467.3755-Jun-8443.254-Aug-8468.256-Jun-84427-Aug-8472.57-Jun-8443.8758-Jun-8443.3759-Jun-8443.37512-Jun-8443.513-Jun-8443.62514-Jun-8442.515-Jun-8442.87516-Jun-8443.62519-Jun-8443.2520-Jun-8443.12521-Jun-8443.7522-Jun-8443.62523-Jun-8443.526-Jun-8443.62527-Jun-844428-Jun-844429-Jun-8444.75Source: Interactive Data Corporation

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Exhibit 6Exhibit 6 Historical Balance SheetsINTERCOConsolidated Balance Sheet($000s except per share data)February 28,198619871988(a)19871988Current Assets:Cash$16,856$16,631$20,849$29,700$19,622Marketable securities127,34163,74711,03357,78916,366Receivable, net402,225446,755486,657431,743460,759Inventories647,116733,907805,095786,792872,135Prepaid expenses and othercurrent assets22,54725,61435,66525,62244,959Total current assets$1,216,085$1,286,654$1,359,299$1,331,646$1,413,841Property, Plant and Equipment:Land26,77032,26632,525Buildings and improvements437,812465,811471,787Machinery and equipment320,256364,499380,402784,838862,576884,714868,670890,887Less accumulated depreciation343,018377,226405,215386,762412,332Net Property, Plant and Equipment441,820485,350479,499481,908478,555Other Assets99,238153,383146,788149,170146,878Total Assets$1,756,893$1,925,387$1,985,586$1,962,724$2,039,273Current Liabilities:Notes payable$ --$68,840$70,517$97,297$146,016Current maturities of long-term debt and capitallease obligations9,64711,9158,1729,2888,900Accounts payable andaccrued expenses184,032216,365239,513278,847292,051Income taxes12,69917,3274,40215,2945,463Total Current Liabilities$249,587$358,226$373,343$400,726$452,430Long-term debt, less currentmaturities127,409135,019257,327133,403255,279Obligations under capital leases,less current maturities56,49550,54641,81349,27040,032Other long-term liabilities43,24955,38161,76656,41063,484Shareholders' Equity:Preferred stock, no par value66,02761,79557,11361,28536,721Common stock, $3.75 stated value163,765163,643155,088155,088155,088Capital surplus (41,356,847shares issued)104,20598,24644,53949,14932,117Retained earnings1,027,8951,099,0061,179,9641,111,5271,194,8841,361,8921,422,6901,436,7041,377,0491,418,810Less 5,173,811 treasury shares81,73996,475185,36754,134190,762Total Shareholders' Equity1,280,1531,326,2151,251,3371,322,9151,228,048Total Liabilities and Net Worth$1,756,893$1,925,387$1,985,586$1,962,724$2,039,273Source: Annual report, 10Q's(a) February 29, 1988

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Exhibit 7Exhibit 7 Historical Income StatementsINTERCOConsolidated Statement of Earnings($000s)First Quarter Ended May 31,Year Ended February 28,198619871988(a)19871988Income:Net sales$2,832,384$2,946,902$3,341,423$781,421$778,107Other income36,14032,17529,2376,2936,8642,868,5242,979,0773,370,660787,714784,971Costs and Expenses:Cost of sales1,932,2582,000,4232,284,640522,759522,942Selling, general andadministrative expenses681,886712,861799,025199,145201,129Interest expense25,52328,08233,5357,3519,1792,639,6672,741,3663,117,200729,255733,250Earnings before income taxes228,857237,711253,46052,27651,904Income taxes109,008111,937108,45725,27625,762Net earnings$119,849$125,774$145,003$26,514$30,689Operating income(b)218,240233,618257,75853,33454,219Operating cash flow(c)267,756287,133319,275--Source: Annual report and 10Q(a) For the year ended February 29, 1988(b) Operating income equal to the sum of earning before income taxes and interest expense less other income(c) Operating cash flow equal to the sum of operating income and depreciation expense

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Exhibit 8Exhibit 8 Business Segment InformationFirst Quarter Ended May 31,Year Ended February 28,19861987198819871988Net Sales to Unaffiliated Customers:Apparel$907,833$817,660$813,198$160,339$138,836General retail461,785498,324532,251148,138149,209Footwear558,286663,521890,411209,535226,672Furniture904,480967,3971,105,563263,409263,390Total$2,832,384$2,946,902$3,341,423$781,421$778,107Operating Earnings:Apparel$66,716$47,269$20,240($670)($247)General retail32,08540,61039,10114,13612,498Footwear48,47552,13692,20415,77719,700Furniture105,111123,766149,09038,31932,196Total$252,387$263,781$300,635$67,562$64,147Other income$36,140$32,175$29,237$6,293$6,864Corporate expense(34,147)(30,163)(42,877)(14,228)(9,928)Earnings before interestand taxes254,380265,793286,99559,62761,083Interest expense(25,523)(28,082)(33,535)(7,351)(9,179)Earnings beforeincome taxes$228,857$237,711$253,460$52,276$51,904Identifiable Assets at Year End:Apparel$456,972$465,601$425,350General retail234,004248,639252,195Footwear291,292497,706595,861Furniture618,980640,106688,853$1,601,248$1,852,052$1,962,259Corporate Assets155,64573,33523,327Total$1,756,893$1,925,387$1,985,586Depreciation Expense:Apparel$11,965$12,123$12,521General retail8,2949,0799,681Footwear8,28610,63813,107Furniture20,97121,67526,208Capital Expenditures:Apparel$13,433$8,869$9,220General retail6,1698,16710,735Footwear8,1147,4869,236Furniture27,27824,72036,188Source: 1988 Annual reports and 10Q

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Exhibit 9Exhibit 9 Summary of the Takeover OfferCity Capital Associates, L.P. OfferDate:7-Aug-84Price per share:$70.00Premium to stock one-day prior(a)17.90%Premium to stock one-month prior:59.10%Premium to 52-week low:137.30%Premium to 52-week high:17.20%Value of equity$2,622.8MMNet debt318.5MMValue of firm$2,941.3MMValue of FirmValue of Equityas a Multiple of:as a Multiple of:OperatingOperatingNetBookSalesCash FlowIncomeIncomeValueYear ending 2/29/880.9x9.2x11.4x18.1x2.2xEstimate of year ending 2/28/890.98.810.7172.2Source: Adapted with minor modifications in terminology from Wasserstein, Perella & Co., Inc. presentationto the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chanceryof the State of Delaware in and for New Castle County, Exhibit 23.(a) Premiums based on stock prices as of July 27, 1988

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Exhibit 10Exhibit 10 Premiums Paid AnalysisAverage Premium Paid over Stock Price# Deals(a)One Day4 Weeks52-Week Low52-Week High1Q 19881962.30%95.50%159.50%16.70%2Q 1988968.60%91.30%182.80%31.50%3Q 1988(b)1236.50%49.90%181.30%2.60%19884056.00%80.90%171.30%15.80%Rales17.90%59.10%137.30%17.20%Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil ActionNo. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.(a) Wasserstein, Perella & Co., Inc. selected tender offers(b) Selected tender offers from the months of July and August

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Exhibit 11Exhibit 11 Comparable Transaction Analysisa. Purchase Price Multiples by Business SegmentFurniture Manufacturing CompaniesPurchase Price Multiples(a)AnnouncementAggregateNetBookOperatingOperatingDateAcquiror/TargetPrice ($MM)(a)IncomeValue(b)SalesIncomeCash Flow12/13/83La-Z-Boy/Kincaid$63.5022.0x2.1x0.8x11.7x8.1x11/16/82INTERCO/Lane523.719.32.81.611.19.68/11/82Chicago Pacific/General Mills Furniture89.314.11.81129.96/2/82Masco/Henredon260.931.62.62.120.315.88/7/84Rales Proposal$2,941.3018.1x2.2x0.9x11.4x9.2xSource: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. CivilAction No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding(b) Book value adjusted for intangiblesFootwear Manufacturing CompaniesPurchase Price Multiples(a)AnnouncementAggregateNetBookOperatingOperatingDateAcquiror/TargetPrice ($MM)(a)IncomeValue(b)SalesIncomeCash Flow4/24/84NIKE/Cole Haan$95.0036.2xN.M.1.5x14.112.26/2/83Moacq/Morse Shoe312.52.51.80.5139.23/9/83Reebok/AVIA19140.66.72.124.623.39/17/82Reebok/Rockport146.130.7N.M.1.72623.97/30/82INTERCO/Converse202.737.11.80.924.718.28/7/84Rales Proposal$2,941.3018.1x2.2x0.9x11.4x9.2xSource: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. CivilAction No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding(b) Book value adjusted for intangiblesExhibit 11 (continued) Comparable Transaction AnalysisApparel CompaniesPurchase Price Multiples(a)AnnouncementAggregateNetBookOperatingOperatingDateAcquiror/TargetPrice ($MM)(a)IncomeValue(b)SalesIncomeCash Flow4/27/84Wesray/William Carter$157.40N.M.1.6x0.8x24.0x13.7x2/1/84Salant/Manhattan Indus.129.7N.M.1.40.4N.M.N.M.3/16/82W Acquisition/Warnco504.7212.50.910.69.211/3/81West Point Pepperall/Cluett, Peabody551.919.61.50.610.69.28/7/84Rales Proposal$2,941.3018.1x2.2x0.9x11.4x9.2xSource: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. CivilAction No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding(b) Book value adjusted for intangiblesCentral Hardware DivisionPurchase Price Multiples(a)AnnouncementAggregateNetBookOperatingOperatingDateAcquiror/TargetPrice ($MM)(a)IncomeValue(b)SalesIncomeCash Flow6/23/84Management Group/Payless Cashways$1,189.4022.0x2.3x0.6x13.1x9.2x8/7/84Rales Proposal$2,941.3018.1x2.2x0.9x11.4x9.2xSource: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. CivilAction No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.(a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding(b) Book value adjusted for intangiblesExhibit 11 (continued) Comparable Transaction Analysisb. Value Ranges by Business SegmentBusiness1988MultipleValueMedianSegmentSalesRangeRangeValueApparel$813.20.4 - .9$ 325.3 - $ 731.9$569.20General retail532.3.6 - .6319.4 - 319.4319.4Footwear890.4.5 - 2.1445.2 - 1,869.81,335.60Furniture1,105.60.8 - 2.1884.5 - 2,321.81,437.30$1,974.4 - $5,242.93,661.501988BusinessOperatingMultipleValueMedianSegmentIncomeRangeRangeValueApparel$20.2010.6 - 24.0$ 214.1 - $ 484.8$214.10General retail39.113.1 - 13.1512.2 - 512.2512.2Footwear92.213.0 - 26.01,198.6 - 2,397.22,268.10Furniture149.111.1 - 20.3$1,655.0 - $3,026.71,766.80$3,579.9 - $6,420.9$4,761.201988BusinessOperatingMultipleValueMedianSegmentCash FlowRangeRangeValueApparel$32.709.2 - 13.7$ 300.8 - $ 448.0$300.80General retail48.89.2 - 9.2448.9 - 448.9448.9Footwear105.39.2 - 23.9968.8 - 2,516.7970.7Furniture175.38.1 - 15.8$1,419.9 - $2,769.71,709.20$3,138.4 - $6,183.3$3,429.60

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Exhibit 12Exhibit 12 Discounted Cash Flow AnalysisAssumptionsFurniture GroupFootwear GroupApparel GroupRetail GroupTotalSales growth(a)7.70%6.30%7.10%7.60%7.20%Operating margin range(b)13.1%-14.1%9.1%-10.4%6.4%-7.0%6.5%-7.5%9.2%-10.1%Capital expenditures(c)1x1x1x1x1xIncrease in working investment(d)12.50%12.50%12.50%7.50%11.60%Tax rate41.00%Multiple of Cash Flow in Year 1014.0x15.0x16.0xTerminal value ($ millions)4,746.005,085.005,424.00Implied stock priceDiscount rate10.00%$80.00$84.00$88.0011.00%74778112.00%68727513.00%636669Source: Adapted with minor modifications in terminology from Wasserstein, Perella & Co., Inc. presentation to the IntercoBoard of Directors, August 8, 1988. Civil Action No. 1011, filed in the Court of Chancery of the State of Delaware in andfor New Castle County, Exhibit 23.(a) Ten-year annual compound growth rate(b) Projected operating margin in 1989 and in 1998(c) As a multiple of depreciation(d) As a percent of the change in sales in 1994 forward

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Exhibit 13Exhibit 13 Reference Range; Retain Core Companies Case ($ millions Except Per Share)SegmentRangeFurniture Group$1,525 - $1,750Footwear Group775 - 900Total$2,300 - $2,650After-tax Divestiture Proceeds$ 588 - $ 639Net Corporate Adjustments(a)(335) - (273)Range$2,553 - $3,016Per Share Range(b)$68.00 - $80.00+Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 1011, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.Action No. 1011, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23.(a) Accounts for net debt, overfunded pension and miscellaneous other assets that include real estate which could be understated(b) Based on 37.5 million fully-diluted shares outstanding

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Exhibit 14Exhibit 14 Market Interest RatesYield Curve at August 4, 1988:1-year Tresury bills7.83%7-year Tresury bonds8.8710-year Tresury bonds9.0130-year Tresury bonds9.10Corporate Bond Rates at August 5, 1988,(industrial companies)10-year AAA9.50%10-year AA9.6510-year A9.8010-year BBB10.10Source: Salomon Brothers, Inc.

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Sheet15

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Sheet16

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