SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1994
Commission file number 1-6345
THE INTERLAKE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3428543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 Warrenville Road, Lisle, Illinois 60532-4387
(Address of Principal Executive Offices) (Zip Code)
(708) 852-8800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
As of October 15, 1994, 22,026,695 shares of the Registrant's common stock were
outstanding.
THE INTERLAKE CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements as of September 25, 1994 are
unaudited, but include all adjustments which the Registrant considers
necessary for a fair presentation of results of operations and financial
position for the applicable periods. Except as noted, all adjustments are of
a normal recurring nature.
Consolidated Statement of Operations
For the Periods Ended
September 25, 1994 and September 26, 1993
(In thousands except per share statistics)
Third Quarter Nine Months
1994 1993 1994 1993
Net Sales $193,757 $169,014 $545,145 $510,635
Cost of products sold 150,888 131,179 419,405 389,716
Selling and administrative expense 28,505 28,081 85,698 86,713
Operating Income 14,364 9,754 40,042 34,206
Non-operating (income) expense 77 103 (649) 1,432
Earnings Before Interest and Taxes 14,287 9,651 40,691 32,774
Interest Expense 12,942 12,613 38,533 38,289
Interest Income (417) (439) (984) (1,584)
Income (Loss) Before Taxes
and Minority Interest 1,762 (2,523) 3,142 (3,931)
Provision for Income Taxes 2,602 1,429 6,874 4,906
Income (Loss) Before
Minority Interest (840) (3,952) (3,732) (8,837)
Minority Interest in Net Income
of Subsidiaries 1,004 768 2,942 2,574
Net Income (Loss) $(1,844) $(4,720) $(6,674)$(11,411)
Net Income (Loss) Per Share $ (0.08) $ (0.22) $ (0.30)$ (0.52)
Weighted Average Shares Outstanding 22,027 22,026 22,027 22,026 THE INTERLAKE CORPORATION
Consolidated Balance Sheet
September 25, 1994 and December 26, 1993
(All dollars in thousands)
Assets 1994 1993
Current Assets:
Cash and cash equivalents $ 28,167 $ 31,934
Receivables, less allowances for doubtful accounts of
$3,061 at September, 1994 and $2,775 at December, 1993 118,932 107,861
Inventories - Raw materials and supplies 22,791 22,230
- Semi-finished and finished products 55,774 54,795
Other current assets 11,014 9,720
Total Current Assets 236,678 226,540
Goodwill and Other Assets:
Goodwill, less amortization 37,127 38,916
Other assets 60,510 61,888
97,637 100,804
Property, Plant and Equipment, at cost 379,838 369,186
Less - Depreciation and amortization (236,442) (219,495)
143,396 149,691
Total Assets $477,711 $477,035
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 67,141 $ 60,382
Accrued liabilities 42,795 43,272
Interest payable 7,118 13,913
Accrued salaries and wages 16,746 14,713
Income taxes payable 21,303 17,866
Debt due within one year 18,199 2,525
Total Current Liabilities 173,302 152,671
Long-Term Debt 423,594 440,610
Other Long-Term Liabilities and Deferred Credits 103,452 104,366
Preferred Stock - 2,000,000 shares authorized
Convertible Exchangeable Preferred Stock - Redeemable,
par value $1 per share, issued 40,000 shares 39,155 39,155
Shareholders' Equity:
Common stock, par value $1 per share, authorized
100,000,000 shares, issued 23,228,695 shares 23,229 23,229
Additional paid-in capital 30,248 30,248
Cost of common stock held in treasury (1,202,000 shares) 28,047) (28,047)
Accumulated deficit (259,888) (253,215)
Unearned compensation (10,362) (11,279)
Accumulated foreign currency translation adjustments (16,972) (20,703)
(261,792) (259,767)
Total Liabilities and Shareholders' Equity $477,711 $477,035
THE INTERLAKE CORPORATION
Consolidated Statement of Cash Flows
For the Nine Months Ended September 25, 1994 and September 26, 1993
(In thousands)
1994 1993
Cash flows from (for) operating activities:
Net income (loss) $ (6,674)$ (11,411)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 18,265 18,885
Debt issuance costs (1,264) -
Other operating adjustments 223 (6,074)
(Increase) decrease in working capital:
Accounts receivable (7,905) 19,229
Inventories 923 (5,963)
Other current assets (940) (2,046)
Accounts payable 5,515 (2,160)
Other accrued liabilities (7,497) (8,699)
Income taxes payable 3,393 (2,989)
Total working capital change (6,511) (2,628)
Net cash provided (used) by operating activities 4,039 (1,228)
Cash flows from (for) investing activities:
Capital expenditures (7,977) (9,867)
Proceeds from disposal of PP&E 259 140
Acquisitions (746) -
Other investment flows 670 863
Net cash provided (used) by investing activities (7,794) (8,864)
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt 9,000 104
Retirements of long-term debt (11,355) (21,142)
Other financing flows 1,680 5,318
Net cash provided (used) by financing activities (675) (15,720)
Effect of exchange rate changes 663 77
Increase (Decrease) in cash and cash equivalents (3,767) (25,735)
Cash and cash equivalents, beginning of period 31,934 38,640
Cash and cash equivalents, end of period $28,167 $12,905
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Financial Statements
The information furnished in these financial statements is unaudited.
The Registrant and its subsidiaries are referred to herein on a consolidated
basis as the Company.
Note 2 - Computation of Common Share Data
The weighted average number of common shares outstanding used to compute income
(loss) per common share for the third quarter was 22,027,000 in 1994 and
22,026,000 in 1993, and for the nine-month period was 22,027,000 in 1994 and
22,026,000 in 1993. (The weighted average shares outstanding excludes common
stock equivalents of 7,366,000 shares in 1994 and 6,745,000 shares in 1993
related to the convertible preferred stock because the conversion of the
preferred stock into such shares would have an anti-dilutive effect.)
Note 3 - LIFO Inventories
The liquidation of LIFO inventories benefited income before taxes by $.6 mil-
lion in the first nine months of 1994 and by $1.0 million in the first nine
months of 1993.
Note 4 - Income Taxes
The high level of net interest expense caused domestic losses, in 1994 and
1993 which were not eligible for federal tax benefits in the periods in which
they were incurred (although such losses may be carried forward and tax bene-
fits realized in future years to the extent that domestic income is earned). As
a result, the taxes due to foreign and state authorities were not offset by
U. S. federal income tax benefits. Consequently, the Company recorded tax
expense in excess of pretax income in 1994 and a tax expense notwithstanding a
pretax loss in 1993.
Note 5 - Environmental Matters
In connection with the reorganization of the old Interlake, Inc. (now Acme
Steel Company ("Acme")) in 1986, the Registrant, then newly-formed, indemnified
Acme against certain environmental liabilities relating to properties which had
been shut down or disposed of by Acme's iron and steel division prior to the
1986 reorganization. As of September 25, 1994, the Company's reserves for
environmental liabilities totalled $6.5 million.
Based on its current estimate of its potential environmental liabilities,
including all contingent liabilities, individually and in the aggregate,
asserted and unasserted, the Company believes that the costs of environmental
matters have been fully provided for or are unlikely to have a material adverse
effect on the Company's business, future results of operations, liquidity or
consolidated financial condition. In arriving at its current estimate of its
potential environmental liabilities, the Company has relied upon the estimates
and analysis of its environmental consultants and legal advisors, as well
as its own evaluation, and has considered: the probable scope and cost of
investigations and remediations for which the Company expects to have liabil-
ity; the likelihood of the Company being found liable for the claims asserted
or threatened against it; and the risk of other responsible parties not being
able to meet their obligations with respect to clean-ups. In estimating its
potential environmental liabilities, the Company has not taken into
consideration any potential recoveries from insurance companies, although in
May 1994 the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers under policies covering nearly 30 years.
The Company's estimate has not been discounted to reflect the time-value of
money, although a significant delay in implementation of certain of the remed-
ies thought to be probable could result in cost estimates increasing due to
inflation.
The Company's current estimates of its potential environmental liabilities are
subject to considerable uncertainty due to the continuing uncertainty
surrounding one of the sites for which the Company is responsible pursuant to
its indemnity of Acme -- namely, the Superfund site on the St. Louis River
in Duluth, Minnesota (the "Duluth Site"). These uncertainties relate to both
the clean-up of certain contaminated soils at the site, as well as the
remediation of certain underwater sediments.
With respect to the contaminated soils, the Company has conducted certain
investigations at the request of the Minnesota Pollution Control Agency
("MPCA"), including a study outlining a broad range of remedial alternatives
and associated costs. The alternatives believed to be most appropriate by the
Company assume that the Duluth Site will be used for industrial purposes, and
the costs of those alternatives range from approximately $1.5 million to $4
million. The MPCA has reviewed the Company's study and has initially res-
ponded that its policy is clean-up to permanent unrestricted use standards.
The costs of the alternatives reviewed by the Company for remediating the soils
to the unrestricted use standards described by the MPCA range from approximate-
ly $40 million to $110 million. These amounts would substantially exceed the
Company's present ability to pay. The Company believes that clean-up to
industrial use standards is consistent with the current use of the property,
the current owner's development plans, the City of Duluth's land use plans, and
current United States Environmental Protection Agency guidance. The Company
will continue to oppose aggressively the imposition of the soil clean-up
standards presently set forth by the MPCA for the Duluth Site.
With respect to the underwater sediments, the MPCA has requested the Company to
undertake an investigation and to evaluate remedial alternatives. The Company
is presently negotiating with the MPCA the scope of the sediments investigation.
The Company believes that any estimate of the potential costs of remediating the
underwater sediments will not be meaningful until the investigation is completed
and possible remedial alternatives are reviewed by the Company and the MPCA. To
date, there have been few sites in the United States involving the clean-up of
underwater sediments, and none in which the MPCA has acted as lead agency. On
a preliminary basis, the Company believes that the range of reasonable remedial
alternatives for the underwater sediments includes that of taking no action,
thereby avoiding the disruption of the natural remediation of the underwater
sediments which has been underway for over 30 years. Thus, the Company believes
the minimum of the range of costs of remedial alternatives to be zero, and to
date has made provision for only the investigation, and not for the clean-up, of
underwater sediments.
The Company's current expectation is that cash outlays related to its
outstanding reserves for environmental matters will be made over the period of
1994 to 1997, or later. If the Company ultimately determines that additional
charges are necessary in connection with the Duluth Site, the Company believes
it is likely that cash outlays would occur near the end of the decade, or later.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Third Quarter 1994 Compared with Third Quarter 1993
Third quarter net sales of $193.8 million increased 15% compared with the prior
year period. Sales of $54.2 million in the Engineered Materials segment were
up 15%, primarily due to increased sales at the metal powder business, which
shipped record tonnage in the quarter. Sales of $139.6 million in the
Handling/Packaging Systems segment increased 14%, due to improvement at both
Handling and Packaging.
Operating income for the third quarter increased 47% to $14.4 million, compared
with operating income of $9.8 million in the third quarter of 1993. Strong
sales boosted operating profits at nearly all business units. The third quarter
1994 net loss declined to $1.8 million, or $.08 per share, compared with a net
loss of $4.7 million, or $.22 per share, a year earlier.
Segment Results
Interlake's businesses are organized into two segments: Engineered Materials
and Handling/Packaging Systems. Businesses in Engineered Materials are Special
Materials (ferrous metal powders) and Aerospace Components (precision aerospace
component fabrication and aviation repair). Businesses in Handling/Packaging
Systems are Handling (U.S. and foreign material handling operations) and
Packaging (U.S. and foreign packaging operations).
Third Quarter Segment Results
Net Sales Operating Profit
1994 1993 1994 1993
(in millions)
Engineered Materials
Special Materials $ 38.9 $ 31.6
Aerospace Components 15.3 15.3
54.2 46.9 $ 6.8 $ 6.2
Handling/Packaging Systems
Handling 107.2 92.5
Packaging 32.4 29.6
139.6 122.1 7.9 3.7
Corporate Items ( .3) (.1)
Operating Income 14.4 9.8
Net Interest Expense (12.5) (12.2)
Non-operating Income (Expense) (.1) (.1)
Consolidated Totals $193.8 $169.0 $ 1.8 $(2.5)
Engineered Materials
Third quarter 1994 sales in this segment increased 15% to $54.2 million compared
with the third quarter 1993, while operating profit increased 10% from the prior
year period.
For the third quarter, Special Materials' metal powder sales increased 23%
compared with the same period last year, due to continued strong demand from the
automotive industry. Operating profit increased 24% for the quarter, reflecting
increased volume, and higher selling prices which were offset by higher scrap
steel costs. The average cost for scrap steel during the quarter was 15% higher
than in the third quarter of 1993.
Aerospace Components' third quarter sales were virtually even with the 1993
period, as increased fabrication shipments were offset by lower aviation repair
sales. Fabrication shipments were up 8%, as increased sales for commercial and
space programs more than offset declining military business. Aviation repair
sales continued to be affected by weak demand from the airline industry and
severe price competition. Operating profit for the quarter declined 42%,
primarily as a result of high costs attributable to new commercial and space
programs which are in the early stages of their development. Sales in the 1993
quarter were more heavily weighted toward mature programs with higher margins.
Order backlogs in this segment were $113.1 million at the end of the quarter,
up 48% from $76.6 million at the end of September 1993. Special Materials'
backlog remained at a near record level, reflecting the continued strong demand
from the automotive industry. Aerospace Components' backlog increased 56%, due
mainly to new fabrication orders received during the second quarter for
commercial, military and space applications.
Handling/Packaging Systems
Third quarter sales of $139.6 million in this segment were up 14%, while
operating profit for the quarter increased 115% compared with the prior year
period.
For the third quarter, Handling's sales increased 16% compared with 1993, due
to higher sales in all locations except continental Europe. Domestic sales
increased 19%, while sales in the Asia Pacific region were up 77% from the year
earlier period on stronger Australian and Pacific Rim sales, producing the best
quarterly operating profit since 1989 for that region. Handling's operating
profit increased 125% compared with the third quarter 1993. Domestic operating
profit was 177% above 1993, while Handling's European profit improved 45% on a
2% increase in sales.
Packaging's third quarter 1994 sales increased 9% compared with 1993, with all
units reporting higher sales. Operating profit increased 30%, as significant
improvements in the steel strapping operation and the stitching business more
than offset declines in the plastic strapping business. Operating profit also
was aided by a favorable litigation settlement, partially offset by an
adjustment in the carrying value of certain inventories. Excluding these items,
operating profit increased 7%.
Order backlogs in this segment were $94.1 million at the end of the quarter, up
from $76.2 million for the same period in 1993 (at comparable exchange rates),
due mainly to improved order rates at the U.S. and Asia Pacific Handling
operations. The U.S. Handling order intake during the third quarter was at the
highest level since the fourth quarter of 1988.
Nine Months 1994 Compared with Nine Months 1993
Net sales for the first nine months of 1994 increased 7% to $545.1 million from
$510.6 million in the prior year period. Operating Income increased 17% to
$40.0 million from $34.2 million a year earlier.
The nine-month net loss of $6.7 million, or $.30 per share, declined from a net
loss of $11.4 million, or $.52 per share, for 1993.
Nine Month Segment Results
Net Sales Operating Profit
1994 1993 1994 1993
(in millions)
Engineered Materials
Special Materials $113.2 $ 99.0
Aerospace Components 43.6 48.1
156.8 147.1 $ 22.7 $ 21.2
Handling/Packaging Systems
Handling 294.7 272.6
Packaging 93.6 90.9
388.3 363.5 19.2 13.6
Corporate Items (1.9) (.6)
Operating Income 40.0 34.2
Net Interest Expense (37.5) (36.7)
Non-operating Income (Expense) .6 (1.4)
Consolidated Totals $545.1 $510.6 $ 3.1 $ (3.9)
Engineered Materials
For the nine month period, sales in this segment were up 7% over the prior year
period, while operating profit also increased 7% from 1993.
For the first nine months, Special Materials' sales increased 14%, while the
increase in operating profit was limited to 10%, because of the rise in scrap
steel costs compared with 1993. Aerospace Components' sales fell 9%, primarily
due to a 27% decline in aviation repair sales. Operating profit increased 4%,
as a one-time gain from settlement of a real estate matter in the first quarter
offset the declines from lower volume and weaker prices in the aviation repair
business.
Handling/Packaging Systems
Segment sales in the first nine months of 1994 increased 7% from the prior
year, while operating profit was up 41% over the 1993 period.
For the first nine months of 1994, Handling's sales were up 8%, with higher
sales at U.S., U.K. and Asia Pacific operations offsetting declines in
continental Europe. Operating profit increased 47%, as profits improved in all
regions other than continental Europe. Packaging's 1994 sales increased 3%
compared with 1993 levels, with all units reporting higher sales. Operating
profit was up 22%, due primarily to higher volume, LIFO inventory liquidation
benefits in the U.K. and the effect of the litigation settlement and inventory
adjustment discussed above.
Non-operating Items
Non-operating income in 1994 reflected a $1.1 million non-recurring gain in the
first quarter at Aerospace Components from the settlement of a real estate
matter with a local transportation authority. In the second quarter of 1993,
non-operating income reflected a $.9 million charge for environmental
remediation.
The Company has been identified as a potentially responsible party in connection
with the investigation and remediation of a site in Duluth, Minnesota as
discussed in Notes to Consolidated Financial Statements, Note 5 - Environmental
Matters. Based on the Company's current estimates of its potential liabilities
related to this site, the Company believes that this matter is unlikely to have
a material adverse effect on the Company's liquidity or consolidated financial
condition. However, the Company's current estimate of its potential
environmental liabilities at this site is subject to considerable uncertainty
related to both the clean-up of certain contaminated soils at the site, as well
as the possible remediation of certain underwater sediments, as discussed in
Note 5.
Financial Condition/Liquidity
Interlake's total debt at the end of the third quarter was $441.8 million, down
$1.3 million from year end 1993. Cash totaled $28.2 million at the end of the
quarter, compared with $31.9 million at the end of 1993. Capital expenditures
of $2.3 million during the quarter brought the year-to-date total to $8.0
million, compared with $9.9 million for the first nine months of 1993. The
Company expects that 1994 capital spending will be approximately $16.0 million.
Under its bank credit agreement, during the remainder of 1994 the Company will
be able to borrow for general and corporate purposes up to an additional $28
million over its September 25, 1994 indebtedness. Outstanding bank borrowings
as of the last day of fiscal 1994 will be limited to $8 million over its
September 25, 1994 borrowings. Based on the current level of operating profit,
the Company's operating cash flow combined with the additional borrowing
capacity available under its bank credit agreement will be sufficient to meet
its cash requirements for the remainder of its 1994 fiscal year.
During fiscal 1995, the Company will be able to borrow for general and corporate
purposes up to an additional $51 million over its September 25, 1994
indebtedness. Outstanding bank borrowings at the end of each of the Company's
fiscal 1995 quarters will be limited to between $19 million and $31 million
above its September 25, 1994 borrowings. Based on the current level of
operating profit, the Company believes that it is unlikely that operating cash
flow combined with the additional borrowing capacity available under its bank
credit agreement will be sufficient to meet its projected cash requirements for
1995 and 1996, which include long-term debt amortization of $24.7 million in
1995 and $88.2 million in 1996.
Pursuant to covenants under its bank credit agreement, the Company must meet
certain minimum consolidated EBITDA (earnings before interest, taxes,
depreciation and amortization) and consolidated net worth levels as of the end
of each fiscal quarter. Based on current levels of operating profit, and
consistent with the Company's expectation at the time it negotiated the amended
terms of its bank credit agreement in December 1993, the Company believes that
it may not be able to meet such levels at some time during the 1995 fiscal year,
possibly as early as the end of the first quarter of fiscal 1995.
The Company is presently engaged in discussions with representatives of its bank
group regarding the restructuring of the amortization schedule and the
renegotiation of certain covenants under the bank credit agreement. The Company
believes it will be successful in negotiating a revised amortization schedule
and covenant terms. However, there can be no assurance that the Company
will be able to satisfactorily renegotiate its covenant and debt amortization
obligations, obtain waivers therefrom, or refinance its debt from alternative
sources. If a default under the credit agreement occurred, the bank group could
elect to declare all obligations under the bank credit agreement to be due and
payable. If the obligations under the credit agreement were accelerated, the
Company's financial condition would be materially and adversely affected.
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURE
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.
THE INTERLAKE CORPORATION
November 7, 1994 \s\JOHN J. GREISCH
John J. Greisch
Vice President - Finance,
Treasurer and Chief Financial Officer