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 April 2, 1995
Commission file number 1-9149
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
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 requirements for the past 90 days. Yes X No ____
As of April 15, 1995, 22,816,195 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 for the three month periods
ended April 2, 1995 and March 27, 1994 and as of April 2, 1995 and March 27,
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 Three Months Ended
April 2, 1995 and March 27, 1994
(In thousands except per share statistics)
1995 1994
(14 Weeks) (13 Weeks)
Net Sales $206,898 $169,336
Cost of Products Sold 155,979 129,863
Selling and Administrative Expense 32,212 27,440
Operating Profit 18,707 12,033
Non-operating (income) expense (71) (996)
Earnings Before Interest and Taxes 18,778 13,029
Interest Expense 13,950 12,818
Interest Income (471) (277)
Income (Loss) Before Taxes, Minority
Interest and Accounting Change 5,299 488
Provision for Income Taxes 3,489 1,988
Income (Loss) Before Minority Interest
and Accounting Change 1,810 (1,500)
Minority Interest in Net Income of Subsidiaries 1,416 895
Income (Loss) Before Accounting Change 394 (2,395)
Accounting Change - (194)
Net Income (Loss) $ 394 $ (2,589)
Primary Net Income (Loss) Per Share
Per Share Before Accounting Change $ .02 $ (.11)
Per Share Accounting Change - (.01)
Primary Net Income (Loss) Per Share $ .02 $ (.12)
Fully Diluted Net Income Per Share $ .01 N/A
Weighted Average Shares Outstanding
Primary 22,341 22,027
Fully Diluted 29,921 N/A
THE INTERLAKE CORPORATION
Consolidated Balance Sheet
April 2, 1995 and December 25, 1994
(Dollars in thousands)
Assets 1995 1994
Current Assets:
Cash and cash equivalents $ 22,473 $ 39,708
Receivables, less allowances for doubtful accounts of
$3,171 at April 2, 1995 and $2,977 at December 25, 1994 126,056 129,089
Inventories - Raw materials and supplies 23,283 22,875
- Semi-finished and finished products 59,225 50,978
Other current assets 8,309 6,340
Total Current Assets 239,346 248,990
Goodwill and Other Assets:
Goodwill, less amortization 4,426 4,667
Other assets 45,909 45,562
50,335 50,229
Property, Plant and Equipment, at cost 392,327 382,840
Less - Depreciation and amortization (246,404) (237,106)
145,923 145,734
Total Assets $435,604 $444,953
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 68,860 $ 71,957
Accrued liabilities 40,847 42,563
Interest payable 3,249 13,910
Accrued salaries and wages 12,807 18,060
Income taxes payable 11,230 10,328
Debt due within one year 30,527 24,553
Total Current Liabilities 167,520 181,371
Long-Term Debt 417,067 417,898
Other Long-Term Liabilities and Deferred Credits 104,240 102,964
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 (Deficit):
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 13,504 30,248
Cost of common stock held in treasury (412,500 shares at
April 2, 1995 and 1,202,000 shares at December 25, 1994) (9,625) (28,047)
Accumulated deficit (293,571) (293,966)
Unearned compensation (10,752) (10,058)
Accumulated foreign currency translation adjustments (15,163) (17,841)
(292,378) (296,435)
Total Liabilities and Shareholders' Equity (Deficit) $435,604 $444,953
THE INTERLAKE CORPORATION
Consolidated Statement of Cash Flows
For the Three Months Ended April 2, 1995 and March 27, 1994
(In thousands)
1995 1994
(14 Weeks) (13 Weeks)
Cash flows from (for) operating activities:
Net income (loss) $ 394 $ (2,589)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,322 5,987
Debt issuance costs (1,236) (1,137)
Other operating adjustments 1,155 (288)
(Increase) decrease in working capital:
Accounts receivable 6,188 (3,952)
Inventories (6,590) (1,914)
Other current assets (1,759) (540)
Accounts payable (4,219) 4,318
Other accrued liabilities (19,352) (10,537)
Income taxes payable 953 577
Total working capital change (24,779) (12,048)
Net cash provided (used) by operating activities (19,144) (10,075)
Cash flows from (for) investing activities:
Capital expenditures (3,051) (3,675)
Proceeds from disposal of PP&E 23 38
Other investment flows 42 93
Net cash provided (used) by investing activities (2,986) (3,544)
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt 10,000 -
Retirements of long-term debt (5,210) (925)
Other financing flows 804 302
Net cash provided (used) by financing activities 5,594 (623)
Effect of exchange rate changes (699) (86)
Increase (Decrease) in cash and cash equivalents (17,235) (14,328)
Cash and cash equivalents, beginning of period 39,708 31,934
Cash and cash equivalents, end of period $ 22,473 $ 17,606
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 first quarter was 22,341,000 in 1995 and
22,027,000 in 1994 for primary shares, and for fully diluted shares was
29,921,000 in 1995. (The weighted average shares outstanding excludes
common stock equivalents of 7,055,000 shares in 1994 related to the convertible
preferred stock because the conversion of the preferred stock into such shares
would have an anti-dilutive effect.)
Note 3 - Non-Operating (Income) Expense
Non-operating (income) expense consists of items which are not related to
activities that constitute the Company's ongoing major operations. In 1994,
non-operating (income) expense reflected a $1.1 million nonrecurring gain at
Aerospace Components from the settlement of a real estate matter with a local
transportation authority.
Note 4 - LIFO Inventories
The liquidation of LIFO inventories benefited income before taxes by $.8
million in the first quarter of 1995 and by $.6 million in the first quarter of
1994.
Note 5 - Income Taxes
In the first quarter of 1995, the Company had an effective tax rate of 65.8%.
Because most of the interest expense is borne in the United States at the
parent company level, the Company had substantial taxable income in foreign and
state jurisdictions. Taxes due to foreign authorities were not offset by U.S.
federal income tax benefits.
The high level of net interest expense caused domestic losses in 1994 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 benefits 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 in 1994 and, as a result, the Company recorded tax expense
in excess of pretax income in 1994.
Note 6 - 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 April 2, 1995, the Company's reserves for
environmental liabilities totalled $5.9 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
liability; 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
remedies 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"), and has studied various remedial alternatives and associated costs.
The alternatives studied have included both those that assume that the Duluth
Site will be used for industrial purposes, consistent with its current and
historical uses, and those that would meet standards for unrestricted use.
Based on these investigations and studies, the Company's estimate of its share
of the likely costs to complete remediation of certain contaminated soils at
the site to standards consistent with the site's present industrial use, based
on risk assessments and other assumptions it believes to be most appropriate,
range from $3 million to $4 million. The Company has reviewed other remedial
plans prepared on behalf of the Company for the contaminated soils which also
contemplate the continued industrial use of the property but which could cost
as much as $20 million. This higher amount is based upon certain risk
assessments and other assumptions which the Company believes to be overly
conservative. If remediation to an unrestricted use standard were required,
the cost likely would be higher yet. The cost of the remedial alternative
designed to meet unrestricted use standards most recently prepared for the
Company was calculated to be approximately $38 million.
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
1995 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.
Note 7 - Accounting Change
Effective as of the beginning of fiscal 1994, the Company changed its method of
accounting for postretirement benefits for its foreign plans by adopting the
Financial Accounting Standards Board's FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". This change in accounting
principle required restatement of previously reported first quarter 1994
results by a charge of $.2 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
First Quarter 1995 Compared with First Quarter 1994
First quarter net sales increased 22% to $206.9 million from $169.3 million in
the first quarter of 1994 with improvements in both segments. The weakening
of the U.S. dollar against most foreign currencies added $4.8 million to net
sales compared with 1994. Higher sales volumes boosted operating profit by 55%
to $18.7 million, compared with $12.0 million in the first quarter of 1994.
Net income for the quarter was $.4 million compared with a net loss of $2.6
million in 1994. The first quarter of 1995 was a 14-week period, whereas the
first quarter of 1994 was a 13-week period, which partially accounts for the
higher sales, operating profit and interest costs.
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).
First Quarter Segment Results
Net Sales Operating Profit
1995 1994 1995 1994
(in millions)
Engineered Materials
Special Materials $ 48.1 $ 35.7
Aerospace Components 16.7 12.5
64.8 48.2 $ 10.8 $ 7.8
Handling/Packaging Systems
Handling 105.9 91.6
Packaging 36.2 29.5
142.1 121.1 8.2 5.5
Corporate Items ( .3) (1.3)
Consolidated Totals $206.9 $169.3 $ 18.7 $ 12.0
Engineered Materials
Sales of $64.8 million in the Engineered Materials segment were up 34%, due to
increased tonnage of metal powders along with higher selling prices at Special
Materials and higher fabrication sales at Aerospace Components. Operating
profit for the segment increased 38% in the first quarter.
For the first quarter, Special Materials' metal powder sales increased 34%
compared with the same period last year, setting a quarterly record in terms of
both tonnage and revenues, due to continued strong demand from the automotive
industry. This increase, in part, reflects the continued increase in
automotive usage of powder metal components. Operating profit increased 49%
for the quarter, reflecting the increased tonnage, higher selling prices and
improved manufacturing performance.
Aerospace Components' first quarter sales increased 34% compared with the 1994
period due to higher commercial fabrication shipments. Operating profit for
the quarter was down 37%. Excluding a one-time gain in 1994 from the
settlement of a real estate matter, operating profit increased 54% in 1995 due
to the higher volume of fabrication shipments, and improved margins in the
aviation repair business resulting from cost controls, increased productivity
and a more favorable sales mix.
Order backlogs in this segment were $172.6 million at the end of the quarter,
up from $80.6 million at the end of March 1994. Special Materials' backlog
reached a record level, up 141% from 1994, reflecting the continued strong
demand from the automotive industry. Aerospace Components' backlog increased
101%, mainly due to new multi-year fabrication orders received during the
latter part of 1994 and early 1995 for commercial, military and space
applications.
Handling/Packaging Systems
Sales in the Handling/Packaging Systems segment increased 17% to $142.1
million, with improvements at both Handling and Packaging while operating
profit for the segment increased 50%.
For the first quarter, Handling's sales (at the same exchange rates) increased
10% compared with 1994, due to higher sales in all locations. North American
sales increased 6%, European sales rose 12%, and sales in the Asia Pacific
region were up 20% from the year earlier period. Handling's operating profit
increased 26% (at the same exchange rates) compared with the first quarter of
1994. Operating profit in North America increased 34% over 1994, as higher
volume and improved rack selling prices were partially offset by higher steel
costs. Handling's European operating profit declined 2%, despite higher sales
in the U.K. and continental Europe due to lower margins and higher pension
expense. Asia Pacific results improved over 1994 due to volume increases.
Packaging's first quarter 1995 sales (at the same exchange rates) increased 22%
compared with 1994, with all operations reporting improved sales. Operating
profit increased 40%, due primarily to higher volume and increased selling
prices for steel strap and machines in Canada and the U.K. LIFO inventory
liquidation benefits of $.8 million in the first quarter of 1995 compared with
benefits of $.5 million in the 1994 period.
Order backlogs in this segment were $93.8 million at the end of the quarter, up
from $76.7 million for the same period in 1994 (at the same exchange rates),
due mainly to significantly higher backlog at the North American Handling
operation.
Liquidity and Capital Resources
Cash Flow:
Cash outflows for operating activities were $19.1 million in the first quarter
of 1995 compared with an outflow of $10.1 million in the first quarter of 1994
as working capital required an outflow of $24.8 million compared with an
outflow of $12.0 million in the first quarter of 1994. Working capital needs
were significantly higher in the first quarter of 1995 due to the timing of
interest payments and a lower level of payables.
Capital expenditures of $3.1 million during the quarter compared with spending
of $3.7 million during the prior year period. The Company anticipates that
1995 capital spending will be approximately $20.0 million.
Financing activities provided $5.6 million in the first quarter of 1995, mainly
due to borrowings under the Company's bank credit agreement.
Capital Resources:
Interlake's total debt at the end of the first quarter was $447.6 million, up
$5.1 million from year-end 1994. Cash totaled $22.5 million at the end of the
quarter, compared with $39.7 million at the end of 1994, reflecting increased
working capital requirements.
During 1995 the Company has long-term debt amortization requirements of $24.6
million including $5.9 million of amortization payments made in the first
quarter of 1995. Based on current levels of performance, and the availability
of additional revolver borrowings under the Company's bank credit agreement,
the Company believes that it will have adequate liquidity to meet its debt
amortization and operating requirements in 1995. Under the bank credit
agreement, the Company will be able to borrow under its revolving facility up
to an additional $34 million over the April 2, 1995 revolver borrowings.
However, outstanding revolver borrowings at the end of each of the Company's
three remaining 1995 fiscal quarters will be limited to between $7 million and
$19 million above the April 2, 1995 revolver borrowings.
The Company announced last month that it had reached an agreement with its bank
lending group which revised certain financial covenants under its bank credit
agreement. The Company anticipates that it will be able to comply with all
bank credit agreement covenants in 1995.
In 1996, the Company has long-term debt amortization requirements of $88.8
million which it does not expect to be able to meet from operating cash flow.
Consistent with its previously announced intent to evaluate alternative actions
to refinance some or all of its long-term bank obligations in order to improve
its financial flexibility beyond 1995, the Company has filed with the
Securities and Exchange Commission a registration statement for an underwritten
offering of $100 million of senior notes. The proceeds of the senior notes
would be used to retire a portion of the Company's bank debt. The offering is
conditional upon the amendment of the Company's bank credit agreement to defer
the amortization of substantially all of the remaining bank indebtedness to
1999 and to revise certain financial covenants to provide added financial
flexibility. It is expected that the offering of the senior notes and the
amendment of the credit agreement will occur in the second quarter of 1995.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 10, 1995, SC Holdings, Inc., a subsidiary of Waste Management
International Plc, filed a complaint in federal district court in Trenton, New
Jersey, against Hoeganaes Corporation, a subsidiary of the Registrant, and
numerous other defendants, seeking to recover amounts expended or to be
expended in the remediation of the Cinnaminson Groundwater Contamination Site
in Burlington County, New Jersey. The site is a broadly-defined Superfund site
which encompasses a landfill formerly operated by the plaintiff and may also
include the groundwater under Hoeganaes' Riverton, New Jersey facility.
Hoeganaes may have shipped certain materials to the landfill. The matter is in
a preliminary stage and discovery has yet to commence.
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
May 2, 1995 /s/STEPHEN GREGORY
Stephen Gregory
Vice President - Finance,
Treasurer and Chief Financial
Officer