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 October 1, 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 October 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 as of and for the periods ended
October 1, 1995 and 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
October 1, 1995 and September 25, 1994
(In thousands except per share statistics)
Third Quarter Nine Months
1995 1994 1995 1994
(13 Wks) (13 Wks) (40 Wks) (39 Wks)
Net Sales $210,217 $193,757 $623,536 $545,145
Cost of Products Sold 162,594 150,888 475,726 419,405
Selling and Administrative Expense 31,440 28,505 95,608 85,698
Operating Profit 16,183 14,364 52,202 40,042
Non-operating (Income) Expense (273) 77 (899) (649)
Earnings Before Interest and Taxes 16,456 14,287 53,101 40,691
Interest Expense 13,717 12,942 40,764 38,533
Interest Income (481) (417) (1,232) (984)
Income Before Taxes, Minority Interest,
Accounting Change and Extraordinary Item 3,220 1,762 13,569 3,142
Provision for Income Taxes 2,096 2,602 8,604 6,874
Income (Loss) Before Minority Interest,
Accounting Change and Extraordinary Item 1,124 (840) 4,965 (3,732)
Minority Interest in Net Income of Subsidiaries 802 1,004 3,554 2,942
Income (Loss) Before Accounting Change
and Extraordinary Item 322 (1,844) 1,411 (6,674)
Accounting Change - - - 194
Income (Loss) Before Extraordinary Item 322 (1,844) 1,411 (6,868)
Extraordinary Item - - (3,448) -
Net Income (Loss) $ 322 $ (1,844) $ (2,037) $ (6,868)
Net Income (Loss) Per Share:
Primary Per Share Before Accounting Change
and Extraordinary Item $ .01 $ (.08) $ .06 $ (.30)
Per Share Accounting Change - - - (.01)
Per Share Extraordinary Item - - (.15) -
Primary Net Income (Loss) Per Share $ .01 $ (.08) $ (.09) $ (.31)
Fully Diluted Per Share Before Accounting Change
and Extraordinary Item $ .01 $ .04
Per Share Extraordinary Item - (.11)
Fully Diluted Net Income (Loss) Per Share $ .01 $ (.07)
Weighted Average Shares Outstanding
Primary 22,650 22,027 22,650 22,027
Fully Diluted 30,413 30,413
THE INTERLAKE CORPORATION
Consolidated Balance Sheet
October 1, 1995 and December 25, 1994
(Dollars in thousands)
Assets 1995 1994
Current Assets:
Cash and cash equivalents $ 23,896 $ 39,708
Receivables, less allowances for doubtful accounts of
$3,376 at October 1, 1995 and $2,977 at December 25, 1994 133,410 129,089
Inventories - Raw materials and supplies 24,204 22,875
- Semi-finished and finished products 56,972 50,978
Other current assets 11,039 6,340
Total Current Assets 249,521 248,990
Goodwill and Other Assets:
Goodwill, less amortization 4,190 4,667
Other assets 45,604 45,562
49,794 50,229
Property, Plant and Equipment, at cost 397,402 382,840
Less - Depreciation and amortization (252,009) (237,106)
145,393 145,734
Total Assets $ 444,708 $ 444,953
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 69,910 $ 71,957
Accrued liabilities 44,621 42,563
Interest payable 6,113 13,910
Accrued salaries and wages 16,250 18,060
Income taxes payable 12,583 10,328
Debt due within one year 3,658 24,553
Total Current Liabilities 153,135 181,371
Long-Term Debt 441,462 417,898
Other Long-Term Liabilities and Deferred Credits 104,904 102,964
Preferred Stock - 2,000,000 shares authorized
Convertible Exchangeable Preferred Stock - Redeemable,
par value $1 per share, issued 40,000 shares (liquidation value
$52,250 at October 1, 1995 and $47,847 at December 25, 1994) 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
October 1, 1995 and 1,202,000 shares at December 25, 1994) (9,625) (28,047)
Accumulated deficit (296,002) (293,966)
Unearned compensation (9,617) (10,058)
Accumulated foreign currency translation adjustments (15,437) (17,841)
(293,948) (296,435)
Total Liabilities and Shareholders' Equity (Deficit) $ 444,708 $ 444,953
THE INTERLAKE CORPORATION
Consolidated Statement of Cash Flows
For the Periods Ended October 1, 1995 and September 25, 1994
(In thousands)
1995 1994
(40 Wks) (39 Wks)
Cash flows from (for) operating activities:
Net income (loss) $ (2,037) $ (6,868)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 15,449 18,265
Extraordinary item 3,448 -
Debt issuance costs (5,513) (1,264)
Other operating adjustments 2,105 417
(Increase) decrease in working capital:
Accounts receivable (2,003) (7,905)
Inventories (5,771) 923
Other current assets (5,032) (940)
Accounts payable (2,629) 5,515
Other accrued liabilities (8,722) (7,497)
Income taxes payable 2,285 3,393
Total working capital change (21,872) (6,511)
Net cash provided (used) by operating activities (8,420) 4,039
Cash flows from (for) investing activities:
Capital expenditures (12,704) (7,977)
Proceeds from disposal of PP&E 173 259
Acquisitions - (746)
Other investment flows 759 670
Net cash provided (used) by investing activities (11,772) (7,794)
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt 110,127 9,000
Retirements of long-term debt (107,387) (11,355)
Other financing flows 1,609 1,680
Net cash provided (used) by financing activities 4,349 (675)
Effect of exchange rate changes 31 663
Increase (Decrease) in cash and cash equivalents (15,812) (3,767)
Cash and cash equivalents, beginning of period 39,708 31,934
Cash and cash equivalents, end of period $ 23,896 $ 28,167
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 1995 period was 22,650,000 and for the 1994
period was 22,027,000 for primary shares, and for fully diluted shares was
30,413,000 in the 1995 periods. (The weighted average shares outstanding
excludes 7,366,000 contingent shares in the 1994 periods related to the
convertible preferred stock because the conversion of the preferred stock into
such shares would have an anti-dilutive effect on all per share amounts
presented).
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 the
first nine months of 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 in the first
nine months by $.8 million in 1995 and by $.6 million in 1994.
Note 5 - Income Taxes
In the first nine months of 1995, the Company had an effective tax rate of
63.4%. 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). 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 October 1, 1995, the Company's reserves for
environmental liabilities totaled $5.0 million, most of which relates to the
Acme indemnification.
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 Minnesota Pollution Control Agency
("MPCA") on September 27, 1995, issued a Record of Decision ("ROD") selecting
a remedy consistent with the anticipated industrial development of the site.
The Company's consultants have estimated the cost of implementing the portions
of the selected remedy for which the Company is responsible to be between $3
million and $5 million.
With respect to the underwater sediments, the MPCA has requested the Company to
undertake an investigation and to evaluate remedial alternatives. The Company
presently expects to commence an investigation of the sediments in early 1996.
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. The Company also 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 out-
standing reserves for environmental matters largely will be made in the years
1996 and 1997. 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 - Extraordinary Item
During the second quarter of 1995, the Company issued $100.0 million of 12%
Senior Notes due 2001, the proceeds of which were used to retire a portion of
the Company's bank debt. Debt issuance costs of $3.4 million associated with
the retired debt were written off and shown as an extraordinary item.
Note 8 - 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 results for the first
nine months of 1994 to reflect a charge of $.2 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Third Quarter 1995 Compared with Third Quarter 1994
Third quarter net sales increased 8% compared with the prior year period to
$210.2 million. Sales in the Engineered Materials segment were up 12% to $60.5
million, while sales in the Handling/Packaging Systems segment increased 7% to
$149.7 million. The weakening of the U.S. dollar against most foreign
currencies added $3.3 million to sales compared with 1994.
Higher sales volumes boosted operating profit by 13% to $16.2 million, compared
with $14.4 million in the same period last year. Net income was $.01 per share
for the third quarter of 1995, compared with a net loss of $.08 per share for
the third quarter of 1994.
Segment Results
The Company'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 international material handling operations) and
Packaging (U.S. and international packaging operations).
Third Quarter Segment Results
Net Sales Operating Profit
1995 1994 1995 1994
(in millions)
Engineered Materials
Special Materials $ 41.3 $ 38.9
Aerospace Components 19.2 15.3
60.5 54.2 $ 9.8 $ 6.8
Handling/Packaging Systems
Handling 115.3 107.2
Packaging 34.4 32.4
149.7 139.6 6.9 7.9
Corporate Items (.5) (.3)
Consolidated Totals $ 210.2 $ 193.8 $ 16.2 $ 14.4
Engineered Materials
Third quarter 1995 sales in the Engineered Materials segment increased 12% over
the prior-year period, while operating profit was up 42%.
Special Materials' metal powder sales increased 6% compared with the same
period last year. Profit increased 13% for the quarter, due primarily to
manufacturing cost controls.
Aerospace Components' third quarter sales increased 26% compared with the 1994
period, due primarily to higher sales of fabricated components. Profit for the
quarter increased 225%, due to higher sales volumes and improved margins in the
components business, and a favorable sales mix and improved manufacturing
efficiencies in the aviation repair business.
Order backlogs in this segment were $160.9 million at the end of the quarter,
up from $113.1 million at the end of the third quarter of 1994. Special
Materials' backlog remained at a high level, up 50% from 1994, although order
rates and backlog have decreased from the levels experienced in the first half
of 1995. Aerospace Components' backlog increased 39%, 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
Third quarter sales of $149.7 million in this segment were up 7%, while
operating profit for the quarter decreased 13% compared with the prior-year
period.
Handling's sales (at comparable exchange rates) increased 5% compared with
1994. North American sales increased 10% and sales in the Asia Pacific region
were up 6%, while European sales were even with the year-earlier period.
Handling's profit was down 20% (at comparable exchange rates) compared with the
third quarter of 1994. North American profit increased 37%, due mainly to
higher volume. Handling's European profit declined 91%, due to a one time cost
of $2.6 million related to reducing ongoing fixed expenses in the U.K. and
Germany.
Packaging's third quarter 1995 sales (at comparable exchange rates) increased
5% compared with 1994, with higher strap sales in the U.S. and U.K. offsetting
lower strap sales in Canada and lower sales of stitching products. Profit
declined 10%, due to 1994's results having benefited from a favorable
litigation settlement.
Order backlogs in this segment were $88.5 million at the end of the quarter,
down from $95.8 million at the end of the third quarter of 1994 (at comparable
exchange rates), due mainly to lower order rates at the North American Handling
operation.
Nine Months 1995 Compared with Nine Months 1994
Net sales for the first nine months of 1995 grew 14% to $623.5 million from
$545.1 million. Favorable foreign currency exchange rates added $13.9 million
to nine-month 1995 sales. Operating profit increased 30% to $52.2 million from
$40.0 million a year earlier.
Operating profit benefited from a $3.3 million reduction in goodwill
amortization as a result of the goodwill write-down in the fourth quarter of
1994. Selling, general and administrative expenses were 15.3% of sales for the
first nine months of 1995, compared with 15.7% of sales for the 1994 period.
Net income for the period was reduced by an extraordinary item of $3.4 million,
or $.15 per share, which was recorded in the second quarter to write off
deferred debt issuance costs related to the early retirement of a portion of
the Company's bank debt (see Note 7 of Notes to Consolidated Financial
Statements). Income before the extraordinary item was $1.4 million, or $.06
per share, compared with a loss for the 1994 period of $6.7 million, or $.30
per share, before an accounting change. Including the extraordinary item, the
net loss was $2.0 million, or $.09 per share, compared with a net loss after
the accounting change of $6.9 million, or $.31 per share, for the 1994 period.
The first nine months of 1995 consisted of a 40-week period, whereas the first
nine months of 1994 consisted of a 39-week period, which partially accounted
for the higher sales and operating profit, as well as increased interest costs.
Nine Month Segment Results
Net Sales Operating Profit
1995 1994 1995 1994
(in millions)
Engineered Materials
Special Materials $ 134.8 $ 113.2
Aerospace Components 53.0 43.6
187.8 156.8 $ 31.0 $ 22.7
Handling/Packaging Systems
Handling 329.1 294.7
Packaging 106.6 93.6
435.7 388.3 22.7 19.2
Corporate Items (1.5) (1.9)
Consolidated Totals $ 623.5 $ 545.1 $ 52.2 $ 40.0
Engineered Materials
For the nine month period, sales in this segment were up 20% over the prior
year period, while operating profit also increased 37% from 1994.
Special Materials' sales increased 19% and profit increased 28%, mainly as a
result of increased tonnage.
Aerospace Components' sales increased 22%. Profit was up 26% compared with the
year earlier period, which benefited from a one-time gain of $1.1 million
related to the settlement of a real estate matter. Excluding this gain, profit
for the first nine months of 1995 increased 77%.
Handling/Packaging Systems
Segment sales in the first nine months of 1995 increased 12% over the prior
year period, while operating profit increased 18% from 1994.
Handling's sales were up 7%. Profit also increased 7%, as strong North
American earnings more than offset lower European results.
Packaging's sales increased 12%, with all units reporting higher sales.
Profit increased 8% compared with the year-earlier period, as improved earnings
in the Canadian and U.K. operations offset lower profit in the U.S. plastic
strap business. LIFO inventory liquidation benefits of $.8 million in the
first nine months of 1995 compared with benefits of $.5 million in the 1994
period.
Financial Condition
The Company's total debt at the end of the third quarter was $445.1 million, up
$2.7 million from year-end 1994. Cash totaled $23.9 million at the end of the
quarter, compared with $39.7 million at the end of 1994, reflecting increased
working capital requirements and capital expenditures. Capital expenditures of
$5.5 million during the quarter brought the year-to-date total to $12.7
million, compared with $8.0 million for the first nine months of 1994. The
Company anticipates that 1995 capital spending will be approximately $22.0
million.
Under its bank credit agreement, the Company has available revolving facilities
up to an additional $41.8 million over the October 1, 1995, revolving
indebtedness. Based on current levels of performance, the Company believes
this provides adequate liquidity.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved in
legal proceedings incidental to its business. None of these proceedings is
material within the meaning of regulations of the Securities and Exchange
Commission presently in effect.
In a Request for Response Action issued by the Minnesota Pollution Control
Agency (the "MPCA") on March 29, 1994, the Company was named a responsible
party for and requested to investigate and remediate certain contaminated
soils, and to investigate certain underwater sediments, at a Superfund site in
Duluth, Minnesota. With respect to the contaminated soils, the MPCA on
September 27, 1995, issued a Record of Decision ("ROD") selecting a clean-up
plan consistent with the anticipated industrial development of the site. The
Company's consultants have estimated the cost of implementing the portion of
the selected remedy for which the Company is responsible to be between $3
million and $5 million. With respect to the underwater sediments, the Company
expects to commence an investigation in early 1996. The Company believes that
any estimate of the potential cost 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. See Note 6 of Notes to
Consolidated Financial Statements.
On July 9, 1990, the City of Toledo, Ohio, (the "City'") brought an action in
Federal district court in Toledo, Ohio, against the Company, Acme Steel Company
("Acme" or the "old Interlake"), Beazer Materials and Services, Inc. ("Beazer")
and Toledo Coke Corporation ("Toledo Coke") in connection with the alleged
contamination of a 1.7-acre parcel of land the City had purchased from Toledo
Coke for purposes of building a road. The City has alleged various claims,
both with respect to the 1.7 acres of right-of-way and the remainder of the
coke facility owned by Toledo Coke which adjoins the right-of-way. These
claims seek a judgment finding the Company and the other defendants liable for
the environmental remediation costs and other relief. The Company's alleged
liability arises from its indemnification obligations with respect to Acme,
which as the old Interlake operated coke ovens and by-product recovery
facilities on the site from 1930 through 1978. In 1978 the old Interlake sold
the coke plant to Koppers Company, Inc. which was later acquired by Beazer, and
which indemnified Interlake against environmental liabilities. Koppers in
turn, sold the facility to Toledo Coke. Interlake has cross-claimed against
Beazer under its indemnity.
On January 31, 1994, the City filed a motion seeking an injunction under the
Resource Conservation Recovery Act ("RCRA") ordering the defendants to take
certain remedial actions with respect to the right-of-way. On June 14, 1995,
the Federal district court entered an order and memorandum (the "Order")
denying the City's request for an injunction. In the Order and subsequent
clarifying statements, the Court indicated that any ensuing pursuit by the City
of its claims for cost recovery under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") properly concerned only the
right-of-way and immediately adjacent areas, not the entire coke facility. The
Court also indicated that it believes the Interlake defendants to be primarily
responsible for the contamination of the right-of-way. The City is appealing
the Court's denial of its request for an injunction.
The Company continues to believe that there are available remedial plans which
would enable the City to build the road in question, the cost of which would
not be material to the business or financial condition of the Company. However,
in the course of the litigation the City has proposed a clean-up plan, the cost
of which it estimates at $7 million.
The Company believes that it is entitled to be indemnified by Beazer for any
liability and costs it incurs in conjunction with the City's action. Early in
1995, the Company and Beazer filed motions for summary judgment seeking the
resolution of the indemnification issue. The Court indicated in September 1995
that these motions will be its next matter for consideration in the lawsuit.
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
October 26, 1995
Stephen Gregory
Vice President - Finance
and Chief Financial Officer