SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 29, 1996 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)
(630) 852-8800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, par value New York Stock Exchange
$1.00 per share Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of common stock, $1.00 par value, held by non-affiliates
as of February 14, 1997: $83,363,962
As of February 14, 1997, 23,151,792 shares of the Registrant's common stock were
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders (to be filed) are incorporated by reference into Part III.
THE INTERLAKE CORPORATION
Form 10-K Annual Report 1996
Table of Contents
PART I Page
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 42
PART III
Item 10. Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management 45
Item 13. Certain Relationships and Related Transactions 45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 46
Signatures 52
FORWARD LOOKING STATEMENTS
This Form 10-K contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including (without limitation)
statements as to expectations, beliefs and future financial performance and
assumptions underlying the foregoing relating to the adequacy of the Company's
future liquidity, the consequences of a possible sale of the Company's Handling
businesses, expected capital expenditures for environmental compliance and the
cost of implementing environmental remedial activities, and availability of
substitute supplies of raw materials. Actual results or outcomes could differ
materially from those discussed in the particular forward looking statement
based on a number of factors, including (i) the Company's future operating
results and its ability to satisfy covenants under its bank credit agreement,
(ii) the ability of the Company to effect the sale of the Handling businesses on
acceptable terms, (iii) government actions or initiatives with respect to
environmental matters either generally or with respect to specific instances
involving the Company, and (iv) the inability of the Company to obtain adequate
quantities of raw materials from its existing suppliers or to obtain such
materials from alternative sources.
PART I
As used herein, the term "Company" means The Interlake Corporation and its
subsidiaries. The terms "Interlake" and "Registrant" mean The Interlake
Corporation, the parent company.
ITEM 1--BUSINESS
GENERAL
The Company is a multinational corporation engaged in the design, manufacture
and sale or distribution of products in the automotive, materials handling, and
aerospace industries. In 1996, the Company sold its packaging businesses as
discussed in Note 2 of Notes to Consolidated Financial Statements. The
Company's operations are divided into two segments: Engineered Materials and
Handling. During the first quarter of 1997, the Company announced that it is
exploring the possible sale of the Handling businesses. (See Management's
Discussion and Analysis of Financial Condition and Results--Liquidity and
Capital Resources.) For certain information regarding these segments, including
information regarding geographic regions, see Note 7 of Notes to Consolidated
Financial Statements.
ENGINEERED MATERIALS
The Engineered Materials segment includes Special Materials, which produces
ferrous metal powders used to manufacture precision parts, and Aerospace
Components, which manufactures precision jet engine components and repairs jet
engine fan blades. The two units which comprise Engineered Materials generally
use proprietary and patented processes to produce high quality metal powders or
components.
SPECIAL MATERIALS
General--The Company conducts its Special Materials business through its
Hoeganaes Corporation subsidiary. Hoeganaes is the North American market and
technology leader in the production of ferrous (iron-based) metal powders.
Ferrous metal powder is used by customers primarily to manufacture precision
parts for automobiles, light trucks, farm and garden equipment, heavy
construction equipment, hand tools and appliances. Precision parts produced
using powdered metal technology have certain cost and design advantages over
parts produced using conventional techniques such as forging, casting, stamping
or machining, as they may be manufactured with less wasted raw material, lower
labor costs and little or no additional machining.
Suppliers to the automotive industry constitute the largest market for
Hoeganaes' products. Average usage of ferrous metal powder per vehicle in North
America has increased from 18 pounds in 1986 to 30 pounds in 1996 due to new
applications (for example, anti-lock brakes, connecting rods and bearing end
caps) as well as increased demand for four wheel drive vehicles in the light
truck category (including sport utility vehicles and minivans), which use
greater amounts of ferrous metal powder per vehicle.
Strategy--Hoeganaes' status as the North American market leader is based on its
broad product range and new product development coupled with cost-efficient
manufacturing processes producing a high quality metal powder. Hoeganaes'
strategy is to commercially develop new powder metal products, manufacturing
processes and applications, thereby promoting the increased use of powder
metallurgy generally and establishing Hoeganaes as the sole source for its
proprietary products. This strategy is based on the Company's ongoing research
and development efforts, whereby Hoeganaes application specialists work closely
with customers to advance the performance characteristics achievable through
powder metallurgy.
Markets--The North American market for ferrous metal powders can be divided into
two segments: structural parts (metal powder to be compressed into solid parts)
and non-structural applications (powders principally used in welding, chemicals
and photocopying).
Uses for structural parts comprise an estimated 80% of the North American market
for ferrous metal powders. More than 50% of Hoeganaes' sales are for automotive
applications, which include components for transmissions, engines and suspension
systems.
The non-structural market for ferrous metal powders generally consists of
applications in welding, chemicals, friction applications such as brake pads and
linings, and for use as a carrier agent for photocopier toner. Ferrous metal
powders are also used by pharmaceutical companies as catalysts in blood thinning
agents and for use in nutritional iron supplements.
Customers--Although more than 50% of Hoeganaes' product shipments are ultimately
used in automobiles and other light vehicles, Hoeganaes' customers generally are
not the auto manufacturers, but rather intermediary parts fabricators. In
recent years, there has been increasing consolidation among the powder metal
parts manufacturers; however, no single customer accounted for more than 2% of
the Company's net sales in 1996. Sales are made by Hoeganaes' direct sales
force.
Products--The Company believes that Hoeganaes currently has the broadest product
line of all ferrous metal powder producers. It is also a leader in the research
and development of advanced proprietary powders and processes. Hoeganaes'
patented ANCORBOND(R) and ANCORDENSE(R) blend technologies, for example, allow
the formulation of press-ready mixes that result in more consistent
metallurgical properties in finished parts with increased part strength and
density while also increasing press productivity for parts fabricators.
To achieve specific performance objectives, powder metal parts producers require
steel powder mixed with various alloying constituents such as copper, nickel,
molybdenum or graphite plus other additives. In addition to producing
conventional mixes, Hoeganaes offers customers the unique advantages of
ANCORBOND premixes produced with a proprietary mixing process. With ANCORBOND
premixes, additives are bonded directly to the steel particles, resulting in
more consistent metallurgical properties and improved manufacturing
productivity. The ANCORDENSE process uses heat throughout the part-forming
operation. The combination of special, bonded premixed powders and warm
compaction enables fabricators to produce parts with properties that previously
could be obtained only through more expensive processes. The first commercial
part using the ANCORDENSE process was produced in 1995 and the number of
applications using the process has increased.
Production--Hoeganaes has two basic production processes. The first process is
atomizing, which converts scrap steel into powders through the use of an
electric furnace steel making and water atomization system. Hoeganaes has the
two largest atomizing plants in North America. The second process is direct
reduction which converts high purity iron ore into a unique, highly porous metal
powder. Hoeganaes has the only direct reduction process facility in North
America. Hoeganaes also formulates these powders into press-ready mixes for
its customers.
Minority Interest--The Company owns 80% of the capital stock of Hoeganaes. The
remaining 20% is owned by Hoganas AB, a Swedish corporation. Agreements between
the owners of Hoeganaes define the structure of the Hoeganaes board of
directors, grant to each party a right of first refusal with respect to a
proposed sale of Hoeganaes stock and provide for technology exchanges and tax
sharing arrangements.
AEROSPACE COMPONENTS
General--The Company conducts its Aerospace Components business through its
Chem-tronics, Inc. subsidiary. Chem-tronics is a leading producer of
lightweight, fabricated products for commercial and military aerospace
applications, and also provides jet engine fan blade repair services.
Chem-tronics offers its customers a vertically integrated facility, thereby
eliminating the need for numerous subcontractors for a single component.
Chem-tronics' principal products are sold directly to engine manufacturers under
arrangements which generally establish Chem-tronics as the sole source of
supply.
Strategy--Responding to the decline of the defense industry, Chem-tronics'
strategy during the 1990s has been to diversify and realign its fabrication
business by reducing dependence on a declining military business through
expansion of the commercial and space segments. Commercial and space programs
have substantially offset declining military business and represented 70% of
Chem-tronics' sales in 1996, up from 22% in 1986. At the end of 1996,
Chem-tronics had a backlog of nearly $130 million of fabrication orders,
including significant multi-year agreements with Rolls-Royce, Pratt & Whitney,
General Electric and Allison.
Products and Customers--Chem-tronics' fabricated products include rings, cases
and modules for large commercial aircraft jet engines, ducts for military jet
engines, exhaust nozzles and structures for jet engines and space launch
vehicles, and other complex fabrications for a variety of aerospace
applications. The primary fabrication customers are the original equipment
manufacturers ("OEMs") of jet aircraft and engines. The Company believes that
its sales have benefitted, and will continue to benefit, from the trend toward
outsourcing by OEMs.
Production Processes--The primary processes used in the fabrication business are
chemical milling, welding, forming, machining, non-destructive testing and
inspection. Chem-tronics uses a patented Unistructure technology, a chemical
milling process which produces integral rib and skin structures that are both
stiff and lightweight. Unistructure components have significant cost and
performance advantages over parts produced using other fabrication methods.
Repair--In addition to its fabrication business, Chem-tronics provides
comprehensive repair services for jet engine fan and compressor blades, discs
and combustion liners. Repair services are sold directly and through sales
agents. Repair customers include major domestic and international airlines, all
major jet engine manufacturers and engine overhaul centers.
HANDLING
General--The Handling segment is comprised of the Company's domestic and
international Handling units. Handling designs, manufactures and sells storage
rack, shelving, conveyors and related order fulfillment equipment for use in
warehouses, distribution centers, retail stores and for other storage
applications. Handling also supplies equipment for retail display and office
interiors.
The Company believes Handling is the world's largest manufacturer of storage
rack, with the largest market share in the U.S., the U.K., Belgium and Australia
and a significant market share in Germany. Its customers are primarily engaged
in the retailing and wholesaling of food and consumer durables and non-durables
and industrial products. Handling's rack systems are used in warehouse and
distribution applications ranging from simple pallet storage to sophisticated
warehouse systems and warehouse-type retail store environments.
Handling's direct sales and distribution networks allow it to satisfy the needs
of large customers and projects, as well as smaller, geographically distant
customers. Handling's design capabilities and large manufacturing capacity
enable it to undertake large scale projects for many of the largest retailers in
the world. In addition, its large size allows it to realize significant
economies of scale in product development, design and manufacturing.
Strategy--Handling's strategy is to enhance its position of market leadership by
continuously improving product quality, manufacturing efficiency and customer
service and support, while exploiting opportunities for geographic and new
product growth. Sales have increased each year in the rapidly growing Asian
marketplace from sales offices in China, Malaysia, Indonesia and Singapore and
a Company owned distributor in Hong Kong. Sales offices have been opened in the
Czech Republic and Hungary to continue development of the emerging eastern
European market, and in South Africa.
Products--Handling's primary product is storage rack which is used for storing
unit loads in distribution centers, warehouse facilities, retail stores and
factories. Storage rack can be assembled in a variety of configurations
depending on individual customer needs. Handling offers a broad range of
products, including products that allow for FIFO and LIFO storage and retrieval,
for the storage of bulky, awkwardly shaped items (lumber, carpet rolls,
furniture, etc.) and for the storage and retrieval of very heavy items.
Handling also sells conveyors and conveyor systems which range from simple
gravity conveyors to complex belt and chain powered conveyors. In Europe and
Australia, Handling manufactures and sells angle and shelving and office storage
equipment and, in Europe, partitioning for offices.
Product Development, Design and Manufacturing--In addition to competing on the
basis of cost and quality, Handling utilizes proprietary software, computer
aided design applications and its in-house structural engineering staff to
design the optimal solution for each customer's storage requirements. Extensive
technical training for its sales staff and for third-party distributors enables
Handling to be responsive to customer needs. Handling's design software is also
used to generate detailed bills of material which automatically specify the
size, type and quantity of all components to be used in the project,
streamlining the selling, design and manufacturing process.
Handling's facilities generally purchase steel coils and then form, assemble and
paint the product for various storage applications. Steel comprises
approximately 60% to 70% of production cost. Handling believes it is a low cost
producer. Continuing emphasis is placed on overhead and manufacturing cost
control and the efficient utilization of raw materials.
Sales and Distribution--The Company believes that Handling's domestic and
international direct sales force and extensive distributor network give it a
significant competitive advantage. Domestically, Handling is represented by a
network of over 150 distributors and a direct sales force. In the U.K.,
Handling utilizes an independent distributor network, wholly-owned distribution
centers and a direct sales force, while in Germany, Handling conducts its sales
efforts through a direct sales force and wholly-owned distribution centers.
Handling believes that its direct sales force allows it to satisfy the complex
needs of large customers and applications, while its extensive distributor
network allows it to reach smaller, geographically distant customers. Sales
coverage in the Asian marketplace has been strengthened over the past several
years by purchasing a distributor in Hong Kong and by establishing sales offices
in China, Malaysia, Indonesia and Singapore. Sales offices in the Czech
Republic, Hungary and South Africa will provide coverage for those important
markets. In Europe and Asia Pacific, Handling operates under the Dexion name,
which is well recognized in those markets and the Company believes it provides
Handling with certain marketing advantages.
CUSTOMERS; ORDER BACKLOGS
Engineered Materials--Sales to General Electric, Rolls-Royce and Pratt & Whitney
accounted for approximately 52% of Aerospace Components' sales, equivalent to
17% of Engineered Materials' sales and 6% of total Company sales in 1996. The
Company is a supplier to these companies and has no other significant
relationship with them. Sales to these companies are made pursuant to purchase
orders.
At December 29, 1996 and December 31, 1995, the backlog of orders for Engineered
Materials was $166.1 million and $142.7 million, respectively. Special
Materials' backlog, which is generally short-term in nature, was down 10%.
Aerospace Components' backlog increased 27%. All orders for Engineered
Materials at December 29, 1996 were believed to be firm, but approximately 30%
of these orders are subject to renegotiation. Approximately 72% of these orders
are expected to be delivered during 1997.
Handling--Handling's products are sold to a substantial number of retail and
industrial customers. Sales to three large retailers represented 12% of segment
sales and 7% of total Company sales in 1996. The backlog of orders for this
segment at December 29, 1996 was $87.1 million compared with $84.2 million at
December 31, 1995 (in each case applying foreign exchange rates at December 29,
1996). All orders at December 29, 1996 were believed to be firm and are
expected to be filled during 1997.
COMPETITION
Competition is vigorous in both of the Company's business segments. Factors
normally affecting competitive conditions are product quality, technological
development, price and service. The Company competes with a variety of other
entities in each of its businesses.
RESEARCH AND DEVELOPMENT
Research activities are directed toward developing primary products and
processes. Expenditures on research activities by business segment were as
follows:
1996 1995 1994
(in millions)
Engineered Materials. . . . . . . . $2.2 $2.1 $2.1
Handling. . . . . . . . . . . . . . 1.6 1.0 1.1
Total. . . . . . . . . . . . . $3.8 $3.1 $3.2
The Company believes that these amounts have been adequate to maintain its
competitive positions in the businesses in which it operates.
PATENTS
The Company holds domestic and foreign patents covering certain products and
processes in both business segments. While these patents are considered
important to the ability of the segments to compete, unpatented manufacturing
expertise is considered at least as important. Future profitability of these
segments is therefore not considered dependent upon any one patent or group of
related patents.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive and changing federal, state,
local and foreign environmental laws and regulations, including those relating
to the use, handling, storage, discharge and disposal of hazardous substances.
As a result, the Company is from time to time involved in administrative and
judicial proceedings and inquiries relating to environmental matters. In
addition, the Company's future capital and operating expenditures will continue
to be influenced by environmental laws and regulations; however, the Company
does not believe these expenditures are likely to have a material adverse effect
on its earnings or its ability to compete with other companies. In 1996,
capital expenditures for environmental compliance were $.9 million and the
Company estimates that environmental capital spending for 1997 will be $1.2
million. (See Management's Discussion and Analysis of Financial Condition and
Results of Operations Nonoperating Items, and Notes 16 and 17 of Notes to
Consolidated Financial Statements.)
EMPLOYEES
At December 29, 1996 the Company employed a total of 3,839 persons, consisting
of 1,523 salaried and 2,316 hourly employees. Of the hourly employees, 52% are
represented by unions, with no single union representing a significant number of
the hourly employees. One labor contract covering approximately 15% of hourly
employees will expire in June 1997.
RAW MATERIALS
The Company's principal raw materials are steel and steel scrap which are
purchased in the open market where no shortages are anticipated. The Company
also purchases large extruded metal shapes and milled products that are
available from a limited number of suppliers and high purity iron ore imported
from limited foreign sources. The Company believes these sources are adequate
to provide for the current and future needs of each of the Company's segments
and believes that, if necessary, adequate substitute supplies and suppliers
could be obtained without any material adverse effect on the Company's
operations or operating results. The Company's conclusions as to availability
and impact are based upon the Company's general knowledge of the markets for its
raw materials, and its use of alternative sources from time to time.
ITEM 2--PROPERTIES
The following are the principal properties of the Company, listed by business
unit:
Usable Space
Business Unit Function Owned/Leased (Square Feet)
ENGINEERED MATERIALS
Hoeganaes
Riverton, NJ Manufacture iron and steel metal powder Owned 542,000
Gallatin, TN Manufacture steel metal powder Owned 200,000
Milton, PA Bonding and blending metal powder, warehouse Owned 102,000
Chem-tronics
El Cajon, CA Manufacture aerospace components and Owned 230,000*
repair of jet engine fan blades Building owned 39,000
on leased land
Tulsa, OK Repair of jet engine fan blades Leased 42,000
HANDLING
Handling North America
Pontiac, IL Manufacture storage rack Owned 400,000*
Sumter, SC Manufacture storage rack Owned 250,000*
Lodi, CA Manufacture storage rack Owned 125,000*
Shepherdsville, KY Manufacture conveyors Owned 106,000*
Handling Europe
Hemel Hempstead, U.K. Manufacture storage rack, slotted Building owned 283,000
angle, shelving and partitioning on leased land
Warehouse Leased 95,000
Laubach, Germany Manufacture storage rack, slotted angle, Owned 335,000
shelving, and partitioning and conveyors
Gainsborough, U.K. Manufacture conveyors Building owned 94,000
on leased land
Nivelles, Belgium Manufacture storage rack and slotted Owned 101,000
angle
Halle, Germany Manufacture steelwork and conveyors Owned 90,000
Kilnhurst, U.K. Manufacture storage rack Owned 89,000*
Handling Asia Pacific
Blacktown, Australia Manufacture storage rack, slotted angle, Owned 135,000*
shelving and conveyors
Wacol, Australia Manufacture shelving and wire products Owned 30,000*
The properties marked with an asterisk (*) are subject to mortgages pursuant to
the Company's bank credit agreement. In addition to the facilities described
above, the Company owns and leases various warehouses and sales and
administrative facilities. The Company believes that its manufacturing
facilities are properly maintained and that production capacity is adequate to
meet the requirements of the Company.
ITEM 3--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. In addition, the Company is involved in certain legal proceedings
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in Notes 16 and 17 of Notes to Consolidated Financial
Statements.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal market for Interlake's common stock is the New York Stock Exchange
(ticker symbol IK). The common stock is also listed on the Chicago Stock
Exchange and is admitted to unlisted trading on the Pacific Stock Exchange and
the Boston Stock Exchange.
Interlake has not paid a dividend or made a distribution with respect to its
common stock since the third quarter of 1989. Restrictions under Interlake's
bank credit agreement and the indentures relating to its Senior Subordinated
Debentures and Senior Notes (see Note 11 of Notes to Consolidated Financial
Statements) will prevent it from paying any cash dividends in 1997 or in the
foreseeable future.
On December 29, 1996, there were approximately 6,595 holders of record of
Interlake's common stock. High and low sales prices of Interlake's common stock
as reported on the NYSE composite ticker tape during each of the eight calendar
quarters during the period ending on December 31, 1996 were:
1996 1995
Price Price
High Low High Low
Calendar Quarter Ended
March 31. . . . . . . . . . $2-1/2 $1-3/4 $2-3/8 $1-3/4
June 30 . . . . . . . . . . 3-5/8 1-7/8 3-1/4 2-1/4
September 30. . . . . . . . 4-1/2 2-3/4 3-1/4 2-1/8
December 31 . . . . . . . . 4-1/4 3 2-1/2 1-5/8
ITEM 6--SELECTED FINANCIAL DATA
(in thousands except per share data)
(references to Notes are references to Notes to Consolidated Financial
Statements)
On October 4, 1996, the Company sold its packaging businesses, as discussed in
Note 2. The following selected statement of operations data has been restated
to reflect separately the operating results and gain on the sale of the
packaging businesses as discontinued operations. Net income (loss) includes
discontinued operations. The following selected balance sheet data was not
restated.
1996 1995 1994 1993 1992
For the Year
Net sales from continuing operations $709,585 $689,913 $622,400 $559,192 $585,270
Income (loss) from continuing operations
before extraordinary loss and
accounting change $ 7,525 $ 993 $(23,251)(1) $(27,390)(2)(3) $(15,983)(3)
Net income (loss) $ 55,244(4) $ 765(4) $(40,751)(1) $(25,962)(2)(5) $(27,698)(4)(5)
Income (loss) from continuing operations
before extraordinary loss and
accounting change per common share $ .24 $ .03 $ (1.06)(1) $ (1.24)(2)(3) $ (.96)(3)
Net income (loss) per common share $ 1.74(4) $ .03(4) $ (1.85)(1) $ (1.18)(2)(5) $ (1.67)(4)(5)
Average number of shares outstanding 31,670 30,520 22,027 22,027 16,574
At Year End
Working capital
--cash and cash equivalents $ 70,228 $ 41,562 $ 39,708 $ 31,934 $ 38,640
--other working capital 42,733 58,209 27,911 41,935 54,149
--total working capital 112,961 99,771 67,619 73,869 92,789
Total assets $457,723 $459,802 $444,953 $464,160 $511,292
Long-term debt, including current maturities 398,819 443,615 442,451 443,135 450,801
Convertible Exchangeable Preferred Stock 39,155 39,155 39,155 39,155 39,155
Common stockholders' equity (deficit) (228,134) (291,677) (296,435) (259,767) (232,718)
<FN>
(1) includes a charge for goodwill write-down of $13,202 in continuing
operations and $20,972 in discontinued operations (see Note 3)
(2) includes nonoperating charges for environmental matters of $4,750
(3) includes restructuring charges of $5,216 in 1993 and $2,523 in 1992
(4) includes extraordinary losses on early extinguishment of debt of $267
in 1996 and $3,448 in 1995 (see Note 6) and $7,567 in 1992 and cumulative
effect of changes in accounting principles of $1,876 in 1996 (see Note 5)
and $6,141 in 1992
(5) includes restructuring charges of $5,611 in 1993 and $2,523 in 1992
1995 was a 53-week year while all other periods were 52-week years
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(dollars in millions except per share data)
(references to Notes are references to Notes to Consolidated Financial
Statements)
On October 4, 1996, the Company sold its packaging businesses, as discussed in
"Discontinued Operations" and in Note 2. The consolidated statement of
operations of the Company has been restated to report separately the operating
results and the gain on the sale of the packaging businesses as discontinued
operations. The consolidated balance sheet and cash flow statement were not
restated. The Company's continuing operations are divided into two segments:
Engineered Materials and Handling. For certain information regarding these
segments and geographic regions, see Note 7.
Results of Operations
Net sales from continuing operations were $709.6, $689.9 and $622.4,
respectively, in 1996, 1995 and 1994. Net sales in the Engineered Materials
segment were up $9.1 in 1996. Sales in the Aerospace Components business
increased $11.6 as shipment levels increased on several key engine programs,
while sales of metal powders by the Special Materials business posted a small
decline. Handling sales were up $10.6 in 1996, as North American and Asia
Pacific sales again reached record levels. In 1995, in the Engineered Materials
segment, strong North American auto and light truck production led to a $21.8
increase in sales of metal powders, while sales of the Aerospace Components
business increased by $10.2 as several newer engine programs reached the
production stage. Handling sales were up $35.5 in 1995, primarily as a result
of strong demand in the U.S. and Asia Pacific markets. In 1995, the weakening
of the U.S. dollar against most foreign currencies added $14.2 to sales from
continuing operations compared with 1994. The years 1996 and 1994 were 52-week
periods, while 1995 was a 53-week period.
Operating profit was $63.7, $57.6 and $33.1, respectively, in 1996, 1995 and
1994. In 1996, operating profit benefitted from the adoption of a fair value
approach with respect to accounting for the Company's Employee Stock Ownership
Plan ("ESOP"), as discussed in Note 4, along with changes in the assumptions
used in calculating the Company's liability for postretirement medical and life
insurance benefits and the elimination of such benefits for certain active
domestic employees, as discussed in Note 10. The combined effect of these
changes was a favorable adjustment to operating profit of $5.3. In 1995, a
one-time provision of $2.6 was incurred to reduce fixed costs at the European
Handling business. In 1994, a charge of $13.2 was taken to write down goodwill
of continuing operations, as discussed in "Long-Lived Assets" and in Note 3.
Excluding the favorable adjustments to income in 1996, the 1995 charge to reduce
fixed costs, and the goodwill charge in 1994, operating profit was $58.4, $60.2
and $46.3 in 1996, 1995 and 1994, respectively.
Operating profit in 1996 benefitted from improved results in Aerospace
Components and the North American Handling operation, offset in part by reduced
earnings in Special Materials and the Handling operations in Europe and Asia
Pacific. Operating profit in 1995 benefitted from increased volumes at nearly
all businesses and improved selling prices in the North American Handling
business.
From 1994 to 1996, Special Materials' shipments of metal powders grew by 5%, as
increased usage of metal powders in automotive and nonautomotive applications
offset the impact of a small reduction in North American automobile and truck
production from peak 1994 levels. At Aerospace Components, commercial, military
and space fabrication sales in 1996 continued to increase, growing by $17.1
since 1994. Repair sales increased $4.7 in 1996 compared with 1994, reflecting
a resurgence in demand from the airline industry. In Handling, 1996 sales were
ahead of 1995 and 1994 in North American and Asia Pacific markets, but were
lower in Europe where the economic environment continued to be soft.
Cost of sales as a percentage of sales was 77% in both 1996 and 1995, and 78% in
1994. As a percentage of sales, selling and administrative expenses were 14% in
1996 and 15% in 1995 and 1994.
The following business segment commentary reflects the 1994 goodwill write-down.
However, the discussion of individual business unit results is presented before
this charge, before allocation of general corporate expenses, and before the
$2.6 favorable ESOP adjustment (see Note 4). See Note 7 for further information
on business segments.
Net Sales and Operating Profit by Business Segment
(in millions)
Net Sales Operating Profit
1996 1995 1994 1996 1995 1994
Engineered Materials
Special Materials $173.2 $175.7 $153.9
Aerospace Components 84.3 72.7 62.5
257.5 248.4 216.4 $ 40.5 $ 38.3 $ 31.0
Goodwill Write-Down --- --- (13.2)
257.5 248.4 216.4 40.5 38.3 17.8
Handling 452.1 441.5 406.0 24.8 21.3 17.5
Corporate Items (1.6) (2.0) (2.2)
Total Net Sales $709.6 $689.9 $622.4
Total Operating Profit $ 63.7 $ 57.6 $ 33.1
Engineered Materials
Engineered Materials includes Special Materials (metal powders for manufacturing
precision parts) and Aerospace Components (precision machined structures,
complex fabrications and jet engine component repairs).
Sales increased 4% in 1996 in the Engineered Materials segment. North American
automobile and light truck production remained essentially level in 1996
compared with 1995. Special Materials' shipments decreased 3% from 1995, due to
competitive pressures in non-proprietary powders and the disruption of powder
metal usage by several strikes in the automotive industry. Aerospace
Components' sales were up 16%, with increased fabrication shipments on several
newer commercial, military and space programs and higher sales on certain repair
programs.
Aerospace Components' defense-related business represented approximately 30%,
32% and 33% of its sales in 1996, 1995 and 1994, respectively. Defense-related
sales as a percentage of the Company's consolidated sales were approximately 4%
in 1996 and 3% in each of 1995 and 1994. Facing the slowdown in military
procurement in the early 1990s, the fabrication business of Aerospace Components
executed a strategy of increasing its penetration of the commercial and space
sectors, while continuing to secure new military business. The business
developed expertise in fabrication of the very large components used on new
high-thrust commercial jet engines and on space applications. Sales to the
commercial and space sectors more than doubled from 1990 to 1996. Repair sales
increased 21% in 1996. The increased volume of business reflected higher
utilization rates of certain aircraft engines, along with several programs to
perform blade modifications recommended by engine manufacturers.
Operating profit for the Engineered Materials segment increased 6% in 1996 over
1995. Special Materials' operating profit declined 6%, as lower production
volume and higher expenses were only partially offset by higher selling prices
and the favorable effects of the postretirement medical and life adjustments
described in Note 10. At Aerospace Components, operating profit was up 48% in
1996. Higher volume and increased manufacturing efficiency on several newer
fabrication programs, along with operational improvements in the repair
business, all contributed to the earnings improvement.
Sales increased 15% in 1995 in the Engineered Materials segment, reflecting a
second successive year of record shipments of metal powders. Special Materials'
shipments were up 8% from 1994, driven by increased penetration by powder
metallurgy in automotive and nonautomotive applications. Aerospace Components'
sales were up 16%, with increased fabrication shipments on several newer
commercial and military programs and higher sales on several repair programs.
Operating profit for the segment increased 24% in 1995, excluding the impact of
a special charge in 1994. Including the effect of the 1994 goodwill write-down,
as discussed in "Long-Lived Assets" and in Note 3, operating profit increased by
$20.5. Special Materials' operating profit was up 16%, reflecting the record
volume. In the Aerospace Components business, higher volume and improved
manufacturing efficiency led to a 10% increase in operating profit in 1995,
despite a $1.1 one-time gain in 1994 from settlement of a real estate matter.
(See "Nonoperating Items".)
The Engineered Materials segment's order backlog at year-end 1996 was $166.1, up
from $142.7 at the end of 1995. Special Materials' backlog, which is generally
short-term in nature, was down 10% from 1995. Increased orders on several
commercial programs resulted in a 27% increase in backlog at Aerospace
Components at year-end 1996, to the highest level since 1989.
Handling
Total segment sales in 1996 were up 3% from 1995, at comparable exchange rates.
Demand for material handling products in North America continued to be strong
after a substantial improvement in 1995, but pricing pressure held sales growth
to 2% in 1996. A 15% increase in 1996 sales in Asia Pacific reflected
opportunities presented by the withdrawal of a conveyor competitor, expanded
Pacific Rim activity and favorable exchange rates in relation to the U.S.
dollar, which offset the impact of a slowdown in the Australian economy.
European Handling sales were essentially level, as increased U.K. sales were
offset by lower sales in Germany and unfavorable exchange rate changes.
Segment operating profit increased 17% in 1996. The third quarter of 1995
included a one-time provision of $2.6 related to reducing fixed costs in the
U.K. and Germany. Excluding this provision, operating profit was up 4% from the
prior year, as higher volume, lower steel costs, lower expenses in Europe, and
the effects of the postretirement medical and life benefits and ESOP adjustments
were partially offset by lower prices. North American Handling profit was up
19%, driven by lower steel costs and additional volume. Excluding the impact of
the 1995 provision to reduce fixed costs, operating profit for the European
Handling business declined 12% in 1996, as the competitive pricing environment
offset the benefits of lower steel costs and expense savings. The benefit from
additional sales at Handling Asia Pacific was absorbed by a less favorable mix,
the unfavorable impact of a strong Australian currency in the Pacific Rim,
higher manufacturing costs and increased selling and administrative expenses.
As a result, earnings declined by 29% in 1996.
Total Handling sales in 1995 were 9% higher than in 1994, with both North
American and Asia Pacific businesses achieving record sales for a second
successive year. Strong demand for material handling products in the U.S. led
to then-record volumes and higher pricing, and generated a 6% increase in sales.
Higher Australian and Pacific Rim demand led to a 14% increase in Asia Pacific
sales. A 10% increase in European Handling sales reflected favorable exchange
rates and increased sales of conveyors and interiors products.
In 1995, Handling operating profit was up 22%. North American Handling profit
was up 37% reflecting then-record volume and improved pricing, partially offset
by a 5% increase in steel costs. The then-record volume at Handling Asia
Pacific contributed to a 28% increase in operating profit in that business.
Operating profit for the European Handling business was down 17%, as higher
selling prices did not cover increased steel costs and the $2.6 provision
incurred in connection with the reduction of fixed costs in the U.K. and
Germany.
Handling ended 1996 with an order backlog of $87.1, up from $84.2 at the end of
1995 (at comparable exchange rates), due mainly to strong order intake at Asia
Pacific.
Long-Lived Assets
In 1994, the Company concluded that, in the light of its highly leveraged
capital structure, a preferable accounting policy for analyzing the valuation of
long-lived assets would be to reflect its cost of capital in computing the
present value of the expected cash flows of its businesses. Applying this
policy to all of its long-lived assets, the Company determined that with respect
to its Aerospace Components and its since-disposed of newspaper-related
Packaging businesses, in the light of the significant deterioration in business
climates in the aerospace and newspaper industries over the preceding years, the
values of the discounted cash flows were insufficient to recover the carrying
value of the long-lived assets. Therefore, the goodwill component of those
assets was deemed to be impaired. As a result, a charge of $34.2 was taken,
$13.2 in continuing operations for the write-down of goodwill established in
connection with the acquisition of the Aerospace Components business and $21.0
in discontinued operations for the write-down of goodwill in connection with the
newspaper-related Packaging businesses. In 1996, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." This change in accounting policy did
not require an adjustment to income. (See Note 3.)
Interest Expense
The Company has a highly leveraged capital structure with substantial net
interest expense of $45.9, $45.7 and $44.7 in 1996, 1995 and 1994, respectively,
after allocation of interest to discontinued operations based on an assumed debt
paydown of $75.6. Increased expense in 1995 reflected the effect of replacement
of a portion of the Company s bank debt with senior notes bearing higher
interest rates, as well as higher rates on the remaining bank debt.
Nonoperating Items
The Company has certain income and expenses that are not related to its ongoing
operations. Ongoing postretirement expenses attributable to disposed or
previously-discontinued operations are reported as nonoperating items. In 1996,
nonoperating items benefitted from a change in the assumptions used in
calculating the Company's liability for postretirement medical and life
insurance benefits for the former employees of disposed or previously-
discontinued operations. The effect of this change resulted in a favorable
adjustment to nonoperating income of $1.3. In 1994, nonoperating income
included a $1.1 one-time gain for settlement of a real estate matter with a
local transportation authority at Aerospace Components.
The Company has been identified as a potentially responsible party in connection
with the investigation and remediation of a Superfund site in Duluth, Minnesota.
Based on the Company's current estimates of its potential liabilities related to
the 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 is subject to considerable uncertainty related to the possible
remediation of certain underwater sediments at the site. (See Note 16.)
The Company is a claimant in an action in federal district court in Toledo,
Ohio, in which it seeks indemnification from Beazer East, Inc. under the terms
of a 1978 sale agreement. The action concerns response costs incurred or to be
incurred in the future by the City of Toledo in connection with the alleged
contamination of a 1.7 acre parcel of land owned by the City that formerly was
the site of a coke plant and related by-products facilities. (See Note 17.)
The Company's Hoeganaes Corporation subsidiary is a defendant in an action in
federal district court in Trenton, New Jersey, brought by SC Holdings, Inc., a
subsidiary of Waste Management International Plc. The plaintiff seeks to
recover amounts expended or to be expended in investigation and remediation of
the Cinnaminson Groundwater Contamination Site in Burlington County, New Jersey,
which encompasses a landfill formerly operated by the plaintiff and may also
include the groundwater under a Hoeganaes facility. SC Holdings alleges that
Hoeganaes has liability both as an owner/operator and as a generator. The
Company believes that Hoeganaes has meritorious defenses against both alleged
bases of liability. (See Note 17.)
In May 1994, the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers in connection with environmental claims
under policies covering nearly 30 years.
Provision for Income Taxes
In 1996, 1995 and 1994, high levels of interest expense and differences in the
timing of income and expense recognition for financial reporting and income tax
purposes resulted in losses from continuing operations for U.S. federal income
tax purposes. Since most of the interest expense is borne in the United States
at the parent company level, throughout each period the Company had taxable
income in foreign and state jurisdictions despite the high levels of
consolidated interest expense. For each period presented, the Company also
provided for additional amounts related to open federal tax return years 1982
through 1990. The write-down of goodwill in 1994 did not result in a deduction
allowable for tax purposes. In 1996, taxes of $17.5 were recognized in respect
of the gain on the sale of the packaging businesses, and were reported as a
component of income from discontinued operations. (See Note 2.)
The Company's U.S. federal income tax returns for the years 1988 through 1990
are in the process of examination. Resolution of tax years 1982-1984 is pending
at the U.S. Tax Court following receipt of a statutory notice of deficiency for
$17.0 plus interest and penalties. Resolution of tax years 1985-1987 is pending
at the Appeals Division of the Internal Revenue Service. The Company believes
that adequate provision has been made for possible assessments of additional
taxes.
Discontinued Operations
On October 4, 1996, the Company sold its packaging businesses to Samuel Manu-
Tech Inc., of Etobicoke, Ontario, Canada, for $104.4. The consolidated
financial statements of the Company have been restated to report separately the
operating results and the gain on the sale of the packaging businesses as
discontinued operations. In 1996, income from discontinued operations of $46.4
($1.46 per share) consisted of a gain of $42.1 net of income taxes on the sale,
$4.0 income from operations and $.3 cumulative effect of a change in accounting
principle. Income from operations for the packaging businesses in 1996 included
a benefit of $.9 from changes in the assumptions used in calculating the
Company's liability for postretirement medical and life insurance benefits and
the elimination of such benefits for certain active domestic employees. (See
Notes 2 and 10.)
Extraordinary Loss
During the fourth quarter of 1996, the Company repurchased in the open market
$5.0 of its Senior Subordinated Debentures, at a premium of $.2. In addition,
debt issuance costs of $.1 associated with the repurchased debentures were
written off. The total of these amounts was shown as an extraordinary item.
During the second quarter of 1995, the Company issued $100.0 of Senior Notes due
2001 and completed a substantial amendment to the Company's senior bank credit
agreement. The proceeds were used to retire a portion of the Company's bank
debt. Debt issuance costs of $3.4 associated with the retired debt were written
off, without any currently usable tax benefit in 1995, and shown as an
extraordinary item. (See Notes 6 and 11.)
Cumulative Effect of Accounting Change
In 1996, the Company changed its method of amortizing unrecognized actuarial
gains and losses with respect to its postretirement benefits to amortize them
over a five-year period. This change has been accounted for as a change in
accounting principle, the cumulative effect of which was recorded as of the
beginning of the year. As a result, net income for 1996 was increased by $1.6
in respect of continuing operations and $.3 in respect of discontinued
operations. (See Note 5.)
Liquidity and Capital Resources
The Company's total debt at year-end 1996 was $398.8, down $44.8 from year-end
1995. Cash totaled $70.2 at the end of the year, up $28.7 from year-end 1995.
In early 1997, the Company purchased $14.5 of its Senior Notes in the open
market. During 1997, the Company has debt amortization requirements of $3.8.
Current levels of performance, if maintained throughout the year, will provide
the Company with leeway under its bank credit agreement covenants. The Company
believes that it will have adequate liquidity to meet its debt service and
operating requirements in 1997 based on expected operating cash flow and the
availability of additional revolver borrowings under the Company s bank credit
agreement. (See Note 11.)
In 1999, the Company has debt amortization requirements of $62.4, which it does
not expect to be able to meet from operating cash flow. The Company continues
to evaluate alternative actions to repay or refinance some or all of its long-
term debt obligations. A component of the Company's refinancing strategy could
be the divestiture of operating units. Consistent with this possibility, the
Company announced in the first quarter of 1997 that it is exploring the possible
sale of the businesses that comprise its Handling segment. Any divestiture of
the Handling businesses would likely result in a reduction in net income, with a
corresponding impact on the Company's debt ratios, in the short term; however,
the Company believes that a sale of Handling at an appropriate price would
enable the Company to concentrate its resources on its businesses in the
Engineered Materials segment, would provide the Company with greater flexibility
in its efforts to improve the Company's capital structure and would allow the
reduction of corporate costs. The Company has not reached any agreements or
understandings with respect to any sale, and there is no assurance that it will
do so.
Cash Flow (see Consolidated Statement of Cash Flows)
Cash outflow used by operating activities was $2.6 in 1996, while cash inflows
provided by operating activities were $23.9 and $23.2 in 1995 and 1994,
respectively. Strong fourth quarter operating activity in the Handling
businesses and the ramp-up of engine programs in Aerospace Components
contributed to increased working capital requirements of $23.1 in 1996, compared
with $3.6 in 1995 and $6.5 in 1994. In 1996, other operating adjustments
included payment of certain tax liabilities that had been classified as long
term, while in 1994, other operating adjustments reflected the movement of
certain expected tax liabilities from current to long term. Cash flow was not
affected by either the favorable adjustments to 1996 earnings in respect of
postretirement medical and life insurance benefits and the accounting for the
ESOP, or the $34.2 goodwill charges in 1994.
The cash inflow provided by investing activities in 1996 was $77.5, including
$102.4 proceeds on the sale of the packaging businesses. Cash outflows used by
investing activities were $20.2 and $14.6 respectively, in 1995 and 1994.
Capital expenditures for expansion projects totaled $8.5, $2.9 and $4.1,
respectively, in 1996, 1995 and 1994. Expansion spending in 1996 included the
addition of an annealing furnace to expand capacity at the Special Materials
operation, and equipment and facilities to accommodate fabrication of new engine
programs at the Aerospace Components operation. Expansion spending in 1995
included milling and machining equipment for the Aerospace Components operation,
while spending in 1994 included the completion of two annealing furnaces to
expand capacity at the Special Materials operation. Management believes that
capital expenditures have been adequate to properly maintain the Company's
businesses and provide for anticipated growth opportunities. The Company
expects that 1997 capital spending will be approximately $28.0.
Cash outflows used by financing activities were $46.9, $1.2 and $.6 in 1996,
1995 and 1994, respectively. In the fourth quarter of 1996, following the sale
of its packaging businesses, the Company repaid $46.0 in bank debt and purchased
in the open market $5.0 of its Senior Subordinated Debentures.
Foreign Operations
The Company does business in a number of foreign countries, mainly through its
Handling segment. The results of these operations are initially measured in
local currencies, principally in British pounds, Australian dollars and German
marks, and then translated into U.S. dollars at applicable exchange rates. The
reported results of these operations are sensitive to changes in applicable
foreign exchange rates that could have a material effect on the Company's
results of operations. During 1996, the dollar was generally stronger against
most currencies, which had an unfavorable impact of $3.0 on sales from
continuing operations, while in 1995, the dollar was weaker against most
currencies, which had a favorable impact on sales of $14.2. The impact of
changes in foreign exchange rates on operating profit was insignificant.
(For additional information about the Company's operations by geographic area,
see Note 7.)
Effects of Inflation
The impact of inflation on the Company in recent years has not been material,
and it is not expected to have a significant effect in the foreseeable future.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL
STATEMENT SCHEDULES
Page
Number
Consolidated Financial Statements:
Report of Independent Accountants 18
Consolidated Statement of Operations for the Years Ended
December 29, 1996, December 31, 1995 and December 25, 1994 19
Consolidated Balance Sheet at December 29, 1996 and December 31, 1995 20
Consolidated Statement of Cash Flows for the Years Ended
December 29, 1996, December 31, 1995 and December 25, 1994 21
Consolidated Statement of Stockholders' Equity (Deficit) for the
Years Ended December 29, 1996, December 31, 1995 and December 25, 1994 22
Notes to Consolidated Financial Statements 23
Supplementary Data (unaudited):
Quarterly Results (Note 18 of Notes to Consolidated Financial
Statements) 41
Financial Statement Schedules:
Schedule VIII Valuation and Qualifying Accounts 51
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Interlake Corporation:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of The
Interlake Corporation and its subsidiaries at December 29, 1996 and December 31,
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 29, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 5 and 3 to the consolidated financial statements, the
Company changed its method of amortizing postretirement benefit gains and
losses in 1996 and its method for evaluating the recoverability of goodwill and
other long-lived assets in 1994.
/s/ Price Waterhouse LLP
Chicago, Illinois
January 22, 1997
The Interlake Corporation
Consolidated Statement of Operations
For the Years Ended December 29, 1996,
December 31, 1995 and December 25, 1994
(in thousands except per share data)
1996 1995 1994
(52 weeks) (53 weeks) (52 weeks)
Net Sales from Continuing Operations $709,585 $689,913 $622,400
Cost of Products Sold 546,151 530,465 482,558
Selling and Administrative Expense 99,739 101,844 93,517
Goodwill Write-down (See Note 3) --- --- 13,202
Operating Profit 63,695 57,604 33,123
Interest Expense 48,297 47,486 46,126
Interest Income (2,413) (1,780) (1,369)
Nonoperating (Income) Expense (2,088) (1,043) (621)
Income (Loss) from Continuing Operations Before Taxes,
Minority Interest, Extraordinary Loss and Accounting Change 19,899 12,941 (11,013)
Provision for Income Taxes (See Note 8) 8,481 7,415 8,103
Income (Loss) from Continuing Operations Before Minority
Interest, Extraordinary Loss and Accounting Change 11,418 5,526 (19,116)
Minority Interest in Net Income of Subsidiaries 3,893 4,533 4,135
Income (Loss) from Continuing Operations Before
Extraordinary Loss and Accounting Change 7,525 993 (23,251)
Income from Discontinued Operations, Net of Applicable
Income Taxes (See Note 2) 46,376 3,220 (17,500)
Extraordinary Loss on Early Extinguishments of Debt,
Net of Applicable Income Taxes (See Note 6) (267) (3,448) ---
Cumulative Effect of Change in Accounting Principle (See Note 5) 1,610 --- ---
Net Income (Loss) $ 55,244 $ 765 $(40,751)
Income (Loss) Per Share of Common Stock:
Income (Loss) from Continuing Operations Before
Extraordinary Loss and Accounting Change $ .24 $ .03 $ (1.06)
Discontinued Operations 1.46 .11 (.79)
Extraordinary Loss (.01) (.11) ---
Cumulative Effect of Accounting Change .05 --- ---
Net Income (Loss) $ 1.74 $ .03 $ (1.85)
Average Shares Outstanding 31,670 30,520 22,027
(See notes to consolidated financial statements)
The Interlake Corporation
Consolidated Balance Sheet
December 29, 1996 and December 31, 1995
(Dollars in thousands)
1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 70,228 $ 41,562
Receivables, less allowances of $2,037 in 1996
and $3,425 in 1995 128,990 132,331
Inventories 59,986 78,730
Other current assets 12,893 15,100
Total Current Assets 272,097 267,723
Other Assets 40,527 43,269
Property, Plant and Equipment, net 145,099 148,810
Total Assets $457,723 $459,802
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 65,366 $ 75,266
Accrued liabilities 33,921 47,464
Interest payable 10,824 11,150
Accrued salaries and wages 15,675 15,648
Income taxes payable 29,591 14,665
Debt due within one year (See Note 11) 3,759 3,759
Total Current Liabilities 159,136 167,952
Long-Term Debt (See Note 11) 395,060 439,856
Other Long-Term Liabilities 72,691 87,362
Deferred Tax Liabilities (See Note 8) 9,346 9,307
Commitments and Contingencies (See Note 17)
Minority Interest 10,469 7,847
Preferred Stock 2,000,000 shares authorized
Convertible Exchangeable Preferred Stock Redeemable,
par value $1 per share, issued 40,000 shares (liquidation value
$59,626 at December 29,1996 and $54,602 at
December 31, 1995) (See Note 12) 39,155 39,155
Stockholders' Equity (Deficit): (See Note 13)
Common stock, par value $1 per share, authorized
100,000,000 shares, issued 23,228,695 in 1996 and 1995 23,229 23,229
Additional paid-in capital 3,741 13,504
Cost of common stock held in treasury (115,696 shares in
1996 and 412,500 shares in 1995) (2,700) (9,625)
Retained earnings (Accumulated deficit) (237,955) (293,201)
Unearned compensation (5,102) (8,950)
Accumulated foreign currency translation adjustments (9,347) (16,634)
Total Stockholders' Equity (Deficit) (228,134) (291,677)
Total Liabilities and Stockholders' Equity (Deficit) $457,723 $459,802
(See notes to consolidated financial statements)
The Interlake Corporation
Consolidated Statement of Cash Flows
For the Years Ended December 29, 1996,
December 31, 1995 and December 25, 1994
(in thousands)
1996 1995 1994
(52 weeks) (53 weeks) (52 weeks)
Cash Flows from (for) Operating Activities:
Net income (loss) $ 55,244 $ 765 $ (40,751)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
(Gain) on divestiture (42,105) --- ---
Goodwill write-down --- --- 34,174
Depreciation and amortization 19,955 20,298 23,102
Extraordinary item 267 3,448 ---
Accounting change (1,876) --- ---
Other operating adjustments (11,009) 2,982 13,172
(Increase) Decrease in working capital:
Accounts receivable (18,497) (993) (18,754)
Inventories (2,119) (3,837) 5,880
Other current assets (1,805) (1,762) 3,249
Accounts payable 5,758 2,040 9,897
Other accrued liabilities (12,570) (3,717) 758
Income taxes payable 6,131 4,660 (7,560)
Total Working Capital Change (23,102) (3,609) (6,530)
Net Cash Provided (Used) by Operating Activities (2,626) 23,884 23,167
Cash Flows from (for) Investing Activities:
Capital expenditures (25,279) (21,299) (15,485)
Proceeds from disposal of PP&E 257 329 477
Acquisitions (310) --- (746)
Divestitures 102,402 --- ---
Other investment flows 455 762 1,137
Net Cash Provided (Used) by Investing Activities 77,525 (20,208) (14,617)
Cash Flows from (for) Financing Activities:
Proceeds from issuance of long-term debt 9,000 110,127 10,656
Retirements of long-term debt (55,217) (108,624) (11,970)
Debt issuance costs --- (4,773) (1,264)
Debt retirement costs (175) --- ---
Other financing flows (514) 2,111 1,982
Net Cash Provided (Used) by Financing Activities (46,906) (1,159) (596)
Effect of Exchange Rate Changes on Cash 673 (663) (180)
Increase in Cash and Cash Equivalents 28,666 1,854 7,774
Cash and Cash Equivalents, Beginning of Year 41,562 39,708 31,934
Cash and Cash Equivalents, End of Year $ 70,228 $ 41,562 $ 39,708
(See notes to consolidated financial statements)
The Interlake Corporation
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 29, 1996,
December 31, 1995 and December 25, 1994
(in thousands)
Common Stock Common Stock Retained Unearned Foreign
and Paid-In Capital Held in Treasury Earnings Compen- Currency
Shares Amount Shares Amount (Deficit) sation Translation Total
Balance December 26, 1993 23,229 $53,477 (1,202) $(28,047) $(253,215) $(11,279) $(20,703) $(259,767)
Net income (loss) (40,751) (40,751)
Stock incentive plans (See Note 14) 15 15
ESOP transactions (See Note 13) 1,206 1,206
Translation gain 2,862 2,862
Balance December 25, 1994 23,229 53,477 (1,202) (28,047) (293,966) (10,058) (17,841) (296,435)
Net income 765 765
Stock incentive plans (See Note 14) (16,744) 789 18,422 (1,004) 674
ESOP transactions (See Note 13) 2,112 2,112
Translation gain 1,207 1,207
Balance December 31, 1995 23,229 36,733 (413) (9,625) (293,201) (8,950) (16,634) (291,677)
Net income 55,244 55,244
Stock incentive plans (See Note 14) (6,258) 297 6,925 2 337 1,006
ESOP transactions (See Notes 4 & 13) (3,505) 3,511 6
Sale of packaging businesses 8,476 8,476
Translation loss (1,189) (1,189)
Balance December 29, 1996 23,229 $26,970 (116) $(2,700) $(237,955) $(5,102) $(9,347) $(228,134)
(See notes to consolidated financial statements)
The Interlake Corporation
Notes to Consolidated Financial Statements
For the Years Ended December 29, 1996, December 31, 1995 and December 25, 1994
(All dollar amounts in thousands except where indicated)
NOTE 1 - Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include the
accounts of all majority-owned domestic and foreign subsidiaries. All
significant intercompany transactions are eliminated. The consolidated
statement of operations of the Company has been restated to report separately
the operating results and the gain on the sale of the packaging businesses as
discontinued operations. The consolidated balance sheet and cash flow statement
were not restated.
Cash Equivalents--The Company considers all highly liquid financial instruments
with original maturities of three months or less to be cash equivalents and
reports the earnings from these instruments as interest income.
Revenue--Recognition Revenue from sales is generally recognized when product is
shipped, except on long-term contracts in the Handling segment, where revenue is
accounted for principally by the percentage-of-completion method.
Deferred Charges--The Aerospace Components unit periodically enters into
long-term agreements with customers on major programs where tooling and other
development costs are capitalized as Other Assets. These assets are then
amortized during the production stage by the units-of-production method.
Inventories--Inventories are stated at the lower of cost or market value.
Inventories valued on the LIFO method represent approximately 38% and 32% of
consolidated inventories and 55% and 55% of domestic inventories at December 29,
1996 and December 31, 1995, respectively. The current cost of these inventories
exceeded their valuation determined on a LIFO basis by $12,946 at December 29,
1996 and by $14,381 at December 31, 1995.
Inventories by category at December 29, 1996 and December 31, 1995 were:
1996 1995
Raw materials $15,212 $16,247
Semi-finished and finished products 37,842 55,140
Supplies 6,932 7,343
$59,986 $78,730
Leases--The Company frequently enters into operating leases in the normal course
of business. Amounts due under noncancellable operating leases in the next
five fiscal years are as follows:
1997 1998 1999 2000 2001
$4,852 $4,391 $4,222 $4,131 $4,041
Rent expense charged to operating profit of continuing operations was $10,120,
$9,957, and $9,921 in 1996, 1995 and 1994, respectively.
Property, Plant and Equipment and Depreciation--Plant and equipment are
depreciated principally on a straight-line method over the estimated useful
lives of the assets. Depreciation for income tax purposes is computed by use of
accelerated methods.
Expenditures for renewals and betterments which extend the originally estimated
useful life of an asset or materially increase its productivity are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or disposal of property, plant and equipment, the asset cost and
related accumulated depreciation are removed from the accounts, and any gain or
loss on the disposal is generally credited or charged to nonoperating income.
Property, plant and equipment by category at December 29, 1996 and December 31,
1995 were:
1996 1995
At Cost:
Land $ 6,052 $ 7,122
Buildings 71,147 77,878
Equipment 302,968 308,282
Construction in progress 7,379 8,843
387,546 402,125
Depreciation (242,447) (253,315)
$145,099 $148,810
Goodwill--Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired companies and is amortized on a straight-
line method over periods not exceeding thirty years. The Company carries its
goodwill assets at their purchase prices, less amortized amounts, but subject to
periodic review for impairment. In 1994, the Company changed its accounting
policy for valuation of its long-lived assets, primarily goodwill, to reflect
its cost of capital in calculating the present value of the projected future
cash flows expected to be generated over the lives of those assets. Under this
policy, projections of cash flows for individual business units were discounted
at the approximate incremental cost of borrowing for the Company. This
discounted amount was compared to the carrying value of the long-lived assets to
determine if their value was impaired (see Note 3).
The Company adopted the Financial Accounting Standards Board's Statement of
Financial Accounting Standards (FAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in 1996. This
change in accounting policy did not require an adjustment to income.
Foreign Currency Translation--The financial position and results of operations
of the Company's foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of these subsidiaries are
translated at the exchange rate in effect at each fiscal year end. Results of
operations are translated at the average rates of exchange prevailing during the
year. Translation adjustments arising from differences in exchange rates from
period to period are included in the accumulated foreign currency translation
adjustments account in stockholders' equity (deficit).
Foreign Exchange Contracts--The Company periodically enters into foreign
exchange contracts to hedge specific inventory purchases and other transactions
denominated in foreign currencies. At December 29, 1996, the Company had
outstanding currency contracts to exchange $3.0 million for 20.6 million Swedish
kroner and to exchange .2 million pounds sterling for $.3 million. The
Company's exposure to loss in the event of nonperformance by the other parties
to these contracts is limited to the effect of the currency fluctuations related
to the amounts to be exchanged; however, the Company does not anticipate
nonperformance by the counterparties.
Research and Development Expenses--Research and development expenditures for
Company sponsored projects are expensed as incurred. Research and development
expenses included in selling and administrative expenses of continuing
operations were $2,200, $2,151, and $2,107 for the Engineered Materials segment
in 1996, 1995, and 1994, respectively, and $1,573, $986, and $1,105 for the
Handling segment in 1996, 1995, and 1994, respectively.
Computation of Common Share Data--The weighted average number of common shares
outstanding used to compute income (loss) per common share for the 1996, 1995
and 1994 periods was 31,670,000, 30,520,000 and 22,027,000 for the 1996, 1995
and 1994 periods, respectively. (The weighted average shares outstanding
excludes 7,692,000 shares in the 1994 period related to the convertible
preferred stock because treatment of the preferred stock as if converted would
have had an anti-dilutive effect.)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such estimates
may affect amounts reported in future periods.
Accounting for Stock-Based Compensation-- In October of 1995, the Financial
Accounting Standards Board issued FAS No. 123, "Accounting for Stock-Based
Compensation." The statement, effective for fiscal year 1996, establishes a
fair value based method of accounting for employee stock-based compensation
plans and encourages adoption of that method. FAS 123 permits an entity to
continue to apply the provision of Accounting Principles Board Opinion Number 25
(APB 25), "Accounting for Stock Issued to Employees", provided certain pro forma
disclosures are made. The Company continues to use the accounting prescribed
under APB 25. See Note 14 for additional pro forma disclosures.
NOTE 2 - Discontinued Operations
On October 4, 1996, the Company sold its packaging businesses ("Packaging") to
Samuel Manu-Tech Inc. ("SMT") of Etobicoke, Ontario, Canada, or entities
controlled by SMT, for an aggregate net cash purchase price, before taxes and
other expenses, of $104,402, subject to potential adjustments. The purchase
price was based upon a multiple of operating earnings, and was agreed to after
arms length negotiations between the parties and approved by their respective
boards of directors. The transaction included the sale in the United States of
substantially all of the assets of Interlake Packaging Corporation ("Interlake
Packaging") to Samuel Strapping Systems (Tennessee), Inc. ("Samuel Tennessee"),
and the assumption by Samuel Tennessee of substantially all of the liabilities
of Interlake Packaging; the sale in Canada by Interlake Packaging and The
Interlake Companies, Inc. ("Interlake Companies") to SMT of all of the
outstanding shares of Acme Strapping Inc.; and the sale in England by Interlake
Companies of all of the outstanding shares of Precis (935) Limited to Samuel
Strapping Systems (U.K) Limited.
The consolidated statement of operations of the Company has been restated to
report separately the operating results and the gain on the sale of Packaging as
discontinued operations. Summary results of discontinued operations were as
follows:
1996 1995 1994
Net Sales $105,287 $141,374 $130,339
Earnings Before Interest and Taxes(1) $ 12,087 $ 13,995 $ 11,934
Goodwill Write-down --- --- (20,972)
Net Interest Expense(2) (4,833) (6,834) (5,483)
Provision for Income Taxes (3,249) (3,941) (2,785)
Gain on Disposal, Net of Income Taxes
of $17,513(3) 42,105 --- ---
Cumulative Effect of Accounting Change 266 --- (194)
Income (Loss) from Discontinued
Operations $ 46,376 $ 3,220 $(17,500)
(1) The liquidation of LIFO inventories benefited pre-tax income from
discontinued operations in 1995 by $786 and $752 in 1994.
(2) Interest expense was allocated to discontinued operations based on an
assumed $75,604 reduction in long-term debt.
(3) Includes the write-off of $8,476 of deferred foreign exchange losses
related to the packaging businesses that were previously a component of
accumulated foreign currency translation adjustments.
NOTE 3 - Goodwill Write-down
In 1994, the Company concluded that, in the light of its highly leveraged
capital structure and significant losses, a preferable accounting policy for
analyzing the potential impairment of long-lived assets would be to reflect the
cost of capital in computing the present value of the expected cash flows of its
businesses. In particular, the aerospace industry was suffering the combined
impacts of a significant decrease in U.S. military spending in the early 1990s
and competitive pricing due to overcapacity in the airline industry, while the
newspaper industry was continuing to go through an industry-wide consolidation.
Applying this new policy to all of its long-lived assets the Company determined,
with respect to its Aerospace Components and its since-discontinued newspaper-
related Packaging businesses, that in the light of the significant deterioration
in business climates in the aerospace and newspaper industries over recent
years, the values of the discounted cash flows were insufficient to recover the
carrying value of the long-lived assets. Therefore, the goodwill included among
those assets was deemed to be impaired. As a result, a charge of $13,202 was
recorded for the write-down of goodwill established in connection with the
acquisition of the Aerospace Components business. A charge of $20,972 was
reflected in the loss from discontinued operations to write-off the goodwill
related to the acquisition of the newspaper-related Packaging businesses. In
1996, the Company adopted FAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." This change in
accounting policy did not require an adjustment to income.
NOTE 4 - Employee Stock Ownership Plan
In 1996, the Company adopted a fair value approach with respect to its
accounting for the Interlake Employee Stock Ownership Plan (ESOP) as described
in American Institute of Certified Public Accountants' Statement of Position
93-6, "Employers Accounting for Employee Stock Ownership Plans." Previously,
ESOP expense was determined using the original purchase price of the ESOP shares
($14.625 per share). Under the new method, ESOP expense is based on the market
value of Interlake common stock at the year end multiplied by the number of
shares allocated to participants during the year. This change resulted in the
Company recording a favorable expense adjustment of $2,635 to income from
continuing operations in the fourth quarter of 1996.
NOTE 5 - Cumulative Effect of Change in Accounting Principle
The Company changed its method of amortizing unrecognized actuarial gains and
losses with respect to its postretirement benefits to amortize them over a
five-year period. The method previously used was to amortize any unrecognized
gain or loss in excess of 10% of the APBO amount over 15 years. This change has
been accounted for as a change in accounting principle, the cumulative effect of
which was recorded as of the beginning of the year. As a result, net income for
1996 was increased by $1,610 in respect of continuing operations and $266 in
respect of discontinued operations.
NOTE 6 - Extraordinary Losses
In 1996, the Company repurchased $5,000 of Senior Subordinated Debentures at a
premium of $175. In addition, debt issuance costs of $92 related to the
repurchased debentures which were originally deferred to be amortized over the
original life of the debentures were written off. The total of these amounts,
$267 (equivalent to $.01 per share) was reported as an extraordinary loss
without any currently usable tax benefit in 1996.
In 1995, the Company completed the sale of $100,000 of Senior Notes in a public
offering and entered into a substantial amendment and restatement of its senior
bank credit agreement. Proceeds of the Senior Notes were used to repay a
portion of its outstanding bank debt. This necessitated the write-off of
issuance costs related to the previously outstanding indebtedness which were
originally deferred to be amortized over the original life of the indebtedness.
This resulted in an extraordinary loss of $3,448 (equivalent to $.11 per share)
without any currently usable tax benefit in 1995.
The cash flow impact of the early extinguishment of debt was immaterial.
However, debt issuance and related costs in 1995 had a negative cash flow
consequence of $4,773 which was deducted in determining cash flows from
financing activities in the Consolidated Statement of Cash Flows.
NOTE 7 - Business Segment Information
The Company operates in two segments:
Engineered Materials includes Special Materials, which produces
ferrous metal powder used to manufacture precision parts, and
Aerospace Components, which manufactures precision jet engine
components and repairs jet engine fan blades.
Handling comprises the Company's Handling operations, which design,
manufacture and sell storage rack, shelving and related equipment
primarily for use in warehouses, distribution centers and for other
storage applications.
The accompanying tables present financial information by business segment for
the years 1996, 1995, and 1994. Operating profit consists of net sales of the
segment less all costs and expenses related to the segment. "Corporate Items"
includes items which are not related to either of the two business segments.
Total assets by business segment consist of those assets used directly in the
operations of each segment. Corporate assets consist principally of cash,
nonoperating investments and prepaid pension cost, and assets related to
discontinued operations.
Information About The Company's Business Segments
Net Sales Operating Profit (Loss) Identifiable Assets
1996 1995 1994 1996 1995 1994 1996 1995 1994
(in millions)
Engineered Materials
Special Materials $173.2 $175.7 $153.9
Aerospace Components 84.3 72.7 62.5
257.5 248.4 216.4 $40.5 $38.3 $ 31.0
Goodwill Write-down --- --- (13.2)
257.5 248.4 216.4 40.5 38.3 17.8 $189.4 $172.6 $166.6
Handling 452.1 441.5 406.0 24.8 21.3 17.5 183.9 170.7 162.3
Corporate Items (1.6) (2.0) (2.2) 84.4 116.5 116.1
Operating Profit 63.7 57.6 33.1
Net Interest Expense (45.9) (45.7) (44.7)
Nonoperating Income 2.1 1.0 0.6
Consolidated Totals $709.6 $689.9 $622.4 $19.9 $ 12.9 $(11.0) $457.7 $459.8 $445.0
Depreciation and Amortization
Engineered Materials $10.7 $10.5 $11.7
Handling 7.9 7.9 7.8
Corporate Items 0.1 0.1 0.2
Consolidated Totals $18.7 $18.5 $19.7
Capital Expenditures
Engineered Materials $17.6 $13.0 $ 8.3
Handling 6.7 7.0 5.9
Corporate Items 0.1 --- 0.1
Consolidated Totals $24.4 $20.0 $14.3
Information About The Company's Operations by Geographic Region
The following table presents information about the Company's operations by
geographic area. Transfers between geographic areas, which are all in the
Handling segment, are made at prices which approximate the prices of similar
items sold to distributors. Operating profit by geographic area is the
difference between net sales attributable to the area and all costs and expenses
related to that area. Export sales to unaffiliated customers included in North
American sales are not material. Sales to domestic and foreign government
agencies are not material.
Net Sales Operating Profit (Loss) Identifiable Assets
1996 1995 1994 1996 1995 1994 1996 1995 1994
(in millions)
North America
Customer Sales $450.9 $439.3 $396.3
Inter-geographic 0.7 0.4 0.5
451.6 439.7 396.8 $57.6 $51.7 $ 39.5
Goodwill Write-down --- --- (13.2)
451.6 439.7 396.8 57.6 51.7 26.3 $249.1 $224.3 $222.1
United Kingdom
Customer Sales 110.8 104.0 100.7
Inter-geographic 6.7 4.4 4.4
Subtotal 117.5 108.4 105.1 5.9 4.6 6.3 50.7 42.1 40.5
Continental Europe
Customer Sales 81.5 89.1 75.1
Inter-geographic 0.6 0.5 0.5
Subtotal 82.1 89.6 75.6 1.0 1.5 1.3 40.2 44.8 40.1
Asia Pacific
Customer Sales 66.4 57.5 50.3
Inter-geographic --- --- ---
Subtotal 66.4 57.5 50.3 0.8 1.8 1.4 33.3 32.1 26.2
Corporate Items/Eliminations (8.0) (5.3) (5.4) (1.6) (2.0) (2.2) 84.4 116.5 116.1
Operating Profit 63.7 57.6 33.1
Net Interest Expense (45.9) (45.7) (44.7)
Nonoperating Income (Expense) 2.1 1.0 0.6
Consolidated Totals $709.6 $689.9 $622.4 $19.9 $12.9 $(11.0) $457.7 $459.8 $445.0
NOTE 8 - Income Taxes
Income (loss) before taxes, minority interest, extraordinary items, discontinued
operations and accounting changes consisted of:
1996 1995 1994
Domestic $13,185 $ 6,789 $(17,651)
Foreign 6,714 6,152 6,638
$19,899 $12,941 $(11,013)
The provisions for taxes on income consisted of:
1996 1995 1994
Current:
U.S. Federal $ 3,390 $ 2,202 $ 2,667
State 2,482 3,379 2,762
Foreign 3,276 983 58
Total 9,148 6,564 5,487
Deferred:
U.S. Federal --- 321 (3,493)
State --- --- ---
Foreign (1,321) 146 2,345
Total (1,321) 467 (1,148)
Change in Net Operating Loss Carry-forwards:
U. S. Federal --- --- 3,172
Foreign 654 384 592
Total 654 384 3,764
Tax Provision $ 8,481 $ 7,415 $ 8,103
The Company reported consolidated income tax expense for all years presented
consisting primarily of current taxes and deferred taxes on income earned in
foreign and state jurisdictions.
In 1996, 1995 and 1994, high levels of interest expense and differences in the
timing of income and expense recognition for financial reporting and income tax
purposes resulted in losses for U.S. federal income tax purposes.
Since most of the interest expense is borne in the United States at the parent
company level, throughout each period the Company had taxable income in foreign
and state jurisdictions despite the high levels of consolidated interest
expense. For each period presented, the Company also provided for additional
amounts related to open federal tax return years 1982 through 1990. In 1994,
the goodwill write-down did not result in a deduction allowable for tax
purposes.
The Company's effective tax rate was 42.6% in 1996 and 57.3% in 1995. An
effective tax rate analysis for 1994 would not be meaningful. The table below
summarizes the components of the Company s effective tax rates:
1996 1995
U.S. statutory rate 35.0% 35.0%
State income taxes (net of federal benefit) 8.6 17.9
Adjustment to prior year accruals 6.0 22.6
ESOP (See Note 4) (2.0) ---
Valuation allowance changes (7.1) (16.8)
Miscellaneous - other 2.1 (1.4)
42.6% 57.3%
The U.S. federal tax net operating loss carry-forward was $17,271 at the end of
1996. Of that amount, $5,420 will expire in 2009 and the remainder will expire
in 2010. A portion of the U.S. net operating loss carry-forward was utilized to
offset the gain on sale of the Company s packaging businesses. The tax effects
of the remaining net operating loss carry-forward as well as the net deferred
domestic temporary differences were fully reserved in the valuation allowance
principally because of uncertainties regarding the availability of domestic
taxable income in the future in view of the Company's recent history of domestic
tax losses. In addition, there are uncertainties regarding the ultimate
resolution of certain tax issues as discussed below.
Actual cash disbursements for income taxes and other tax assessments including
amounts from discontinued operations were $12,921, $6,896, and $4,844 in 1996,
1995, and 1994, respectively.
Deferred tax liabilities and assets are comprised of the following:
1996 1995
Deferred tax liabilities
Depreciation $19,596 $21,208
Other 3,942 3,548
$23,538 $24,756
Deferred tax assets
Deferred employee benefits $16,374 $17,448
Net operating loss carry-forward 6,286 12,151
AMT credit carry-forward 3,284 2,016
Inventory 2,358 2,854
Environmental reserves 975 2,155
Other 5,425 6,107
34,702 42,731
Valuation allowance (14,036) (21,232)
$20,666 $21,499
As of December 29, 1996, U.S. federal income tax returns for the years 1988
through 1990 were in the process of examination. Resolution of tax years
1982-1984 is pending with the U.S. Tax Court following receipt of a statutory
notice for $17,000 plus interest and penalties. Resolution of tax years 1985-
1987 is pending with the Appeals Division of the Internal Revenue Service. The
Company believes that adequate provision has been made for possible assessments
of additional taxes.
No provision has been made for U.S. income taxes on approximately $26,209 of
undistributed earnings of foreign subsidiaries, some of which are subject to
statutory restrictions on distribution.
NOTE 9 - Pensions
The Company has various defined benefit and defined contribution pension plans
which between them cover substantially all employees.
The provision for defined benefit pension costs includes current costs, interest
costs, actual return on plan assets, amortization of the unrecognized net asset
existing at the date of transition and net unrealized gains and losses.
Benefits are computed based mainly on years of service and compensation during
the latter years of employment. Company contributions are determined according
to the funding requirements set forth by ERISA and, in the case of foreign
plans, local statutory requirements.
Certain of the Company's defined benefit plans relate to foreign locations and
are denominated in currencies other than U.S. dollars. All plans use similar
economic assumptions. The following table sets forth the funded status of
domestic and foreign defined benefit plans and the amounts included in the year-
end balance sheet. The 1995 amounts include balances of the since-disposed of
packaging businesses.
1996 1995
Plan assets at fair value $129,528 $146,787
Actuarial present value of accumulated
benefit obligation:
Vested benefits 124,691 133,880
Non-vested benefits 1,622 1,103
126,313 134,983
Effect of assumed future compensation increases 11,708 14,955
Projected benefit obligation for service to date 138,021 149,938
Projected benefit obligation in excess of plan
assets (8,493) (3,151)
Items not yet recognized in earnings:
Unrecognized net asset at December 28, 1986
(being recognized over 15 years) 6,666 11,994
Unrecognized net actuarial gain (16,312) (15,558)
Unrecognized prior service cost (3,564) (7,236)
(13,210) (10,800)
Prepaid pension assets $ 4,717 $ 7,649
In aggregate, the plans were underfunded by $8,493 at December 29, 1996 and
$3,151 at December 31, 1995.
Net pension cost (income) included in income from continuing operations for
these plans consists of the following components:
1996 1995 1994
Service cost $ 3,385 $ 2,659 $ 2,891
Interest cost 9,490 8,531 8,103
Actual return on plan assets [(income) loss] (11,679) (13,282) (4,636)
Net amortization and deferred items 1,485 2,544 (7,142)
Net pension cost (income) $ 2,681 $ 452 $ (784)
Assumptions used in the computations:
Assumed discount rate 7.5-8% 7.5-9% 7.5-9%
Expected long-term rate of return on plan assets 9% 8.5-9% 8.5-9%
Rate of increase in future compensation levels 4-6% 4-6% 4-7%
Pension plan assets are primarily invested in common and preferred stock, short
and intermediate term cash investments, and corporate bonds.
The expense to continuing operations for the Company's defined contribution
pension plans covering certain domestic employees was $2,570, $1,959, and $1,341
in 1996, 1995, and 1994, respectively. Annual contributions to defined
contribution plans are equal to the amounts accrued during the year.
In 1989, the Company established a non-contributory, defined contribution
employee stock ownership plan (ESOP) covering all domestic employees not covered
by collective bargaining agreements. Company contributions are allocated to
participants based on the ratio each participant's compensation bears to the
total compensation of all eligible participants. The Company makes
contributions to the plan in the amount necessary to enable the plan to make its
regularly scheduled payments of principal and interest on its term loan under
the bank credit agreement. Including the effect of the 1996 favorable expense
adjustment of $2,635 described in Note 4, amounts charged to continuing
operations for employee benefits and interest during the year totalled $(685)
and $601, respectively, in 1996, $1,539 and $824, respectively, in 1995, and
$1,179 and $741, respectively, in 1994.
NOTE 10 - Postretirement Benefits Other Than Pensions
The following table sets forth the status of the Company's various
postretirement medical and life benefit plans, reconciled to the accrued cost
for postretirement medical and life benefits recognized in the Company's year-
end balance sheet. The 1995 amounts include balances of the since-disposed of
packaging businesses.
1996 1995
Accumulated postretirement benefit obligation:
Retirees $14,985 $23,017
Fully eligible active plan participants 195 2,403
Other active plan participants 771 2,082
Total accumulated postretirement benefit obligation 15,951 27,502
Unrecognized prior service cost 687 2,013
Unrecognized gain 6,243 4,996
Accrued postretirement benefit cost $22,881 $34,511
Net periodic postretirement benefit cost of continuing operations included the
following components:
1996 1995 1994
Service cost on benefits earned $ 86 $ 148 $ 188
Interest cost on accumulated postretirement
benefit obligation 1,243 1,756 1,766
Amortization of unrecognized prior service
cost (169) (115) (116)
Amortization of unrecognized gain (1,558) (291) (118)
Net periodic postretirement benefit cost charged
to results from continuing operations (398) 1,498 1,720
Favorable adjustment due to elimination of
medical and life insurance benefits (1,593) --- ---
Net effect charged to results from continuing
operations $(1,991) $1,498 $1,720
Based on a review of postretirement life and medical claims costs experience in
1996, the Company changed the assumptions used to calculate the accumulated
postretirement benefit obligation. The annual rate of increase of per capita
claims cost was changed from 12% in 1996, decreasing by 1% per year to 6% in
2002, to 7% in 1996, decreasing by 1/2% per year to 5% in 2000 and remaining at
that level thereafter. In addition, the method for estimating expected future
medical claims was revised to reflect recent claims experience. The previous
estimate applied a weighting factor to recent experience. These actuarial
assumption changes resulted in a favorable expense adjustment of $2,297 to
operating profit. In 1996, the Company also changed its method of amortizing
unrecognized actuarial gains and losses with respect to its postretirement
benefits, as described in Note 5. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% at
December 29, 1996 and December 31, 1995. The rate of compensation increase used
to measure the accumulated postretirement benefit obligation for the death
benefit plans was 4% in both 1996 and 1995.
If the health care cost trend rate were increased 1%, the accumulated
postretirement benefit obligation as of December 29, 1996 would have increased
by 5%. The effect of this change on the aggregate of service and interest cost
for 1996 would be an increase of 5%.
In 1996, the Company eliminated postretirement medical and life insurance
benefits for which certain active domestic employees could have become eligible.
After a one-time cash payment of $1,012, the Company recorded a favorable
expense adjustment to income from continuing operations of $1,593. The
provision for postretirement benefits other than pensions included in operating
profit was $117, $760 and $842 in 1996, 1995, and 1994, respectively. The
provision for such costs included in nonoperating income was $(515), $738, and
$878 in 1996, 1995, and 1994, respectively.
NOTE 11 - Long-Term Debt and Credit Arrangements
Long-term debt of the Company consists of the following:
December 29, Interest December 31, Interest
1996 Rates 1995 Rates
Senior Subordinated Debentures $215,000 12.13% $220,000 12.13%
Senior Notes 100,000 12.00 100,000 12.00
Term Loans 36,957 8.38-9.25 56,478 8.44-9.31
Revolving Loans 21,356 8.38-9.25 37,742 8.44-9.31
ESOP Note 5,831 8.38 7,943 8.44
Obligations under long-term lease agreements 5,845 6.13-7.88 7,470 6.13-7.88
Pollution control and industrial development
loan agreements 12,150 6.25-7.13 12,150 6.25-7.13
Other 1,680 --- 1,832 ---
398,819 443,615
Less-current maturities 3,759 3,759
$395,060 $439,856
Weighted average interest rate 11.87% 11.38%
During 1995, the Company completed the sale of $100,000 of Senior Notes due 2001
in a public offering. The proceeds from the offering were used to repay a
portion of the indebtedness outstanding under the Company's senior bank credit
facilities. Concurrent with the closing of the sale of the Senior Notes and the
repayment of a portion of its outstanding bank debt, the Company and its bank
group completed a substantial amendment to the Company's senior bank credit
agreement to defer the amortization of substantially all of the remaining bank
indebtedness until 1999 and to revise certain terms and financial covenants of
the bank credit agreement.
At the end of 1996, the bank credit agreement provided facilities for term loans
of $42,741, revolving loans of up to $59,933 (subject to limitations described
below), and ESOP loans of $5,831. Principal repayments for term and revolving
loans are due in 1999. Principal amounts for ESOP loans are due in varying
amounts through 1999.
Under the terms of the bank credit agreement, the Company pays a commitment fee
of 1/2 percent on unused credit facilities and, in 1996, had the option to
borrow funds under the revolving and term facilities at the prime rate plus 1
percent, or various London Interbank Offered Rates (LIBOR) plus 2 percent,
with such rates adjusted periodically. The bank credit agreement borrowing
rates at December 29, 1996, ranged from 8.38% to 9.25%. During 1996, the
Company had interest rate hedging arrangements with members of the bank group
fixing interest rates on an average of $72,656 of debt under the bank credit
agreement at 8.59% plus the applicable spread. These agreements were settled in
December 1996 for $1,095 of which $570 was recorded as interest expense included
in income from continuing operations and $525 of expense was included in the
gain on the sale of the packaging businesses. Without the interest rate hedging
agreements, the weighted average cost of borrowing would have been .8 percentage
points lower in 1996, .5 percentage points lower in 1995 and 1.2 percentage
points lower in 1994.
The Senior Subordinated Debentures were sold in 1992 and bear interest at
12.125%. Principal repayment is due in 2002, with sinking fund payment of
$45,000 in 2001.
The long-term lease obligations relate principally to capitalized pollution
control facilities. The interest rates on these obligations vary from 6.125% to
7.875%. Principal repayments are due in varying amounts through 2002.
Predecessors of the Company borrowed funds under several loan agreements with
state and county pollution control and industrial development authorities to
finance certain environmental and facility expansion and improvement projects.
Interest rates on these obligations vary from 6.25% to 7.125%. Principal
repayments are to be made in varying amounts from 1998 to 2009. At the time of
the spin-off of Acme Steel Company from the Company in 1986, Acme entered into a
parallel loan agreement in favor of the Company with respect to pollution
control bonds related to its facilities, which are currently outstanding for
$6,000.
The schedule of debt repayment requirements for the five years following 1996 is
as follows:
1997 $ 3,759
1998 4,321
1999 62,449
2000 344
2001 145,441
Current levels of performance, if maintained throughout the year, will provide
the Company with leeway under its bank credit agreement covenants. The Company
believes that it will have adequate liquidity to meet its debt service and
operating requirements in 1997 based on expected operating cash flow and the
availability of additional revolver borrowings under the Company's bank credit
agreement. Under the bank credit agreement, the Company is able to borrow under
its revolving facility up to an additional $34,961 over the 1996 year-end
revolving indebtedness. In addition, the Company has available up to $5,784 of
delayed draw term loan for amounts that may be incurred in connection with
certain environmental matters.
Under the bank credit agreement the Company is limited in its ability to pay
cash dividends and repurchase its common stock. There are no plans to pay
dividends or repurchase common stock in the immediate future. In addition to
scheduled repayments of debt, the bank credit agreement requires certain
mandatory prepayments in connection with asset dispositions, issuances of stock,
incurrence of indebtedness and generation of annual excess cash flows. The bank
credit agreement contains covenants relating to earnings before interest, taxes
and depreciation and amortization; capital expenditures; and net worth. Amounts
available under the revolving facility are limited based upon percentages of
qualified receivables and inventories. Substantially all of the Company's
assets are pledged under the bank credit agreement.
In 1999, the Company has debt amortization requirements of $62,449, which it
does not expect to be able to meet from operating cash flow. The Company
continues to evaluate alternative actions to repay or refinance some or all of
its long-term debt obligations. A component of the Company's refinancing
strategy could be the divestiture of operating units. Consistent with this
possibility, the Company announced in the first quarter of 1997 that it is
exploring the possible sale of the businesses that comprise its Handling
segment.
Actual cash disbursements for interest were $52,087, $55,028, and $49,413 in
1996, 1995, and 1994, respectively, which includes the amounts of net interest
expense allocated to discontinued operations.
At December 29, 1996, the Company had unamortized deferred debt issuance costs
of $6,747 included in other assets which are being amortized as part of interest
expense over the lives of the related debt issues. Amortization included in
interest expense of continuing operations was $1,369, $2,053, and $2,199, in
1996, 1995, and 1994, respectively.
NOTE 12 - Convertible Exchangeable Preferred Stock
In 1992, the Company issued 40,000 shares of Series A Preferred Stock. The
preferred stock is convertible into common stock and bears a 9% per annum
dividend payable semi-annually. The preferred stock initially was convertible
at $6.50 per share. However, to the extent dividends are not paid in cash on
the semi-annual dividend payment date, an adjustment is made which reduces the
per share conversion price. Upon such an adjustment, all accrued and unpaid
dividends on the shares of preferred stock through the date of adjustment cease
to be accrued and unpaid. Dividends have not been paid on the preferred shares
since their issuance, and due to restrictions in the bank credit agreement and
the indentures relating to the Company's Senior Subordinated Debentures and the
Senior Notes, it is not expected that cash dividends will be paid on the
preferred stock for the foreseeable future. Accordingly, it is expected that
the conversion price of the preferred stock will continue to decline
approximately 4.5% on each semi-annual dividend payment date, resulting in an
increase in the aggregate number of shares of common stock issuable upon
conversion of the preferred stock. As a result of the operation of these
provisions, the conversion price of the preferred stock was reduced to $4.36 per
share as of December 31, 1996. In addition, to the extent dividends are not
paid on the preferred stock in cash, the liquidation preference on the preferred
stock increases at a rate of 9% per year, compounded semi-annually, and as of
December 31, 1996 was $59,626. Upon certain events defined as "changes in
control" or fundamental changes, the holders of the preferred stock have the
right to require the Company to purchase the shares at the liquidation
preference value, subject to certain limitations. The Company believes that the
probability of these events occurring is remote and, therefore, the preferred
stock is not stated at the liquidation preference value. In addition, the
Company, at its option, can convert the preferred stock at the liquidation
preference value to Junior Convertible Subordinated Debentures bearing interest
at 9%.
NOTE 13 - Stockholders' Equity (Deficit)
No dividend payments were made in 1996, 1995, and 1994 and, due to restrictions
inthe bank credit agreement and the indentures relating to the Senior
Subordinated Debentures and the Senior Notes, it is not expected that cash
dividends will be paid in the foreseeable future.
The Company established an ESOP in 1989 with an initial contribution of 10,000
shares, followed by the sale of 1,100,000 shares to the ESOP. Unearned
compensation includes the shares held by the ESOP that have not been allocated
to the participants valued at their original purchase price of $14.625 per
share. Shares allocated during the year are charged to expense at the fair
market value at year end. The difference between fair market value and their
cost to the ESOP is charged or credited to additional paid-in capital. Interest
payments on the ESOP borrowings are a component of interest expense.
In 1989, the Board of Directors declared a stock right dividend distribution.
The purpose of these rights is to protect the Company against certain unfair and
abusive takeover tactics. In certain circumstances, stockholders, other than
certain holders of 15% or more of Interlake's stock, have the right to purchase
Interlake stock from Interlake for less than its market price. In certain
circumstances, Interlake stockholders can purchase, for less than market value,
shares of a company which acquires The Interlake Corporation.
NOTE 14 - Stock Incentive Plans
The Company has in place two stock incentive programs adopted by its Board of
Directors and approved by the stockholders the 1986 Stock Incentive Program (the
"1986 Program") and the 1989 Stock Incentive Program (the "1989 Program" and,
together with the 1986 Program, the "Stock Incentive Programs"). The Stock
Incentive Programs provide for the grant of awards and options for shares of the
Company's common stock to officers, key employees and outside directors of the
Company and its subsidiaries. The 1989 Program also provides for the grant of
shares of common stock in lieu of cash bonuses and the 1986 Program also
provides for the grant of stock appreciation rights.
A summary of stock option activity under the Stock Incentive Programs follows:
1996 1995
Average Average
Shares Price Shares Price
Stock Options:
Outstanding-beginning of year 986,480 $5.91 1,076,288 $6.15
Granted 165,500 4.00 50,000 4.00
Exercised --- --- --- ---
Canceled or expired (110,687) 6.73 (139,808) 7.10
Outstanding-end of year 1,041,293 5.52 986,480 5.91
Exercisable-end of year 920,243 5.72 682,380 6.76
Available shares 102,658 309,337
The following table summarizes information about the options outstanding at
December 29, 1996:
Options Outstanding Options Exercisable
Number Weighted-Average Number
Outstanding Remaining Weighted-Average Exercisable Weighted-Average
at 12/29/96 Contractual Life Exercise Price at 12/29/96 Exercise Price
Range of Exercise Prices
$4.00 to $5.00 840,800 6.5 years $4.01 719,750 $4.01
$11.00 to $13.00 200,493 1.2 years $11.85 200,493 $11.85
In 1996, the Company adopted the disclosure provisions of FAS No. 123,
"Accounting for Stock-Based Compensation." As permitted under this statement,
the Company retained its current method of accounting for stock compensation.
Disclosures required under FAS 123 are as follows:
1996 1995
Weighted-average fair value per option of options
granted during the year $1.38 $1.22
Additional pro forma compensation expense $216 $59
Pro forma income before discontinued operations,
extraordinary loss and change in accounting policy $7,309 $934
Pro forma earnings per share before discontinued
operations, extraordinary loss and change in
accounting policy $0.23 $0.03
The fair value of each option granted is estimated at the date of grant using
the Black-Scholes option-pricing model, utilizing expected volatility of 50%
based on historical data starting from December 30, 1990, one year after the
Company's 1989 Restructuring. Risk-free rates of 5.78% and 7.88%, for 1996 and
1995, respectively, are based on U.S. government strip bonds on the date of
grant with maturities equal to the expected option term. Expected lives of the
options are ten years, the vesting period is two years, and no dividends are
assumed.
NOTE 15 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents--The carrying amount approximates fair value
because of the short maturities of such instruments.
Other assets--The fair values for financial instruments included in other
assets were estimated based on quoted market prices for the same or similar
issues.
Long-term debt (See Note 11)--The interest rate on the Company's bank debt
is reset every quarter to reflect current market rates. Consequently, the
carrying value of the bank debt approximates fair value. The fair values of
the long-term debt other than bank debt were estimated based on quoted
market prices for the same or similar issues.
Convertible exchangeable preferred stock (See Note 12)--The fair value of
the preferred stock, which was issued in a private placement, is included in
the following table at carrying value as such stock is not traded in the
open market and a market price is not readily available.
Foreign exchange contracts (See Note 1)--The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of
the contracts using applicable spot or forward rates as of the end of the
fiscal year.
Interest rate swap agreements (See Note 11)--The interest rate swap
agreements (used for hedging purposes) were settled in December, 1996.
The estimated fair values of the Company's financial instruments are as follows:
December 29, December 31,
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 70,228 $ 70,228 $ 41,562 $ 41,562
Other assets 6,000 5,715 6,000 5,490
Long-term debt* 392,974 403,879 436,145 425,898
Convertible exchangeable
preferred stock 39,155 39,155 39,155 39,155
Foreign currency contracts --- (31) --- (64)
Interest rate swap liabilities --- --- --- 3,561
*Includes current maturities and excludes capitalized long-term leases
NOTE 16 - Environmental Matters
In connection with the reorganization of the old Interlake, Inc. (now Acme Steel
Company ("Acme")) in 1986, the Company, 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 December 29, 1996, the Company's reserves for
environmental liabilities totaled $1,700, 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, subject to the uncertainty
with respect to the Duluth Site discussed below, 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
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. 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.
In May 1994, the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers under policies covering nearly 30 years.
In estimating its potential environmental liabilities, the Company has reflected
recoveries from insurance companies with whom it has settled this litigation.
The Company's current estimates of its potential environmental liabilities are
subject to considerable uncertainty due to 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. In the light of these uncertainties, the Company's
estimates could be subject to change in the future.
With respect to the contaminated soils, the Minnesota Pollution Control Agency
("MPCA") on September 27, 1995, issued a Record of Decision selecting a remedy
consistent with the anticipated industrial development of the site. The Company
has contracted for and implemented most of the portions of the soils remedy for
which it is responsible. Based on estimates of consultants and work to date,
the Company expects the cost of such implementation to be between $4,000 and
$5,000, the majority of which has been incurred. The Company expects the soils
remediation to be substantially completed in the first half of 1997.
With respect to the underwater sediments, the MPCA has requested the Company to
undertake an investigation and to evaluate remedial alternatives. The Company's
consultants have substantially completed their initial investigation. Based on
this investigation, the Company is beginning to review possible remedial
alternatives for the underwater sediments with the MPCA and other interested
parties. The Company believes that, until this review is completed, any
estimate of remediating the underwater sediments will not be meaningful. The
Company also continues to believe 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. If a clean-up is ultimately determined to be appropriate,
the range of costs would likely be dependent in part upon whether the remedy
selected called for treating contamination in place, which might cost several
millions of dollars, or provided for removal and treatment of contaminated
sediments, which could cost tens of millions of dollars.
In March 1996, the citizens' board of the MPCA named the successors to certain
coal tar processors at the Duluth Site (the "tar companies") as additional
responsible parties for a portion of the underwater sediments operable unit.
The Company believes that the tar companies are the cause of a significant
portion of the underwater contamination at the site, while the tar companies to
date have maintained that their contributions were minimal.
The Company's current expectation is that cash outlays related to its
outstanding reserves for environmental matters largely will be made during 1997
and 1998. 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 17 - Commitments and Contingencies
The Company is engaged in certain routine litigation arising in the ordinary
course of business. Based upon its evaluation of available information,
management does not believe that any such matters are likely, individually or
in the aggregate, to have a material adverse effect upon the Company's business
future, results of operations, liquidity or consolidated financial condition.
On July 9, 1990, the City of Toledo, Ohio (the "City"), brought an action (the
"Primary Action") in federal district court (the "Court") in Toledo against the
Company, Acme Steel Company ("Acme" or the "old Interlake" and, together with
the Company, the "Interlake defendants"), Beazer Materials and Services, Inc.,
succeeded by Beazer East, 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 widening a road.
Pursuant to a memorandum of understanding dated September 30, 1996, among
Beazer, the City, and the Toledo-Lucas County Port Authority (the "Port
Authority"), setting forth certain obligations of Beazer, the City and the Port
Authority for the completion and funding of the road widening project and
related environmental work, the City, Beazer and the Interlake defendants
entered into a settlement agreement pursuant to which the City released the
Interlake defendants and Beazer from, and agreed to dismiss with prejudice, all
claims in the Primary Action. On October 10, 1996, the Court entered a consent
order dismissing with prejudice all claims in the Primary Action. The Court did
not dismiss pending cross-claims between Beazer and the Interlake defendants.
In November 1995, the Court granted the Interlake defendants' motion for summary
judgment seeking indemnification by Beazer for the liabilities alleged by the
City and related costs and expenses. Beazer appealed the indemnification ruling
and, on November 22, 1996, the United States Sixth Circuit Court of Appeals
reversed the Court's summary judgment rule in favor of the Interlake defendants
and remanded for trial on the indemnification issue. The outcome of this
indemnification action will impact who bears responsibility for in excess of
$2,000 of legal fees incurred by Interlake in the Primary Action and for the
implementation of remedial action estimated to cost $1,500 to $3,000 in
connection with the City's Front Street expansion. Trial is scheduled to begin
in June 1997.
On March 10, 1995, SC Holdings, Inc., a subsidiary of Waste Management
International Plc ("SC Holdings"), filed a complaint in federal district court
in Trenton, New Jersey, against Hoeganaes Corporation, an Interlake subsidiary,
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. SC Holdings claims to have spent approximately
$10,000 in investigation and remediation, and purportedly estimates the total
costs of investigation and remediation to be approximately $60,000. The site is
a broadly-defined Superfund site which encompasses a landfill formerly operated
by SC Holdings and may also include the groundwater under Hoeganaes' Riverton,
New Jersey facility. Hoeganaes may have shipped certain materials to the
landfill. SC Holdings alleges that Hoeganaes has liability as both an
owner/operator and a generator. The parties to the litigation are presently
engaged in a court-supervised non-binding allocation process which is presently
expected to last until mid-1997. The Company believes Hoeganaes has meritorious
defenses to both of the alleged bases of liability.
NOTE 18 - Quarterly Results (Unaudited)
Quarterly results of operations for 1996 and 1995 were as follows:
(in millions except per share data)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1996
Net sales from Continuing Operations
Engineered Materials $ 61.7 $ 67.5 $ 64.1 $ 64.2
Handling 103.5 107.2 109.9 131.5
165.2 174.7 174.0 195.7
Gross Profit 37.5 39.7 39.7 46.5
Operating profit
Engineered Materials 8.8 11.0 9.1 11.6
Handling 4.0 4.2 5.5 11.1
Corporate Items (.1) (1.0) (.1) (.4)
Operating profit 12.7 14.2 14.5 22.3
Income (loss) from Continuing Operations before
accounting change and extraordinary loss (.9) .6 .5 7.3
Income from Discontinued Operations 1.3 1.2 1.8 42.1
Net income 2.0 1.8 2.2 49.2
Income (loss) from Continuing Operations before
accounting change and extraordinary loss
per common share (.03) .02 .02 .23
Income from Discontinued Operations per
common share .04 .03 .06 1.33
Net income per common share .06 .06 .07 1.55
1995
Net sales from Continuing Operations
Engineered Materials $ 64.8 $ 62.5 $ 60.6 $ 60.5
Handling 105.9 107.9 115.3 112.4
170.7 170.4 175.9 172.9
Gross Profit 40.5 40.3 39.0 39.6
Operating profit
Engineered Materials 10.4 10.2 9.6 8.1
Handling 4.4 4.9 4.2 7.8
Corporate Items (.2) (.8) (.5) (.5)
Operating profit 14.6 14.3 13.3 15.4
Income (loss) from Continuing Operations
before extraordinary loss (.7) .2 (.2) 1.7
Income from Discontinued Operations 1.1 .5 .5 1.1
Net income (loss) .4 (2.8) .3 2.8
Income (loss) from Continuing Operations
before extraordinary loss per common share (.02) .01 (.01) .05
Income from Discontinued Operations per
common share .04 .02 .02 .04
Net income (loss) per common share .02 (.09) .01 .09
First quarter 1996 results reflect the $1.6 cumulative adjustment for the change
in accounting for postretirement medical and life benefits (see Note 5).
In the second quarter of 1995, an extraordinary loss of $3.4 (net of tax) was
recorded to reflect the write-off of deferred debt issuance costs (see Note 6).
Quarterly results have been restated to reflect the packaging businesses as
discontinued operations.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information about directors and nominees required by this item is
incorporated by reference to the information under the caption "DIRECTORS
AND NOMINEES" in the Registrant's definitive proxy statement to be filed
in connection with its 1997 Annual Meeting of Stockholders. Information
regarding compliance with Section 16(a) reporting requirements, to the
extent required to be disclosed, is incorporated by reference to the
information under the caption "SECTION 16 (a) BENEFICIAL OWNERSHIP
REPORTING COMPLI-ANCE" in the Registrant's definitive proxy statement to
be filed in connection with its 1997 Annual Meeting of Stockholders.
(b) The executive officers listed below are elected annually by the Board of
Directors of the Registrant, to serve for a term of office of one year
and until their successors are elected.
Executive
Name Age Officer Since Positions During Last 5 Years
W. Robert Reum 54 1982 Chairman of the Board since April 1991
and President and Chief Executive
Officer since January 1991
Craig A. Grant 49 1991 Vice President Human Resources since
May 1991
Stephen Gregory 47 1989 Vice President Finance and Chief
Financial Officer since August 1995; Vice
President Finance, Treasurer and Chief
Financial Officer from December 1994 to
August 1995; Vice President from August
1994 to December 1994; President of the
Material Handling Division of The
Interlake Companies, Inc. from June
1989 to August 1994
John P. Miller 39 1993 Controller since April 1993; Vice
President Finance of the Material
Handling Division of The Interlake
Companies, Inc. from October 1989 to
April 1993
Stephen R. Smith 40 1991 Vice President, Secretary and General
Counsel since January 1993; Vice
President and General Counsel from
January through December 1992
Donn A. York 37 1995 Treasurer since August 1995; Director of
Treasury Operations from April 1993 to
August 1995; Director Operation Control
from May 1991 to April 1993
The Registrant has designated the operating executives named below as "executive
officers" for purposes of certain provisions of the Securities Exchange Act of
1934.
Executive
Name Age Officer Since Positions During Last 5 Years
Brenton S. Fuller 53 1994 Chairman and Managing Director, Dexion
(Australia) Pty. Ltd. since 1976
Robert J. Fulton 54 1994 President, Hoeganaes Corporation, since
July 1994; Chief Executive Officer of
Micafil, Inc. and consultant to Sterling
Stainless Tube - ITT Automotive from 1992
to 1994; Executive Vice President and Chief
Operating Officer of Doehler- Jarvis from
1990 to 1992
John J. Greisch 41 1991 President, Material Handling Group since
December 1994; Vice President Finance,
Treasurer and Chief Financial Officer from
February 1993 to December 1994; Vice
President from January through February
1993; Managing Director of Dexion Group
plc from May 1991 through December 1992;
Managing Director of Dexion Limited from
February 1990 to November 1992
James Legler 48 1988 President, Chem-tronics, Inc., since 1988
Wayne M. Osman 46 1995 Managing Director, Dexion Limited since
August 1995; Managing Director, Pakseal
Limited from August 1994 to August 1995;
Acting Managing Director, Beaufort
Electronics Limited from September 1993 to
August 1994; Managing Director, Prestwick
Holdings Plc from August 1990 to June 1993
Bernd Stiller 56 1993 Managing Director, Dexion Continental
Europe since December 1994; Managing
Director, Dexion Group plc from January
1993 to December 1994; Managing Director,
Dexion GmbH since 1986
Daniel P. Wilson 52 1994 President Material Handling Division, since
January 1994; Vice President Sales, Material
Handling Division, from 1988 to 1993
ITEM 11--EXECUTIVE COMPENSATION
The information required by this item is incorporated into this report by
reference to the information under the caption "Executive Compensation" in the
Registrant's definitive proxy statement to be filed in connection with its 1997
Annual Meeting of Stockholders. Notwithstanding the foregoing sentence, the
information set forth under "Executive Compensation - Report of the Management
Development and Compensation Committee on Executive Compensation" and "Executive
Compensation - Performance Graph" in the Registrant's definitive proxy statement
to be filed in connection with its 1997 Annual Meeting of Stockholders is not
incorporated herein.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated into this report by
reference to the information under the caption "Voting Securities and Security
Ownership By Certain Persons and Management" in the Registrant's definitive
proxy statement to be filed in connection with its 1997 Annual Meeting of
Stockholders.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information under the caption "General-- Certain Transactions" in the
Registrant's definitive proxy statement to be filed in connection with its 1997
Annual Meeting of Stockholders.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Financial statements filed as part of this report are listed in the index
on page 17.
2. Financial Statement Schedules
Financial statement schedules filed as part of this report are listed in
the index on page 17.
All other schedules are omitted because of the absence of conditions
under which they would have been required or because the required
information is disclosed in the financial statements or notes thereto.
3. Reports on Form 8-K
A current report on Form 8-K was filed on October 21,1996, reporting
under Item 2 of the Form, that the Registrant had sold its packaging
businesses on October 4, 1996. This report includes unaudited pro forma
condensed consolidated statements of income for the fiscal year ended
December 31, 1995 and the six months ended June 30, 1996, and an
unaudited pro forma condensed consolidated balance sheet as of June 30,
1996, based on the historical financial statements of the Company and
giving pro forma effect to the disposition as if it had occurred at the
beginning of the period or as of the date presented, as applicable.
4. Exhibits
Sequential
Numbering
System
Exhibit Page
Number Item Number
3. Articles of Incorporation and Bylaws
3.1 Composite of the Registrant's Restated Certificate of Incorporation
as amended, incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-2, File No. 33-59003,
as amended (the "1995 Debt S-2")
3.2 Bylaws of Registrant as amended and restated dated August 23, 1990,
incorporated by reference to Exhibit 3(b) of the Registrant's Annual
Report on Form 10-K for the year ended December 30, 1990 (the "1990
10-K")
4. Instruments Defining the Rights of Security Holders, including Indentures
4.1 Form of Indenture (including form of Senior Note), incorporated by
reference to Exhibit 4.1 of the 1995 Debt S-2
4.2 Form of Indenture (including form of Senior Subordinated Debenture),
incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-2, File No. 33-46247, as amended
4.3 Rights Agreement dated as of January 26, 1989 between the Registrant
and the First National Bank of Chicago, as Rights Agent, (the
"Rights Agreement") incorporated by reference to Exhibit 2 of the
Registrant's Registration Statement on Form 8-A dated as of January
27, 1989
4.4 Amendment to Rights Agreement dated as of August 15, 1989,
incorporated by reference to Exhibit (a) of the Company's Form 8
dated May 22, 1990
4.5 Amendment to Rights Agreement dated as of May 7, 1990, incorporated
by reference to Exhibit (b) of the Company's Form 8 dated May 22,
1990
4.6 Form of Amendment to Rights Agreement, incorporated by reference to
Exhibit 4.5 of the Registrant's Registration Statement on Form S-2,
File No. 33-46248, as amended (the "Common Stock S-2")
4.7 Amendment to Rights Agreement dated as of April 13, 1994,
incorporated by reference to Exhibit 7 of the Company's Form 8-A/A
dated April 19, 1994
4.8 Preferred Stock Purchase Agreement dated as of March 6, 1992 among
the Registrant and the persons listed on the Schedule of Purchasers
attached thereto, incorporated by reference to Exhibit 4.6 of the
Common Stock S-2
4.9 Revised Form of Registration Rights Agreement among the Registrant
and the parties listed on the signature pages thereof, incorporated
by reference to Exhibit 4.4 of the Registrant's Post-Effective
Amendment No. 4 to the Registration Statement on Form S-2, File No.
33-37041 (the "IRN Post-Effective Amendment No. 4")
4.10 Form of Series 1 Junior Convertible Subordinated Debenture,
incorporated by reference to Exhibit 4.11 of the Common Stock S-2
4.11 Form of Series 2 Junior Convertible Subordinated Debenture,
incorporated by reference to Exhibit 4.12 of the Common Stock S-2
4.12 Series A-3 Preferred Stock Purchase Agreement dated as of May 7, 1992
by and between the Registrant and the persons listed on the signature
pages thereto, incorporated by reference to Exhibit 4.9 of the IRN
Post-Effective Amendment No. 4
4.13 Form of Series 3 Junior Convertible Subordinated Debenture (Exchange
Debentures relating to the Series A-3 Preferred Stock), incorporated
by reference to Exhibit 4.10 of the IRN Post-Effective Amendment No.
4
4.14 Stock Purchase Agreement dated November 2, 1989 between the
Registrant and LaSalle National Bank, trustee for The Interlake
Corporation Employee Stock Ownership Plan, incorporated by reference
to Exhibit 10(v) of the Registrant's Annual Report on Form 10-K for
the year ended December 29, 1991 (the "1991 10-K")
4.15 Form of Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 10.15 of the IRN Post-Effective Amendment No. 4
4.16 First Amendment, dated as of August 17, 1992, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.18
of the Registrant's Annual Report on Form 10-K for the year ended
December 27, 1992 (the "1992 10-K")
4.17 Second Amendment, dated as of October 30, 1992, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.19
of the 1992 10-K
4.18 Third Amendment, dated August 20, 1993, to the Amended and Restated
Credit Agreement, incorporated by reference to the Registrant's
quarterly report on Form 10-Q for the quarter ending September 26,
1993
4.19 Fourth Amendment, dated December 22, 1993, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.29
of the Registrant's Annual Report on Form 10-K for the year ended
December 26, 1993 ("1993 10-K")
4.20 Fifth Amendment, dated February 23, 1994, to the Amended and Restated
Credit Agreement, incorporated by reference to Exhibit 4.30 of the
1993 10-K
4.21 Sixth Amendment, dated as of August 16, 1994, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.20
of the Registrant s Annual Report on Form 10-K for the year ended
December 25, 1994 (the "1994 10-K")
4.22 Seventh Amendment, dated as of January 24, 1995, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.21
of the 1994 Form 10-K
4.23 Eighth Amendment, dated as of February 1, 1995, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.22
of the 1994 Form 10-K
4.24 Ninth Amendment, dated as of June 1, 1995, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.24
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K")
4.25 Tenth Amendment, dated as of September 25, 1996, to the Amended and
Restated Credit Agreement, incorporated by reference to Exhibit 4.1
of the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 29, 1996 (the "1996 10-Q")
4.26 Eleventh Amendment, dated as of January 10, 1997, to the Amended and
Restated Credit Agreement
4.27 The Registrant Term Notes dated June 18, 1992, incorporated by
reference to Exhibit 4.20 of the 1992 10-K
4.28 The Registrant Revolving Notes dated June 18, 1992, incorporated by
reference to Exhibit 4.21 of the 1992 10-K
4.29 Subsidiary Term Notes dated June 18, 1992, incorporated by reference
to Exhibit 4.22 of the 1992 10-K
4.30 Subsidiary Revolving Notes dated June 18, 1992, incorporated by
reference to Exhibit 4.23 of the 1992 10-K
4.31 The Registrant Delayed Draw Notes dated June 18, 1992, incorporated
by reference to Exhibit 4.24 of the 1992 10-K
4.32 The Registrant Deferred Term Notes dated June 18, 1992, incorporated
by reference to Exhibit 4.25 of the 1992 10-K
4.33 The Registrant Pledge Agreement dated September 27, 1989, made by the
Registrant and accepted by Chemical Bank, along with stock
certificates of the two subsidiaries, incorporated by reference to
Exhibit 10(t) of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989
4.34 Amended and Restated Security Agreement dated September 27, 1989 and
amended and restated as of August 17, 1992 between the Registrant and
Chemical Bank, incorporated by reference to Exhibit 4.27 of the 1992
10-K
4.35 Amended and Restated Security Agreement among Certain Subsidiaries of
the Registrant and Chemical Bank dated as of September 27, 1989 and
amended and restated as of August 17, 1992, incorporated by reference
to Exhibit 4.28 of the 1992 10-K
10. Material Contracts
10.1* 1997 Senior Executive Incentive Compensation Program
10.2* 1996 Senior Executive Incentive Compensation Program, incorporated by
reference to Exhibit 10.1 of the 1995 10-K
10.3* 1995 Executive Incentive Compensation Plan, incorporated by reference
to Exhibit 10.1 to the 1994 10-K
10.4* 1994 Executive Incentive Compensation Plan, incorporated by reference
to Exhibit 10.1 of the 1993 10-K
10.5* Key Executive Retention Program adopted February 23, 1995,
incorporated by reference to Exhibit 10.3 of the 1994 10-K
10.6* Amendment to Key Executive Retention Program, adopted December 1,
1995, incorporated by reference to Exhibit 10.5 of the 1995 10-K
10.7* Form of Grant of Stock Award dated as of January 30, 1996,
incorporated by reference to Exhibit 10.6 of the 1995 10-K
10.8* Form of Grant of Stock Award as of February 23, 1995, incorporated
by reference to Exhibit 10.4 of the 1994 10-K
10.9* Form of Agreement dated August 27, 1992 for the Cancellation and
Re-Granting of Non-Qualified Stock Options between the Registrant and
U.S. executive officers and employees, incorporated by reference to
Exhibit 10.7 of the 1992 10-K
10.10* Form of Non-Qualified Stock Option Agreement dated as of January 28,
1997
10.11* Form of Non-Qualified Stock Option Agreement dated as of January 25,
1996, incorporated by reference to Exhibit 10.9 of the 1995 10-K
10.12* Form of Non-Qualified Stock Option Agreement dated January 26, 1995
between the Registrant and one executive officer, incorporated by
reference to Exhibit 10.6 of the 1994 10-K
10.13* Form of Grant of Stock Award as of May 23, 1991 - Outside Director,
incorporated by reference to Exhibit 10(a) of the 1991 10-K
10.14* Form of Grant of Stock Award as of April 26, 1990 - Outside
Directors, incorporated by reference to Exhibit 10(a) of the 1990
10-K
10.15* Amendment to Non-Qualified Stock Option Agreement and to Stock
Appreciation Rights granted July 23, 1987 by the Registrant to one
U.S. executive officer, incorporated by reference to Exhibit 10(i) of
the 1990 10-K
10.16* Amendment to Non-Qualified Stock Option Agreement and to Stock
Appreciation Rights granted July 28, 1988 by the Registrant to one
U.S. executive officer, incorporated by reference to Exhibit 10(j) of
the 1990 10-K
10.17* 1989 Stock Incentive Program as amended.
10.18* 1986 Stock Incentive Program as amended.
10.19 Trust Agreement between the Registrant and Continental Illinois
National Bank and Trust Company of Chicago with respect to The
Interlake Corporation Restated Directors' Post-Retirement Income Plan
dated September 30, 1988, incorporated by reference to Exhibit 10(p)
of the Registrant's Annual Report on Form 10-K for the year ended
December 25, 1988 (the "1988 10-K")
10.20 Trust Agreement between the Registrant and Continental Illinois
National Bank and Trust Company of Chicago with respect to the
Deferred Compensation Agreement dated May 29, 1986 (as amended August
5, 1988) between the Registrant and Frederick C. Langenberg dated
September 30, 1988, incorporated by reference to Exhibit 10(q) of the
1988 10-K
10.21* Form of Indemnification Agreement between the Registrant and Outside
Directors, incorporated by reference to Exhibit 10(a) of the
Registrant's Annual Report on Form 10-K for the year ended December
27, 1987 (the "1987 10-K")
10.22* Form of Indemnification Agreement between the Registrant and
executive officers, including inside directors, incorporated by
reference to Exhibit 10(b) of the 1987 10-K
10.23* Form of Severance Pay Agreement between the Registrant and 12
executive officers, incorporated by reference to Exhibit 10.18 of the
1994 10-K
10.24* Form of Severance Pay Agreement between the Registrant and two
executive officers, incorporated by reference to Exhibit 10.19 of the
1994 10-K
10.25 Cross Indemnification Agreement dated as of May 29, 1986, between the
Registrant and Acme Steel Company, incorporated by reference to
Exhibit 10(b) of the Registrant's Annual Report on Form 10-K for the
year ended December 28, 1986 (the "1986 10-K")
10.26 Parallel Loan Agreement dated as of May 29, 1986, between Acme Steel
Company and The Interlake Companies, Inc., as amended by letter
agreement dated June 27, 1986, incorporated by reference to Exhibit
10(c) of the 1986 10-K
10.27 Tax Indemnification Agreement dated as of May 29, 1986, between the
Registrant and Acme Steel Company, incorporated by reference to
Exhibit 10(i) of the 1986 10-K
10.28* Deferred Compensation Agreement dated May 29, 1986, between the
Registrant and Frederick C. Langenberg, incorporated by reference to
Exhibit 10(j) of the 1986 10-K
10.29 Instrument of Assumption and Release dated May 29, 1986, between the
Registrant, W. R. Reum and Acme Steel Company, concerning an April
12, 1982 Agreement between W. R. Reum and Interlake, Inc. (n.k.a.
Acme Metals, Inc.), incorporated by reference to Exhibit 10(l) of the
1986 10-K
10.30 U.S. Asset Purchase Agreement, dated October 1, 1996, between
Interlake Packaging Corporation and Samuel Strapping Systems
(Tennessee), Inc., incorporated by reference to Exhibit 10.1 of the
Registrant's 1996 10-Q
10.31 Canadian Stock Purchase Agreement, dated September 30, 1996, between
Interlake Packaging Corporation, The Interlake Companies, Inc. and
Samuel Manu-Tech Inc., incorporated by reference to Exhibit 10.2 of
the Registrant's 1996 10-Q
10.32 U.K. Stock Purchase Agreement, dated October 1, 1996, between The
Interlake Companies, Inc., Samuel Strapping Systems (U.K.) Limited,
The Interlake Corporation and Samuel Manu-Tech Inc., incorporated by
reference to Exhibit 10.3 of the Registrant's 1996 10-Q
21. Subsidiaries of the Registrant
23. Consents of Experts and Counsel
23.1 Consent of Price Waterhouse LLP
27. Financial Data Schedule
* Management contract or compensatory plan or arrangement
THE INTERLAKE CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Year Expenses Accounts(a) Deductions Year
(in thousands)
Valuation accounts deducted from assets to which they apply:
Allowance for doubtful accounts receivable--
Year ended--
December 29, 1996. . $ 3,425 $ 66 $ 64 $(1,518)(b) $ 2,037
December 31, 1995. . $ 2,977 $ 916 $ 91 $ (559)(c) $ 3,425
December 25, 1994. . $ 2,775 $ 873 $ 89 $ (760)(c) $ 2,977
(a) consists principally of recoveries of accounts charged off in prior years
(b) consists principally of uncollectible accounts charged off $(938),
allowances for doubtful accounts of discontinued operations $(636) and
foreign exchange rate fluctuations
(c) consists principally of uncollectible accounts charged off and foreign
exchange rate fluctuations
Valuation accounts from deferred tax assets--
Year ended--
December 29, 1996. . . $21,232 $(7,196) $ --- $ --- $14,036
December 31, 1995. . $18,165 $ 3,067 $ --- $ --- $21,232
December 25, 1994. . $23,489 $(5,324) $ --- $ --- $18,165
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /S/ W. ROBERT REUM
W. Robert Reum
Chairman, President and Chief
Executive Officer
February 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title
/S/ W. ROBERT REUM Director, Chairman, President and
W. Robert Reum Chief Executive Officer
/S/ STEPHEN GREGORY Vice President Finance and
Stephen Gregory Chief Financial Officer
/S/ JOHN P. MILLER Controller and Chief
John P. Miller Accounting Officer
/S/ JOHN A. CANNING JR. Director
John A. Canning, Jr.
/S/ JAMES C. COTTING Director
James C. Cotting
February 27, 1997
/S/ JOHN E. JONES Director
John E. Jones
/S/ FREDERICK C. LANGENBERG Director
Frederick C. Langenberg
/S/ QUENTIN C. McKENNA Director
Quentin C. McKenna
/S/ WILLIAM G. MITCHELL Director
William G. Mitchell
/S/ ERWIN E. SCHULZE Director
Erwin E. Schulze
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-4266 and 33-11428) of The Interlake Corporation
of our report dated January 22, 1997 appearing on page 18 of this Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 27, 1997