SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 0-17028
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
IRONTON IRON, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Ohio 31-1117407
----------------------- -----------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
5445 Corporate Drive, Suite 200, Troy Michigan 48098
- ---------------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
(810) 952-2500
---------------------------------------------------
(Registrant's telephone number, including area code)
Name of each exchange on which registered: None
Securities Registered Pursuant to Section 12(g) of the Act:
Series A Cumulative Preferred Stock*
------------------------------------
(Title of Class)
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. X .
------
As of February 26, 1996 none of the Registrant's Common Stock was held by non-
affiliates of the Registrant; therefore, the aggregate market value of the
Registrant's voting stock held by non-affiliates of the Registrant was $0.
Twenty-three thousand shares of the Registrant's Common Stock were outstanding
as of March 15, 1996.
- -----------------
*Registered a result of the reclassification of the Registrant's Common Stock,
no par value, into Series A Cumulative Preferred Stock, pursuant to an amendment
to the Registrant's Articles of Incorporation filed on October 30, 1988,
described in the Registrant's Form 8 to its Registration Statement on Form 10,
dated November 3, 1988, previously filed with the Commission. See Item 1,
"Business--General."
PART I
ITEM 1. BUSINESS
GENERAL
- -------
In July 1984 Ironton Iron, Inc. (the "Registrant") was incorporated
under the laws of the State of Ohio. The Registrant operates a foundry in
Ironton, Ohio which manufactures ductile iron castings for the transportation
industry.
In October 1988 Intermet Foundries, Inc. ("IFI"), a Georgia
corporation and wholly-owned subsidiary of Intermet Corporation ("Intermet"),
acquired through a recapitalization all of the outstanding Common Stock of the
Registrant. In connection with the recapitalization, IFI paid $2 million for
newly-issued Common Stock of the Registrant and refinanced approximately $2.1
million of the Registrant's debt. Also, the Registrant issued a new class of
Series A Cumulative Preferred Stock to the former holders of the Registrant's
Common Stock in exchange for all of their common shares.
The Registrant sustained operating losses since acquired in 1988 until
1995, when it generated net income of $793,000. As of December 31, 1995, the
Registrant had incurred cumulative losses of approximately $62 million. A
significant portion of the losses were incurred in 1992 and 1993 when the
Registrant added a new production line at the same time it was adding a second
shift on its existing production line. The Registrant remains dependent on
Intermet for financial support.
MARKETING, MARKETS AND PRODUCTS
- -------------------------------
The Registrant markets its products principally to original equipment
manufacturers and their suppliers in the automotive industry. The following
table sets forth information regarding sales by the Registrant:
% of Total Registrant Sales
Fiscal year ended December 31,
---------------------------------
1993 1994 1995
---------- ---------- ---------
Automotive 87% 89% 78%
Rail car 8 7 14
Other 5 4 8
Products manufactured for the automotive industry include brake parts,
steering and suspension system components and differential cases. The
Registrant produces brake adapter plates for the rail car industry.
The Registrant utilizes the in-house sales and customer service staff
of Intermet. The Registrant produces principally to customer order and does not
maintain any significant inventory of finished goods not on order.
2
The major customers of the Registrant during 1993 through 1995 were as
follows:
% of Total Registrant Sales
Fiscal year ended December 31,
---------------------------------
1993 1994 1995
---------- ---------- ---------
Ford 21% 22% 23%
Dana 24 21 22
General Products 19 24 20
Chrysler 11 14 9
The sales to General Products are under the terms of a purchase order
issued by Ford.
The loss of any of these customers or a substantial reduction in their
purchases from the Registrant would have a material adverse effect upon the
Registrant unless the work were replaced by sales to other customers. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MANUFACTURING
- -------------
The Registrant produces ductile iron castings. Ductile iron, which is
produced by removing sulfur from molten iron and adding magnesium and other
alloys, has greater strength and elasticity than the more widely used gray iron,
and its use as a higher-strength substitute for gray iron and a lower-cost
substitute for steel has grown steadily. The Registrant's castings range in
size from pieces weighing approximately six pounds to castings weighing 100
pounds.
The manufacturing process involves melting steel scrap and pig iron in
a gas and coke-fired cupola furnace, adding various alloys and pouring the
molten metal into molds made primarily of sand. The molten metal cools and
solidifies in the molds, and the molds are broken and removed.
Shipments for the year ended December 31, 1995 totaled approximately
74,000 tons, compared to approximately 77,300 tons during the year ended
December 31, 1994, and 62,700 tons during the year ended December 31, 1992.
Customers usually specify the properties their castings are to embody,
such as hardness and strength, and the Registrant determines how best to meet
those specifications. Constant testing and monitoring of the manufacturing
process is important in order to maintain the quality and performance
consistency of the castings. Electronic testing and monitoring equipment,
including x-ray, cobalt x-ray, ultrasonic and magnetic-particle testing
equipment, are used extensively in grading scrap metal, analyzing molten metal
and testing castings. The Registrant also uses its testing equipment and
procedures to provide particular tests requested by a customer for its castings.
COMPETITION
- -----------
The Registrant competes with many other foundries, including others
owned by Intermet, both in the United States and Europe. Some of these
foundries are owned by major users of iron castings, and a number of foundry
operators have, or are subsidiaries of companies which have, greater financial
3
resources than the Registrant. For example, the three largest domestic
automobile manufacturers, two of which are among the Registrant's largest
customers, operate their own foundries. However, they also purchase castings
from the Registrant and others, and there is a trend toward increased
outsourcing by the domestic original equipment manufacturers. Castings produced
by the Registrant also compete to some degree with malleable iron castings,
other metal castings and steel forgings.
The Registrant competes on the basis of product quality, engineering,
service and price. The Registrant emphasizes its ability to produce complex,
precision-engineered products in order to compete for value-added castings,
which generally provide a higher profit margin.
RAW MATERIALS
- -------------
The primary raw material the Registrant uses to manufacture iron
castings is steel scrap. The Registrant has no long-term contractual
commitments with any scrap supplier, and does not anticipate any difficulties in
obtaining scrap because of the large number of suppliers and because of
Intermet's position as a major purchaser. Scrap was obtained from a variety of
sources during 1993, 1994 and 1995. Competitive prices are assured through
discussions with various suppliers of steel scrap. The cost of steel scrap is
subject to fluctuations, but the Registrant has implemented arrangements with
most of its customers for adjusting its castings prices to reflect those
fluctuations. The Registrant can generally adjust its castings prices to
reflect such cost fluctuations.
Various of the alloys that are added to scrap steel in the
manufacturing process have been in short supply from time to time, resulting in
price increases. The Registrant has always been able to purchase necessary
alloys; alternate alloys may be substituted in some cases.
The Registrant benefits from the contractual arrangements of Intermet,
which expire at various times through 1998, for the purchase of various
materials other than steel scrap used in or during the manufacturing process.
Although these contracts and Intermet's overall level of purchases provide some
protection against price increases, in most cases neither the Registrant nor
Intermet has specific arrangements in place to adjust its casting prices for
fluctuations in the price of alloys and other materials.
CYCLICALITY AND SEASONALITY
- ---------------------------
Most of the Registrant's products are generally not affected by year-
to-year automotive style changes. However, the inherent cyclicality of the
automotive industry has affected the Registrant's sales and earnings during
periods of slow economic growth or recession. The Registrant's third and fourth
quarter sales are usually lower than first and second quarter sales due to plant
closings by domestic automakers for vacations and model changeovers.
4
BACKLOG
- -------
Most of the Registrant's business involves supplying all or a stated
portion of the customer's annual requirements, generally flexible in amount, for
a particular casting against blanket purchase orders. Terms of sale are
normally net 30 days. The lead time and cost of commencing production of a
particular casting tend to inhibit transfer of production from one foundry to
another. Customers typically issue releases and shipping schedules on a monthly
basis. The Registrant's backlog at any given time therefore consists only of
the orders which have been released for shipment.
EMPLOYEES
- ---------
As of January 1, 1996, the Registrant employed 496 members of the
local bargaining unit, United Steelworkers of America, and 83 salaried
employees. The Registrant entered into a new labor contract effective January
1, 1992, which expires on January 31, 1997. The Registrant has not experienced
any strike or work stoppage since it commenced operations in 1986. The
Registrant believes that its relationship with its employees is satisfactory.
ENVIRONMENTAL MATTERS
- ---------------------
The Registrant's operations are subject to various federal, state and
local laws and regulations relating to the protection of the environment. These
regulations, which are implemented principally by the United States
Environmental Protection Agency and the Ohio environmental agency, govern the
management of solid and hazardous waste, the discharge of pollutants into the
air and into surface and ground waters, and the manufacture, treatment and
disposal of chemical substances. The Registrant believes that current
operations of its facilities are in substantial compliance with applicable
environmental laws, regulations and government orders, but see "Item 3. Legal
Proceedings" concerning an issue raised by the Ohio Attorney General's office.
In addition, the Registrant has submitted a plan to the Ohio EPA to bring its
facility into compliance with all applicable air emission requirements, after
that agency advised the Registrant of several violations of air pollution
regulations. It is not known whether the agency will eventually demand the
payment of civil penalties for these past violations.
The Intermet Board of Directors oversees the environmental program of
Intermet and its affiliates, including the Registrant. Intermet has conducted
an internal environmental review of the Registrant's facility and is in the
process of remedying non-complying situations.
The 1990 amendments to the federal Clean Air Act are expected to have
a major impact on the compliance costs of many U.S. companies, including
foundries of the type owned by the Registrant. Until final regulations
implementing those amendments are adopted by the federal and state governments,
it is not possible to estimate such costs.
ITEM 2. PROPERTIES
The Registrant owns its foundry and offices located at 2520 South
Third Street, Ironton, Ohio. The foundry and offices consist of an aggregate of
514,000 square feet situated on 26 acres of land zoned for industrial use. The
Registrant believes that its manufacturing facilities are adequately maintained.
5
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not aware of any material pending or threatened
legal proceedings to which the Registrant is a party or of which any of its
property is the subject, except as set forth below.
The Registrant entered into negotiations with the Office of the Ohio
Attorney General with respect to certain past violations by the Registrant of
Ohio water pollution laws and regulations. The Attorney General's Office
advised the Registrant that the Registrant could avoid litigation with respect
to such violations by entering into a consent order with respect to the
violations. In November 1995, the Registrant agreed to pay the State of Ohio a
fine of $285,000 to settle the water pollution matter. The parties have agreed
to the language of the consent decree, and the Registrant is waiting for the
Office of Attorney General to file the decree in Ohio State Court. Upon receipt
of the decree, the fee will be paid by the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
Registrant during the fourth quarter of the 1995 fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Registrant's
Common Stock or Series A Cumulative Preferred Stock. As of December 31, 1995,
there were 1,391 holders of record of the Registrant's Series A Cumulative
Preferred Stock and one holder of the Registrant's Common Stock, IFI.
The Registrant has paid no dividends on its Common Stock since its
organization. Because the Registrant has had cumulative operating losses since
its organization, it is unlikely that it will pay dividends in 1996 on its
outstanding Common Stock or Series A Cumulative Preferred Stock.
6
ITEM 6. SELECTED FINANCIAL DATA
IRONTON IRON, INC.
------------------
Selected Historical Financial Data
----------------------------------
(000 omitted)
-------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
Net sales $ 18,056 $ 29,005 $ 56,434 $ 76,315 $ 74,746
Operating (loss)/profit (4,768) (11,450) (14,056) (6,186) 2,138
Net (loss)/profit (5,746) (12,829) (16,977) (8,730) 793
Net (loss)/profit per (1) (1) (1) (1) (1)
common share
Weighted average common shares (1) (1) (1) (1) (1)
outstanding
------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
Working capital $ 826 $ 2,181 $ 3,243 $ 2,370 $ 3,626
Property, plant and equipment, 4,431 17,406 19,364 20,353 19,160
net
Total assets 8,563 26,157 30,242 31,416 28,041
Long-term liabilities 16,747 43,671 41,460 37,002 30,078
Redeemable preferred stock 2,688 2,804 2,921 3,038 3,155
Net common shareholder's deficiency (13,211) (26,156) (21,250) (17,097) (10,421)
Cash dividends declared --- --- --- --- ---
- -----------
(1) On October 31, 1988 IFI became the sole shareholder of the Registrant's
Common Stock. As a result, common share data is not presented because it is
no longer meaningful.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- -----------------------
Net sales declined almost $2 million (2%) in 1995 compared to in 1994.
The 1995 sales decline followed an increase in sales of over $20 million (35%)
in 1994 compared to 1993. The decline in sales in 1995 was primarily due to
model expiration in the Ford I-beam program. Much of the growth in 1994 was due
to an increase in tons shipped, especially suspension components for Ford made
on a production line installed in 1992. Demand from other automotive customers
was fairly strong in both years, but especially in 1994.
Despite the decline in sales in 1995, this operation had an operating
profit, $2.1 million, for the first time since Intermet ownership. This swing
in earnings from the operating loss of $6.2 million in 1994 is the result of
cost reduction and improvement programs and plant management stability.
7
Unfortunately, sales are expected to decline even further at this plant as the
operation realizes the full loss of the Ford I-beam business. The 1994
operating loss was $7.9 million lower than 1993 due to the increase in sales
coupled with improvements in operations, primarily on the new production line.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Prior to its acquisition by IFI, the Registrant was in violation of
certain loan agreements and had exhausted all available sources of capital.
Much of the Registrant's debt was refinanced by IFI after it purchased the
Registrant. Intermet and IFI have continued to provide financial support to the
Registrant by funding operating losses, working capital increases and capital
expenditures since the acquisition. During 1995 and 1994, $6 million and $13
million, respectively of the amount due to Intermet and IFI was converted to
equity in order to reduce the Registrant's interest-bearing debt levels. The
Registrant believes it has adequate resources to satisfy its current obligations
due to nonaffiliates. Intermet currently intends to continue providing
financial support to the Registrant.
The Registrant also incurs recurring costs to manage and dispose of
waste (principally nonhazardous waste) generated as part of ongoing operations.
In 1995 and 1994 such costs totaled approximately $3 million and $3.4 million,
respectively. Although the Registrant continues to take various steps to
control these costs, they are expected to increase in the future. In addition,
a portion of the Registrant's capital expenditures are regularly incurred to
limit or monitor pollution, principally for ventilation and dust control
equipment. Such expenditures were approximately $0.4 million in 1995 and are
expected to exceed $0.6 million in 1996. See Note 8 to the Financial Statements
included elsewhere herein.
The Registrant has agreed with the Ohio Attorney General that it will
pay $285,000 for past violations of Ohio water pollution laws. See "Item 1.
Business-Environmental Matters" and "Item 3. Legal Proceedings."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of independent auditors
identified in Item 14(a) are included in this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant has not changed accountants during its two most recent
fiscal years, nor has the Registrant during such time had any disagreement with
its accountants on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 26, 1996, the directors and executive officers of the
Registrant, their respective ages, positions, date of election and principal
occupations were as follows:
8
Name (Age) Principal Position(s)
---------- -------------------------
John Doddridge (55) President and Director
C. James Peterson (48) Vice President and Director
James W. Rydel (51) Secretary and Director
Doretha J. Christoph (46) Treasurer
Mr. Doddridge became President and Director of the Registrant in March
1995. He became Chairman of the Board and Chief Executive Officer of Intermet
in December 1994. Mr. Doddridge was Vice Chairman and Chief Executive Officer
of Magna International, Inc., a supplier of motor vehicle parts, from November
1992 until November 1994. From 1989 to 1992 he served as President of North
American Operations of Dana Corporation, a motor vehicle parts manufacturer, and
prior to that time he served as President of Hayes-Dana Inc., a subsidiary of
Dana Corporation.
Mr. Peterson became Vice President and Director of the Registrant in
March 1995. He became Vice President - Foundry Operations of Intermet in
February 1995, and he served as Director of Manufacturing of IFI from 1993 to
1995. Prior to that time he served as General Manager of Columbus Foundries,
Inc., a subsidiary of Intermet.
Mr. Rydel became Secretary and Director of the Registrant in MARCH
1995. HE HAS SERVED AS VICE PRESIDENT - ADMINISTRATION AND SECRETARY OF
INTERMET SINCE FEBRUARY 1995. FROM 1991 UNTIL FEBRUARY 1995, MR. RYDEL SERVED
AS VICE PRESIDENT - HUMAN RESOURCES OF INTERMET. PRIOR TO THAT TIME HE SERVED
AS DIRECTOR OF COMPENSATION AND BENEFITS OF INTERMET FROM 1986 UNTIL 1990 AND AS
DIRECTOR OF HUMAN RESOURCES OF INTERMET FROM 1990 UNTIL 1991.
Ms. Christoph became Treasurer of the Registrant on June 1, 1995. She
became Vice President-Finance of Intermet in June 1995. Prior to that time she
served as Vice President and Director of Administration of LNP Engineering
Plastics, a worldwide supplier of engineered plastics across all markets and a
subsidiary of Kawasaki Steel Corporation, from November 1991 until May 1995.
From 1989 to 1991, she served as Director of Finance for the Engineering
Plastics Americas operation of ICI, plc.
There are no family relationships between or among any of the officers
and directors of the Registrant.
The term of office for each director commences with his election and
continues until the next annual meeting of shareholders and until his successor
is elected and qualified.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant has paid no compensation or offered any benefits of any
kind to its executive officers (four) or members of the Board of Directors since
its acquisition by IFI. See "Item 13. Certain Relationships and Related
Transactions."
9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of February 26, 1996, none of the officers or directors of the
Registrant beneficially owned any of the Registrant's Common Stock, the only
class of voting securities of the Registrant. As of that date, IFI, 5445
Corporate Drive, Suite 200, Troy, Michigan 48098, owned 23,000 shares of the
Registrant's Common Stock (100% of the class).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant borrows money from Intermet, the sole shareholder of
IFI. The loans bear interest at the average rate that Intermet pays for its
revolving credit borrowings. As of February 29, 1996, the aggregate outstanding
amount borrowed by the Registrant from Intermet was $8,599,000. During the year
ended December 31, 1995, the largest amount outstanding to Intermet at any time
was $23,141,000. Proceeds of the loans have been used to fund operating losses,
working capital increases and capital expenditures. In addition, Intermet
advances to the Registrant other funds which do not bear interest. These loans
principally represent the income tax benefit recorded by Intermet as a result of
the Registrant's losses since October 31, 1988 being included in Intermet's
consolidated federal income tax return. Such loans totaled $20,827,000 at
December 31, 1995.
Intermet provides services, such as sales, marketing, engineering,
accounting, human resources and data processing to its subsidiaries, including
the Registrant. Intermet's cost of providing these services, including
interest, is prorated among its subsidiaries. In addition, Intermet incurs
various costs, principally relating to salaries, data processing, aircraft,
interest and occupancy, which are prorated among its subsidiaries, including the
Registrant, and charged to each of them. Amounts charged to each subsidiary by
Intermet are a function of the subsidiary's sales and rated capacity. The total
amount charged by Intermet to the Registrant in 1995 was $3,176,000.
10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
--------------------
The following financial statements and notes thereto of the
Registrant are incorporated by reference into Item 8 of this
Report:
Report of Independent Auditors
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995,
1994 and 1993
Statements of Net Common Shareholder's Deficiency for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993
Notes to Financial Statements
2. Financial Statement Schedules
-----------------------------
The following schedule for the Registrant is filed as Item
14(a)(2) hereof:
Schedule II - Valuation and Qualifying Accounts
3. Exhibits
--------
The following exhibits are required to be filed with this Report
by Item 601 of Regulation S-K:
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 and 4.1 Articles of Incorporation of Ironton Iron, Inc., as
amended (included as Exhibit 3.1 and 4 to the
Registrant's Annual Report on Form 10-K for the 1988
fiscal year, file no. 0-17028, previously filed with
the Commission and incorporated herein by reference).
3.2 and 4.2 Code of Regulations of Ironton Iron, Inc., as amended
(included as Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the 1988 fiscal year, file no.
0-17028, previously filed with the Commission and
incorporated herein by reference).
10.1 Ironton Iron, Inc. Retirement Plan, as amended (included
as Exhibit 10.1 to the Registrant's Annual Report on Form
10-K for the 1988 fiscal year, file no. 0-17028,
previously filed with the Commission and incorporated
herein by reference).
27 Financial Data Schedule
11
(b) The Registrant did not file a report on Form 8-K during the last
quarter of the Registrant's fiscal year ended December 31, 1995.
(c) The Registrant hereby files as exhibits to this Report the
exhibits set forth in Item 14(a)(3) hereof.
(d) The Registrant hereby files as a financial statement schedule to
this Report the schedule set forth in Item 14(a)(2) hereof.
12
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Ironton Iron, Inc.
We have audited the accompanying balance sheets of Ironton Iron, Inc. as of
December 31, 1995 and 1994 and the related statements of operations, net common
shareholder's deficiency, and cash flows for each of the three years in the
period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ironton Iron, Inc. at December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conforming with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Detroit, Michigan
January 26, 1996
F-1
IRONTON IRON, INC.
BALANCE SHEETS
DECEMBER 31
1995 1994
------- -------
(In Thousands)
--------------
ASSETS
Current assets:
Cash $ 290 $ 699
Accounts receivable:
Trade, less allowance of $687 and $362 6,128 8,093
Other 630 712
Inventories 1,765 1,313
Other current assets 42 26
------- -------
Total current assets 8,855 10,843
Property, plant and equipment:
Land 295 295
Buildings and improvements 5,125 4,765
Machinery and equipment 26,078 24,240
Construction in progress 1,369 1,010
------- -------
32,867 30,310
Less accumulated depreciation 13,707 9,957
------- -------
Net property, plant and equipment 19,160 20,353
Other noncurrent assets 26 220
------- -------
$28,041 $31,416
======= =======
F-2
DECEMBER 31
1995 1994
-------- --------
(In Thousands)
--------------
LIABILITIES AND NET COMMON SHAREHOLDER'S DEFICIENCY
Current liabilities:
Accounts payable $ 3,047 $ 5,545
Accrued wages and benefits 857 919
Accrued workers' compensation 297 546
Other accrued liabilities 1,028 1,463
-------- --------
Total current liabilities 5,229 8,473
Due to affiliates 30,078 37,002
Redeemable preferred stock, $200 par value,
20,000 shares authorized; 11,685 shares issued 3,155 3,038
Net common shareholder's deficiency:
Common stock, no par value, 25,000 shares authorized;
23,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 49,523 43,523
Accumulated deficit (61,944) (62,620)
-------- --------
Net common shareholder's deficiency (10,421) (17,097)
-------- --------
$ 28,041 $ 31,416
======== ========
See accompanying notes.
- -----------------------
F-3
IRONTON IRON, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
1995 1994 1993
------- ------- --------
(In Thousands)
--------------
Net sales $74,746 $76,315 $ 56,434
Cost of sales 69,432 78,152 66,604
------- ------- --------
Gross margin 5,314 (1,837) (10,170)
Corporate charges 3,176 4,349 3,886
------- ------- --------
Operating income (loss) 2,138 (6,186) (14,056)
Interest income - 2 7
Interest expense (1,335) (2,546) (2,928)
------- ------- --------
Net income (loss) before income taxes 803 (8,730) (16,977)
Income taxes--currently payable 10 - -
------- ------- --------
Net income (loss) $ 793 $(8,730) $(16,977)
======= ======= ========
See accompanying notes.
- -----------------------
F-4
IRONTON IRON, INC.
STATEMENTS OF NET COMMON SHAREHOLDER'S DEFICIENCY
ADDITIONAL NET COMMON
COMMON PAID-IN ACCUMULATED SHAREHOLDER'S
STOCK CAPITAL DEFICIT DEFICIENCY
------ ----------- ----------- -------------
(In Thousands)
--------------
Balance at December 31, 1992 $2,000 $ 8,523 $(36,679) $(26,156)
Contribution of intercompany
debt to additional paid-in
capital - 22,000 - 22,000
Accrued dividends on
redeemable preferred stock
($10 per share) - - (117) (117)
Net loss - - (16,977) (16,977)
------ ------- -------- --------
Balance at December 31, 1993 2,000 30,523 (53,773) (21,250)
Contribution of intercompany
debt to additional paid-in
capital - 13,000 - 13,000
Accrued dividends on
redeemable preferred stock
($10 per share) - - (117) (117)
Net loss - - (8,730) (8,730)
------ ------- -------- --------
Balance at December 31, 1994 2,000 43,523 (62,620) (17,097)
Contribution of intercompany
debt to additional paid-in
capital 6,000 6,000
Accrued dividends on
redeemable preferred stock
($10 per share) - - (117) (117)
Net income - - 793 793
------ ------- -------- --------
Balance at December 31, 1995 $2,000 $49,523 $(61,944) $(10,421)
====== ======= ======== ========
See accompanying notes.
- -----------------------
F-5
IRONTON IRON, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1994 1993
------- ------- --------
(In Thousands)
--------------
OPERATING ACTIVITIES
Net income (loss) $ 793 $(8,730) $(16,977)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 3,865 3,432 2,999
Changes in operating assets and liabilities:
Accounts receivable 2,047 (1,004) (3,623)
Inventories (452) 680 1,525
Accounts payable and accrued liabilities (3,244) 1,988 1,144
Other (16) 50 97
------- ------- --------
Cash provided by (used in) operating activities 2,993 (3,584) (14,835)
INVESTING ACTIVITIES
Additions to property, plant and equipment (2,478) (4,767) (4,557)
FINANCING ACTIVITIES
(Decrease) Increase in due to affiliates (924) 8,542 19,789
------- ------- --------
Net (decrease) increase in cash (409) 191 397
Cash at beginning of year 699 508 111
------- ------- --------
Cash at end of year $ 290 $ 699 $ 508
======= ======= ========
See accompanying notes.
- -----------------------
F-6
IRONTON IRON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Ironton Iron, Inc. (the "Company") is engaged in the production and sale of
ductile iron castings, primarily for the automotive industry. The Company is a
wholly owned subsidiary of Intermet Foundries, Inc. ("IFI"), a wholly owned
subsidiary of Intermet Corporation ("Intermet"). The Company has transactions
with IFI and Intermet as described in Note 6.
The Company has incurred significant operating losses since its inception.
Intermet has provided financial support by funding losses, capital expenditures
and working capital increases. The Company remains dependent on Intermet and
Intermet intends to continue providing financial support.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market. Raw material and
supplies are valued on a weighted average cost basis. Work in process and
finished goods inventories are valued at standard costs which approximate actual
costs determined on a first-in, first-out basis. The specific identification
method is used for patterns.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. The provision for
depreciation of property, plant and equipment is determined on the basis of
estimated useful lives using the straight-line method.
F-7
IRONTON IRON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Noncurrent Assets
Other noncurrent assets consist of deferred pattern and tooling charges. Such
costs are amortized over their estimated economic lives using the straight-line
method.
NET INCOME (LOSS) PER COMMON SHARE
IFI is the sole shareholder of the Company's common stock. As a result,
earnings per share data is not presented since it is not meaningful.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and debt approximate fair values.
2. INVENTORIES
Inventories consist of the following (in thousands of dollars):
1995 1994
------ ------
Finished goods $ 146 $ 356
Work in process 526 400
Raw materials 490 365
Supplies and patterns 603 192
------ ------
$1,765 $1,313
====== ======
3. REDEEMABLE PREFERRED STOCK
IFI acquired all of the common stock of the Company in October 1988. As part of
this transaction, the existing preferred stock of the Company was cancelled and
the previous common stockholders of the Company received an equivalent number of
shares of the Company's new 5% cumulative preferred stock with an aggregate par
value of $2,337,000. The preferred shares were to be retired at par value from
net income, if available, in four annual installments beginning in 1993.
However, no shares have been retired and no dividends have been paid to date
since the Company has incurred a cumulative net loss since 1988. Accrued but
unpaid dividends on the preferred stock totaled $818,000 at December 31, 1995.
F-8
IRONTON IRON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RETIREMENT PLANS AND BENEFITS
Intermet has an Employee Stock Ownership Plan for certain of its United States
employees who are not covered by collective bargaining agreements. The plan
requires contributions equal to 3% of the annual compensation of the plan
participants. Intermet may, at its discretion, make additional contributions
within specified limits. Intermet also has a defined contribution plan for
domestic salaried employees. Intermet and its subsidiaries make contributions
equal to 2% of the annual compensation of participant. Participants are also
allowed to make contributions to the plan, on a pre-tax basis, of up to 10% of
their compensation. Intermet and its subsidiaries match 50% of participant's
contributions, up to a specified limit. The Company accrued contributions to
the two plans of $196,000, $143,000 and $128,000 in 1995, 1994 and 1993,
respectively.
The Company has also established a defined contribution plan for hourly
employees. Contributions to the Plan are based on hours worked by each employee
and totaled $250,000, $264,000 and $212,000 in 1995, 1994 and 1993,
respectively. The Plan also allows employees to make contributions, on a pre-
tax basis, of up to 15% of their compensation.
Intermet provides health care and life insurance benefits to certain retired
salaried employees and their dependents, including employees of the Company.
Salaried employees can become eligible for retiree health care benefits at age
55 depending on years of service. Retirees receive substantially the same
benefits as active employees. The medical plan generally pays 80% of most
medical expenses, less deductible amounts, with employees contributing to the
cost of dependent coverage. Coverage converts to a Medicare supplement at age
65.
5. INCOME TAXES
Intermet files a consolidated federal income tax return which includes the
Company. The Company's income tax provisions are calculated and reported as if
the Company filed a separate federal income tax return.
F-9
IRONTON IRON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
While certain temporary differences exist in recognizing expenses for income tax
and financial reporting purposes, no deferred tax liability has been recorded
because of the loss carryforwards available. The tax effects of the types of
temporary differences and loss carryforwards which give rise to deferred tax
assets (liabilities) at December 31, 1995 and 1994 are as follows (in thousands
of dollars):
1995 1994
--------- ---------
[S] [C] [C]
Losses after IFI acquisition $ 19,745 $ 19,760
Losses before IFI acquisition 2,130 2,140
Other temporary differences 461 530
-------- --------
Gross deferred tax assets 22,336 22,430
Valuation allowance (20,860) (21,156)
-------- --------
1,476 1,274
Depreciation (1,476) (1,274)
-------- --------
$ - $ -
======== ========
The Company has utilized operating loss carryforward to offset a substantial
portion of its 1995 income.
There are certain limitations on the use of the loss carryforward generated
prior to the Company's acquisition by IFI. This loss carryforward expires as
follows: $1,510,000 in 2001 and $621,000 in 2002.
The loss carryforward generated after the acquisition by IFI on October 31, 1988
results from calculating the Company's income tax provision on a separate tax
return basis. These losses have already been utilized by Intermet in its
consolidated federal income tax return. While no income tax benefits have been
included in the accompanying financial statements, Intermet does advance funds
to the Company in amounts which approximate the income tax benefits expected to
be realized by Intermet as a result of the Company's losses after October 31,
1988. These amounts totaled $3,186,000 and $5,829,000 in 1994 and 1993,
respectively. No interest is charged on these amounts. In 1995, the Company
generated income, therefore no such advance was received from Intermet.
F-10
IRONTON IRON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
Intermet incurs various costs, principally related to salaries, data processing,
aircraft, interest and occupancy, which are allocated to each of its
subsidiaries. Amounts charged to each subsidiary by Intermet are a function of
the subsidiary's sales and rate capacity. Intermet believes the resulting
allocation to be reasonable.
Intermet has a revolving credit agreement with a bank consortium which was
refinanced in August 1995. The agreement, which expires in August 1998,
provides for loans up to $70,000,000 and DM8,000,000 (approximately $5,600,000)
at December 31, 1995. The borrowing limit is reduced by $5,000,000 in August
1996 and $10,000,000 in August 1997, and certain standby letters of credit
issued by Intermet. At December 31, 1995 such standby letters of credit totaled
$8,666,000. Interest rates on both the U. S. dollar and deutsche mark
facilities are based on various market rates, and in most cases, include
additional lender margins. There were no borrowings under this agreement as of
December 31, 1995. Intermet also must pay a fee at an annual rate of .375% on
any unused portion of the loan commitment. The revolving credit agreement
requires Intermet to maintain certain financial ratios and imposes limitations
on dividends and certain activities.
Intermet has borrowings available under line of credit agreements with two
banks. The agreements provide for loans up to $15,000,000 bearing interest at
the prime rate or other specified rates. There were no borrowings outstanding
at December 31, 1995. The availabilities of these lines, which are normally
renewed on an annual basis, are at the discretion of the banks. Borrowings are
payable on demand.
Intermet has a $25,000,000 term loan agreement with the Prudential Insurance
Company of America. The loan bears interest at a base rate plus an additional
lender margin in certain circumstances, with interest payable in quarterly
installments. The interest rate at December 31, 1995 was 8.05%. Principal
amounts are to be repaid in five equal annual installments beginning in December
1998. The term loan agreement requires Intermet to maintain certain financial
ratios and imposes limitations on dividends and certain activities of Intermet.
Intermet and its subsidiaries are jointly and severally liable for any
borrowings under the agreements described above. Intermet loans money to, or
invests the excess cash of, each of its subsidiaries depending on the cash
requirements of each subsidiary. Borrowings under the credit arrangement with
Intermet bear interest at the average rate that Intermet pays for its revolving
and line of credit borrowings. The total of all interest charged by Intermet
and paid by the Company was $1,557,000, $2,518,000 and $3,126,000 in 1995, 1994
and 1993, respectively.
F-11
IRONTON IRON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MAJOR CUSTOMERS
Net sales to customers exceeding 10% of net sales in any period were as follows
(as a percentage of net sales):
1995 1994 1993
---- ----- -----
Ford 23 22% 21%
Dana 22 21 24
General Products 20 24 19
Chrysler 9 14 11
Sales to General Products are under the terms of a purchase order issued by
Ford.
8. CONTINGENCY
In March, 1994, the Company entered negotiations with the Ohio Attorney
General's office concerning past violations of Ohio water pollution laws and
regulations. In November 1995, the Company agreed to pay the State of Ohio a
$285,000 to settle this and all other water discharge violations. The Company
has accrued this liability at December 31, 1995 and expects to pay this in 1996
on receipt of the State decree. In addition, the Company has submitted a plan
to the Ohio EPA to bring its facility into compliance with all applicable air
emission requirements, after that agency had advised management of several
violations of air pollution regulations. It is not known whether the agency
will eventually demand the payment of civil penalties for these past violations.
However, management believes that such penalties, if any, will not be material
to the financial condition of the Company.
F-12
IRONTON IRON, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT BALANCE
BEGINNING CHARGED TO AT END OF
DESCRIPTION OF PERIOD EXPENSE OTHER PERIOD
----------- --------- ---------- ------- ----------
(IN THOUSANDS OF DOLLARS)
Year ended December 31, 1995:
Return and allowance reserve (a) $ 362 $325 (b) $ - $ 687
Deferred tax asset valuation
allowance 21,156 - (296)(d) 20,860
Year ended December 31, 1994:
Return and allowance reserve (a) $ 382 $(20)(b) $ - $ 362
Deferred tax asset valuation
allowance 18,091 - 3,065 (c) 21,156
Year ended December 31, 1993:
Return and allowance reserve (a) $ 100 $282 (b) $ - $ 382
Deferred tax asset valuation
allowance 11,931 - 6,160 (c) 18,091
- ---------
(a) Reflected as reduction of trade accounts receivable on consolidated balanced
sheet.
(b) Net effect of amounts charged to expense less actual returns.
(c) Increase in certain deferred tax assets, primarily related to operating loss
carryforwards.
(d) Decrease in certain deferred tax assets.
F-13
SIGNATURES
Pursuant to the requirements of Section 12(g) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
IRONTON IRON, INC.
(Registrant)
By: /s/ John Doddridge
--------------------------
John Doddridge, President
Date: March 26, 1996
POWER OF ATTORNEY AND SIGNATURES
--------------------------------
Know all men by these presents, that each person whose signature
appears below constitutes and appoints John Doddridge and Doretha J. Christoph,
or either of them, as attorney-in-fact, with each having power of substitution,
for him in any and all capacities to sign any amendments to this Report on Form
10-K and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of March 26, 1996, by the following persons
on behalf of the Registrant in the capacities indicated.
Signature Capacity
--------- --------
/s/ John Doddridge President and Director
--------------------
John Doddridge (Principal Executive Officer)
/s/ C. James Peterson Vice President and Director
---------------------
C. James Peterson
/s/ James W. Rydel Secretary and Director
- -------------------
James W. Rydel
/s/ Doretha J. Christoph Treasurer (Principal Financial and
- -------------------------
Doretha J. Christoph Accounting Officer)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
----
Report of Independent Auditors................................................. F-1
Balance Sheets at December 31, 1995 and 1994................................... F-2
Statements of Operations for the years ended December 31, 1995, 1994 and 1993.. F-4
Statements of Net Common Shareholder's Deficiency for the years ended
December 31, 1995, 1994 and 1993............................................. F-5
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993............................................. F-6
Notes to Financial Statements.................................................. F-7
Schedule II - Valuation and Qualifying Accounts................................ F-13
EXHIBIT INDEX
27 Financial Data Schedule