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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
Commission File Number 0-17028
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 48098-2683
(Address of principal executive offices) (Zip code)
(248) 952-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At May 1, 1999 there were 23,000 shares of Common Stock, no par value,
outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ironton Iron, Inc.
Interim Condensed Balance Sheets
March 31, December 31,
1999 1998
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(Unaudited)
(in thousands of dollars)
Assets
Current assets:
Cash and cash equivalents $ 31 $ 13
Accounts receivable:
Trade, less allowance for doubtful accounts of
$44 in 1999 and $412 in 1998 7,695 7,908
Other 269 410
Inventories 3,625 3,026
Other current assets 34 102
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Total current assets 11,654 11,459
Property, plant and equipment:
Land 295 295
Building and improvements 5,858 5,858
Machinery and equipment 29,819 29,749
Construction in progress 2,415 2,159
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38,387 38,061
Less accumulated depreciation 22,886 22,218
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Net property, plant and equipment 15,501 15,843
Other noncurrent assets 15 15
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$27,170 $27,317
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Ironton Iron, Inc.
Interim Condensed Balance Sheets
March 31, December 31,
1999 1998
-------------- -------------
(Unaudited)
(in thousands of dollars)
Liabilities and shareholders' deficiency
Current liabilities:
Accounts payable $ 4,096 $ 4,020
Accrued wages and benefits 1,067 858
Accrued workers' compensation 373 375
Other accrued liabilities 469 522
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Total current liabilities 6,005 5,775
Due to affiliates 55,428 52,570
Redeemable preferred stock 3,536 3,506
Shareholder's deficiency:
Common stock 2,000 2,000
Additional paid-in capital 49,523 49,523
Accumulated deficit (89,322) (86,057)
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Shareholder's deficiency (37,799) (34,534)
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$ 27,170 $ 27,317
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See accompanying notes.
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Ironton Iron, Inc.
Interim Condensed Statements of Operations
Three months ended
March 31, March 31,
1999 1998
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(Unaudited)
(in thousands of dollars)
Net sales $ 15,626 $ 14,441
Cost of sales 18,310 14,856
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Gross profit (2,684) (415)
Operating income (expense):
Corporate charges from parent (383) (420)
Other operating income -- 150
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Operating loss (3,067) (685)
Interest expense 168 170
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Loss before income taxes and cumulative effect
of accounting change (3,235) (855)
Provision for income taxes -- --
-------- --------
Loss before cumulative effect of
accounting change (3,235) (855)
Cumulative effect of accounting change -- 290
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Net loss ($ 3,235) ($ 565)
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See accompanying notes.
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Ironton Iron, Inc.
Interim Condensed Statements of Cash Flows
Three months ended
March 31, 1999 March 31, 1998
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(Unaudited)
(in thousands of dollars)
Operating activities:
Net loss ($3,235) ($ 565)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 668 661
Cumulative effect of accounting change -- (290)
Changes in operating assets and liabilities:
Accounts receivable 354 (2,023)
Inventories (599) 335
Accounts payable and accrued liabilities 230 374
Other assets and liabilities 68 66
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Net cash used in operating activities (2,514) (1,442)
Investing activities:
Additions to property, plant and equipment (326) (573)
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Net cash used in investing activities (326) (573)
Financing activities:
Increase in due to affiliates 2,858 2,024
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Net cash provided by financing activities 2,858 2,024
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Net increase in cash and cash equivalents 18 9
Cash and cash equivalents at beginning of period
13 21
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Cash and cash equivalents at end of period $ 31 $ 30
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See accompanying notes.
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Ironton Iron, Inc.
Notes to Interim Condensed Financial Statements
March 31, 1999 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements of Ironton Iron, Inc.
("Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1998.
Inventories
Inventories consist of the following (in thousands of dollars):
March 31, December 31,
1999 1998
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Finished goods $ 101 $ 40
Work in process 572 366
Raw materials 719 686
Supplies and patterns 2,233 1,934
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$3,625 $3,026
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Dependency on Parent
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 through intercompany
cash advances.
Loss per Common Share
Because Intermet Corporation ("Intermet") owns all common stock of the Company,
no income or loss per common share information is included herein.
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Ironton Iron, Inc.
Notes to Interim Condensed Financial Statements (continued)
March 31, 1999 (Unaudited)
2. REPORTING FOR BUSINESS SEGMENTS
The Company is a single operating unit with essentially one product line.
Virtually all sales are made to one geographic area (United States). Thus, the
Company has only one segment.
3. COMPREHENSIVE INCOME
The Company's comprehensive losses for the three months ended March 31, 1999 and
1998 are the same as the net losses reported, respectively.
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FORWARD LOOKING STATEMENT
The following Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 3. Quantitative and Qualitative
Disclosures about Market Risk contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. When used in
this section, the words "anticipate," "believe," "estimate" and "expect" and
similar expressions are generally intended to identify forward-looking
statements. Readers are cautioned that any forward-looking statements, including
statements regarding the intent, belief or current expectations of the Company
or its management, are not guarantees of future performance and involve risks
and uncertainties. In addition, readers are cautioned that actual results may
differ materially from those in the forward-looking statements as a result of
various factors including, but not limited to:
- - general economic conditions in the markets in which the Company operates
- - fluctuations in worldwide or regional automobile and light and heavy
truck production
- - labor disputes involving the Company or its significant customers
- - changes in practices and/or policies of the Company's significant
customers toward outsourcing automotive components and systems
- - interest rate fluctuations
- - commodity price fluctuations
- - factors affecting the ability of the Company or its key suppliers to
resolve Year 2000 issues in a timely manner, and
- - changes in the level of financial support provided by Intermet to the
Company
- - other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
The Company does not intend to update these forward-looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Material Changes in Financial Condition
Operating activities used $2.5 million in the three months ended March 31, 1999.
Depreciation and amortization expense was $0.7 million. Accounts receivable
decreased $0.4 million from December 31, 1998 because, although March 1999's
sales were greater than December 1998's, the Company enhanced its accounts
receivable collection efforts. Additions to property, plant and equipment were
$0.3 million during the three months ended March 31, 1999. The cash consumed in
operating and investing activities was fully funded by advances from Intermet.
The Company's financial condition has deteriorated since the fourth quarter of
1995 and the Company remains dependent on Intermet for continued intercompany
cash advances. Cumulative losses since 1988, when the Company was acquired by
Intermet, are approximately $89.3 million.
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Material Changes in Results of Operations
Sales for the quarters ended March 31, 1999 and 1998 were $15.6 and $14.4
million, respectively. This increase relates to new business, primarily with
Dana Corporation, and increases in existing business. The Company launched the
enhanced compacted graphite bedplate on the dry sand process line in June 1998
and moved it to the spo line in the first quarter of 1999. This new business has
and is expected to continue to provide additional volume for the Company. The
Company continues to evaluate alternatives to improve profitability as it is
currently operating below breakeven levels due to less than optimal
manufacturing performance.
Gross profit as a percentage of sales for the first quarter of 1999 was negative
17.2% compared to a negative 2.9% for the first quarter of 1998. Beginning in
the second quarter of 1998 and continuing through the first quarter of 1999, the
Company experienced and continues to experience various labor and operational
difficulties. In addition, there were costs associated with the launch and
production ramp-up of its newest product.
Intermet files a consolidated federal income tax return that includes the
Company. The Company's income tax provision is calculated and reported as if the
Company filed a separate federal income tax return. The Company has incurred
significant operating losses since its inception and has reserved its net
operating loss carryforwards. As such, the Company has zero tax benefit recorded
for the three-month periods ended March 31, 1999 and 1998.
As a result of the continued operational performance problems, the Company
incurred a loss of $3.2 million in the first quarter of 1999.
Year 2000 Readiness Disclosure
The Company has conducted an evaluation of its Informational Technology ("IT")
and non-IT computer systems with respect to the "Year 2000" issue. This issue
arises because many electronic systems use two digits rather than four to
determine dates. This could cause information technology systems such as
software applications, hardware, network systems and embedded systems to misread
important dates beginning in the year 2000, which could cause system failures
and disruption of operations.
The Company completed a Year 2000 readiness assessment of its business critical
IT and non-IT systems. As a result of the assessment, the Company developed and
implemented corrective action plans designed to address Year 2000 issues. The
Company modified, upgraded and/or replaced the Company's critical
administrative, production, and research and development computer systems, where
necessary, to make them Year 2000 ready. The Company believes its critical
systems are Year 2000 ready and will continue to test and monitor these systems
for continued assurance. While the Company believes that its critical systems
are Year 2000 compliant, it has non-critical systems that are not yet compliant.
The Company is working to make these systems Year 2000 compliant before the end
of the second quarter of 1999.
Because the Company's operations depend on the uninterrupted flow of materials
and services from its suppliers, the Company has requested and has been
receiving and analyzing information from its suppliers with regard to their
progress toward Year 2000 readiness. The Company intends to continue to monitor
the progress of its key suppliers toward Year 2000 readiness.
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The Company's estimated pro-rata portion of Intermet's cost for Year 2000
compliance is less than $150,000. It is possible that the actual cost of the
Company's Year 2000 readiness effort could exceed these estimates.
Although the Company has a process in place to assess Year 2000 readiness on the
part of its suppliers, the Company considers the most reasonably likely worst
case scenario is that one or more of the Company's suppliers might encounter a
Year 2000 problem and be unable to supply materials. If this was to occur and
the Company could not obtain the same materials from another vendor, production
could be interrupted, which could result in lost sales and profits. However, it
is likely that the Company could obtain the same materials from another vendor.
In addition, while the Company is taking action to correct deficiencies in its
own systems, it is possible that one or more of the Company's facilities or
critical business systems might not achieve Year 2000 readiness as anticipated.
This could also result in disruption of operations and lost sales and profits.
The Company is developing contingency plans that are intended to avoid or
mitigate the risks that key suppliers might not achieve Year 2000 readiness in
time to avoid disruption of the Company's operations.
Readers are cautioned that forward looking statements contained in this Year
2000 discussion should be read in conjunction with the Company's disclosures
under the cautionary statement for the purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995, included before
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk with regard to interest rate and commodity
pricing. The Company has analyzed the effect of these risks on the balance
sheet, results of operations and cash flows and it estimates that the impact
would be immaterial.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in various legal proceedings and other matters incidental
to its normal business activities. The Company does not believe there are any
pending or threatened legal proceedings to which it is a party, or to which any
of its property is subject, that will have a material effect on its consolidated
financial position, results of operations or liquidity taken as a whole.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this Report pursuant to Item 601 of
Regulation S-K:
Exhibit
Number Description of Exhibit
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27 Financial Data Schedule.
(b) The Company filed no reports on Form 8-K for the three months ended
March 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Ironton Iron, Inc.
By: /s/ Doretha J. Christoph
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Doretha J. Christoph
Vice President, Secretary, Treasurer
and Director (Principal Financial and
Accounting Officer)
Date: May 14, 1999
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Exhibits Index
Exhibit Number Description of Exhibit
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27 Financial Data Schedule.
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