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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 (ZIP CODE)
OFFICES)
(630) 852-8800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of October 15, 1996, 23,112,999 shares of the Registrant's common stock
were outstanding.
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THE INTERLAKE CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements as of and for the periods
ended September 29, 1996 and October 1, 1995 are unaudited, but include all
adjustments which the Registrant considers necessary for a fair presentation
of results of operations and financial position for the applicable periods.
Except as noted, all adjustments are of a normal recurring nature.
2
THE INTERLAKE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED
SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(IN THOUSANDS EXCEPT PER SHARE STATISTICS)
THIRD QUARTER NINE MONTHS
------------------ ------------------
1996 1995 1996 1995
(13 WKS) (13 WKS) (39 WKS) (40 WKS)
-------- -------- -------- --------
Net Sales of Continuing Operations.... $174,047 $175,870 $513,920 $516,952
Cost of Products Sold................. 134,360 136,848 397,040 397,100
Selling & Administrative Expense...... 25,258 25,725 75,521 77,659
-------- -------- -------- --------
Operating Profit...................... 14,429 13,297 41,359 42,193
Non-operating (Income) Expense........ (348) (247) (1,627) (871)
-------- -------- -------- --------
Earnings Before Interest & Taxes...... 14,777 13,544 42,986 43,064
Interest Expense...................... 11,828 12,061 35,491 35,586
Interest Income....................... (472) (481) (1,301) (1,232)
-------- -------- -------- --------
Income from Continuing Operations
Before Taxes, Minority Interest,
Extraordinary Item & Accounting
Change............................... 3,421 1,964 8,796 8,710
Provision for Income Taxes............ 2,236 1,321 5,826 5,857
-------- -------- -------- --------
Income from Continuing Operations
Before Minority Interest,
Extraordinary Item & Accounting
Change............................... 1,185 643 2,970 2,853
Minority Interest in Net Income of
Subsidiaries......................... 749 802 2,792 3,554
-------- -------- -------- --------
Income (Loss) from Continuing
Operations Before Extraordinary Item
& Accounting Change.................. 436 (159) 178 (701)
Income from Discontinued Operations,
Net of Income Taxes.................. 1,777 481 4,271 2,112
Extraordinary Item.................... -- -- -- (3,448)
Cumulative Effect of Accounting
Change............................... -- -- 1,610 --
-------- -------- -------- --------
Net Income (Loss)..................... $ 2,213 $ 322 $ 6,059 $ (2,037)
======== ======== ======== ========
Primary Net Income (Loss) Per Share:
Continuing Operations Before
Extraordinary Item & Accounting
Change............................. $ .02 $ (.01) $ .01 $ (.03)
Discontinued Operations............. .07 .02 .18 .09
Extraordinary Item.................. -- -- -- (.15)
Cumulative Effect of Accounting
Change............................. -- -- .07 --
-------- -------- -------- --------
Primary Net Income (Loss) Per Share... $ .09 $ .01 $ .26 $ (.09)
======== ======== ======== ========
Fully Diluted Net Income (Loss) Per
Share
Continuing Operations Before
Extraordinary Item & Accounting
Change............................. $ .01 $ (.01) $ .01 $ (.03)
Discontinued Operations............. .06 .02 .13 .07
Extraordinary Item.................. -- -- -- (.11)
Cumulative Effect of Accounting
Change............................. -- -- .05 --
-------- -------- -------- --------
Fully Diluted Net Income (Loss) Per
Share................................ $ .07 $ .01 $ .19 $ (.07)
======== ======== ======== ========
Weighted Average Shares Outstanding
Primary............................. 23,087 22,650 23,087 22,650
======== ======== ======== ========
Fully Diluted....................... 31,599 30,413 31,599 30,413
======== ======== ======== ========
3
THE INTERLAKE CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 29, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
1996 1995
ASSETS --------- ---------
Current Assets:
Cash and cash equivalents................................ $ 26,978 $ 41,562
Receivables, less allowances for doubtful accounts of
$2,200 at September 29, 1996 and $3,425 at December 31,
1995.................................................... 113,556 132,331
Inventories-- Raw materials and supplies................. 20,709 23,590
-- Semi-finished and finished products................... 40,771 55,140
Other current assets..................................... 14,328 15,100
--------- ---------
Total Current Assets................................... 216,342 267,723
--------- ---------
Investment in Discontinued Operations...................... 29,402 --
Other Assets............................................... 41,076 43,269
--------- ---------
70,478 43,269
--------- ---------
Property, Plant and Equipment, at cost..................... 380,233 402,125
Less--Depreciation and amortization........................ (238,845) (253,315)
--------- ---------
141,388 148,810
--------- ---------
Total Assets........................................... $ 428,208 $ 459,802
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable......................................... $ 63,398 $ 75,266
Accrued liabilities...................................... 35,253 47,464
Interest payable......................................... 7,525 11,150
Accrued salaries and wages............................... 16,654 15,648
Income taxes payable..................................... 12,909 14,665
Debt due within one year................................. 3,966 3,759
--------- ---------
Total Current Liabilities.............................. 139,705 167,952
--------- ---------
Long-Term Debt............................................. 445,299 439,856
--------- ---------
Other Long-Term Liabilities and Deferred Credits........... 87,760 104,516
--------- ---------
Preferred Stock--2,000,000 shares authorized Convertible
Exchangeable Preferred Stock--Redeemable, par value $1 per
share, issued 40,000 shares (liquidation value $58,329 at
September 29, 1996 and $54,602 at December 31, 1995)...... 39,155 39,155
Shareholders' Equity (Deficit):
Common stock, par value $1 per share, authorized
100,000,000 shares, issued 23,228,695 shares............ 23,229 23,229
Additional paid-in capital............................... 7,247 13,504
Cost of common stock held in treasury (115,696 shares at
September 29, 1996 and 412,500 shares at December 31,
1995)................................................... (2,700) (9,625)
Accumulated deficit...................................... (287,142) (293,201)
Unearned compensation.................................... (7,356) (8,950)
Accumulated foreign currency translation adjustments..... (16,989) (16,634)
--------- ---------
(283,711) (291,677)
--------- ---------
Total Liabilities and Shareholders' Equity (Deficit)... $ 428,208 $ 459,802
========= =========
4
THE INTERLAKE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(IN THOUSANDS)
1996 1995
(39 WKS) (40 WKS)
-------- ---------
Cash flows from (for) operating activities:
Net income (loss)....................................... $ 6,059 $ (2,037)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization......................... 15,345 15,449
Extraordinary item.................................... -- 3,448
Cumulative effect of accounting change................ (1,876) --
Other operating adjustments........................... (11,870) 2,105
(Increase) decrease in working capital:
Accounts receivable................................. (3,855) (2,003)
Inventories......................................... (4,019) (5,771)
Other current assets................................ (3,813) (5,032)
Accounts payable.................................... 4,603 (2,629)
Other accrued liabilities........................... (8,244) (8,722)
Income taxes payable................................ 3,341 2,285
-------- ---------
Total working capital change...................... (11,987) (21,872)
-------- ---------
Net cash provided (used) by operating activities.......... (4,329) (2,907)
-------- ---------
Cash flows from (for) investing activities:
Capital expenditures.................................... (17,761) (12,704)
Proceeds from disposal of PP&E.......................... 183 173
Acquisitions............................................ (310) --
Other investment flows.................................. 350 759
-------- ---------
Net cash provided (used) by investing activities.......... (17,538) (11,772)
-------- ---------
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt................ 9,000 110,127
Retirements of long-term debt........................... (3,575) (107,387)
Debt issuance costs..................................... -- (5,513)
Other financing flows................................... 1,508 1,609
-------- ---------
Net cash provided (used) by financing activities.......... 6,933 (1,164)
-------- ---------
Effect of exchange rate changes........................... 350 31
-------- ---------
Increase (Decrease) in cash and cash equivalents.......... (14,584) (15,812)
Cash and cash equivalents, beginning of period............ 41,562 39,708
-------- ---------
Cash and cash equivalents, end of period.................. $ 26,978 $ 23,896
======== =========
5
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--FINANCIAL STATEMENTS
The information furnished in these financial statements is unaudited.
The Registrant and its subsidiaries are referred to herein on a consolidated
basis as the Company.
NOTE 2--SUBSEQUENT EVENT
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 $104.4 million, subject to potential adjustments. 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 gain of approximately $40.0 million on this sale
will be recorded in the fourth quarter of 1996. The Company anticipates using
the proceeds from the sale to reduce its long-term debt and to invest in its
other businesses.
NOTE 3--DISCONTINUED OPERATIONS
The consolidated financial statements of the Company have been restated to
report separately the net assets and operating results of Packaging as
discontinued operations. As of September 29, 1996, the investment in net
assets of discontinued operations consisted of:
(IN THOUSANDS)
Current assets............................................ $46,425
Current liabilities....................................... 25,716
-------
Net current assets........................................ 20,709
Net fixed assets.......................................... 10,514
Other assets.............................................. 2,999
Long-term liabilities..................................... (4,820)
-------
$29,402
=======
Summary results of discontinued operations were as follows:
THIRD QUARTER NINE MONTHS
--------------- ------------------
1996
(13 1995 1996 1995
WKS) (13 WKS) (39 WKS) (40 WKS)
------- ------- -------- --------
(IN THOUSANDS)
Net Sales................................... $35,138 $34,371 $105,287 $106,727
======= ======= ======== ========
Earnings before interest and taxes.......... $ 4,462 $ 2,912 $ 12,087 $ 10,037
Net interest expense........................ 1,611 1,656 4,833 5,178
Provision for income taxes.................. 1,074 775 3,249 2,747
Cumulative effect of accounting change
related to discontinued operations......... -- -- 266 --
------- ------- -------- --------
Income from discontinued operations......... $ 1,777 $ 481 $ 4,271 $ 2,112
======= ======= ======== ========
6
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense was allocated to discontinued operations based on an
assumed $75.6 million reduction in long-term debt.
The liquidation of LIFO inventories benefited pre-tax income from
discontinued operations in the first nine months of 1995 by $.8 million.
NOTE 4--POSTRETIREMENT BENEFITS/ACCOUNTING CHANGE
In the third quarter of 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 $.4 million, the
Company recorded a favorable expense adjustment to income from continuing
operations of $1.2 million, in accordance with the Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("FAS 106").
Based on a review of postretirement life and medical claims cost experience
in the second quarter of 1996, the Company changed the assumptions used to
calculate the Accumulated Postretirement Benefit Obligation (APBO) required by
FAS 106. 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 determining expected future medical
claims was revised to reflect recent claims experience. The previously used
method applied a weighting factor to recent experience. These actuarial
assumption changes resulted in a favorable expense adjustment to income from
continuing operations of $1.3 million in the second quarter of 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. 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 the first nine months of 1996 was increased by $1.6 million in
respect of continuing operations and $.3 million in respect of discontinued
operations.
NOTE 5--COMPUTATION OF COMMON SHARE DATA
The weighted average number of common shares outstanding used to compute
primary net income per share was 23,087,000 for 1996 and 22,650,000 for 1995,
and for fully diluted net income per share was 31,599,000 for 1996 and
30,413,000 for 1995.
NOTE 6--INCOME TAXES
The effective tax rate on income from continuing operations was 66.2% and
67.2% for the 1996 and 1995 nine-month periods, respectively. Because most of
the Company's interest expense is borne in the United States at the parent
company level, the Company had substantial taxable income in foreign and state
jurisdictions. Taxes due to foreign authorities were not offset by U.S.
federal income tax benefits.
NOTE 7--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 September 29, 1996, the Company's reserves for
environmental liabilities totaled $3.5 million, most of which relates to the
Acme indemnification.
7
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 estimating its potential environmental liabilities, the Company has not
taken into consideration any recoveries or potential recoveries from insurance
companies, although in May 1994, the Company instituted an action seeking a
declaratory judgment against and recoveries from insurers under policies
covering nearly 30 years. The parties are in discovery and trial is
tentatively set for April 1997. In the third quarter of 1996, the Company
entered into a settlement agreement with respect to one of the defendant
insurers, and is presently in settlement discussions with several others.
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 commenced the implementation of, the portions
of the selected 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 $3 million and $5 million, a portion of which has
been incurred. The Company expects the soils remediation to be substantially
completed by the end of 1996.
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 ultimately a clean-up is
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
8
THE INTERLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
operable unit. The Company believes that the tar companies are the cause of a
significant portion of the underwater contamination of 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 over the
period of 1996 and 1997. If the Company ultimately determines that additional
charges are necessary in connection with the Duluth Site, the Company believes
it is likely that cash outlays would occur near the end of the decade, or
later.
NOTE 8--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 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 judgement seeking
indemnification by Beazer for the liabilities alleged by the City and related
costs and expenses. Beazer has appealed the indemnification ruling. The appeal
has been fully briefed and oral argument took place before the United States
6th Circuit Court of Appeals on October 10, 1996.
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 million in investigation and remediation, and purportedly
estimates the total costs of investigation and remediation to be approximately
$60 million. 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. In November 1995, the
named defendants filed a complaint against numerous third-party defendants,
bringing the total number of defendants in the matter to approximately 100. 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 it has meritorious defenses to both of the alleged bases
of liability.
NOTE 9--EXTRAORDINARY ITEM
During the second quarter of 1995, the Company issued $100.0 million of 12%
Senior Notes due in 2001, the proceeds of which were used to retire a portion
of the Company's bank debt. Debt issuance costs of $3.4 million associated with
the retired debt were written off and shown as an extraordinary item.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(The following comments reflect the sale of the Company's packaging
businesses to Samuel Manu-Tech Inc. on October 4, 1996, subsequent to the end
of the third quarter, as described below and in Notes 2 and 3 of Notes to
Consolidated Financial Statements. Results of all periods presented have been
recast to reflect the packaging businesses as discontinued operations.)
RESULTS OF OPERATIONS
Third Quarter 1996 Compared with Third Quarter 1995
Net sales of continuing operations of $174.0 million in the quarter ended
September 29, 1996 compared with net sales of continuing operations of $175.9
million in the prior year period. Sales in the Engineered Materials segment
for the third quarter increased 6% to $64.1 million, due to higher sales at
both Special Materials and Aerospace Components. Sales in the Handling segment
for the third quarter declined 5% to $109.9 million, due mainly to lower sales
in North America. Operating profit from continuing operations increased 8% to
$14.4 million from $13.3 million in 1995. Operating profit in the 1996 quarter
benefited from the Company's action to eliminate postretirement medical and
life insurance benefits for certain active domestic employees, which resulted
in a one-time cash payment of $.4 million and a favorable expense adjustment
of $1.2 million.
Net income of $2.2 million, or $.07 per share, for the 1996 quarter compared
with net income of $.3 million, or $.01 per share, for the third quarter of
1995. These amounts include income from discontinued operations of $1.8
million, or $.06 per share, in the 1996 period, compared with income from
discontinued operations of $.5 million, or $.02 per share, in 1995. Results of
the discontinued operations for the third quarter included $.7 million from
the elimination of retiree life and medical benefits for certain active
domestic employees.
Segment Results
The Company's businesses are organized into two segments: Engineered
Materials and Handling. Businesses in Engineered Materials are Special
Materials (ferrous metal powders) and Aerospace Components (precision
aerospace component fabrication and aviation repair). As a result of the sale
of Packaging, the Handling/Packaging Systems segment has been renamed
Handling. Businesses in Handling are U.S. and international material handling
operations.
THIRD QUARTER SEGMENT RESULTS
--------------------------------
NET SALES OPERATING PROFIT
------------- ------------------
1996 1995 1996 1995
------ ------ -------- --------
(IN MILLIONS)
Engineered Materials
Special Materials..................... $ 43.7 $ 41.4
Aerospace Components.................. 20.4 19.2
------ ------
64.1 60.6 $ 9.1 $ 9.6
Handling................................ 109.9 115.3 5.5 4.2
------ ------
Corporate Items......................... (.2) (.5)
-------- --------
Consolidated Totals..................... $174.0 $175.9 $ 14.4 $ 13.3
====== ====== ======== ========
Engineered Materials
Sales in the Engineered Materials segment for the third quarter increased 6%
to $64.1 million due to higher sales at both Special Materials and Aerospace
Components. Special Materials' metal powder sales increased 6%
10
compared with the same period last year, reflecting higher volume. Profit
increased 1% for the quarter, as the benefit from additional sales was
partially offset by higher operating costs.
Aerospace Components' third quarter sales increased 6% compared with the
1995 period, due to increased shipments of fabricated components and improved
repair volume. Profit for the quarter declined 8%, due to higher maintenance
and repair expenses and a less favorable product mix in aviation repair.
Order backlogs in this segment were $158.0 million at the end of the
quarter, down from $160.9 million at the end of the third quarter of 1995.
Special Materials' backlog was down 28%, due to lower order rates and customer
inventory reduction efforts. Aerospace Components' backlog increased 8%,
reaching its highest level since 1989.
Handling
Sales in the Handling segment (at comparable exchange rates) declined 4%
compared with the 1995 period. Sales increased 12% in the Asia Pacific region
and were slightly higher in Europe, while North American sales were down 13%.
Handling's profit increased 28% (at comparable exchange rates) compared with
the third quarter of 1995, which included a one-time provision of $2.5 million
related to reducing fixed costs in Europe. Excluding this expense, profit for
the 1996 period declined 12%. North American profit declined 14%, as lower
steel and operating costs and the retired life and medical adjustment
partially offset the impact of lower sales. Excluding the 1995 provision
discussed above, Handling's European profit was level with the prior year, as
lower margins in the U.K. offset improvements in Germany and Belgium.
Order backlogs in this segment were $95.9 million at the end of the third
quarter, up from $81.2 million at the end of the third quarter of 1995 (at
comparable exchange rates), reflecting significantly stronger order intake at
the North American Handling operation.
Nine Months 1996 Compared with Nine Months 1995
For the first nine months of 1996, net sales of continuing operations
declined 1% to $513.9 million from $517.0 million. However, 1995 was a 40-week
period and 1996 was a 39-week period; also, changes in exchange rates
decreased sales by $3.6 million compared with 1995. Operating profit declined
2% to $41.4 million from $42.2 million a year earlier. Selling, general and
administrative expenses were 14.7% of sales for the first nine months of 1996,
compared with 15.0% of sales for the 1995 period.
The Company performed a review of postretirement medical and life claims
cost experience in the second quarter of 1996. Based on favorable claims
experience the Company changed the assumptions used in calculating the
liability for these benefits, resulting in a favorable expense adjustment to
income from continuing operations of $1.3 million in the second quarter. In
addition to the postretirement life and medical assumption changes, results
for the first nine months of 1996 included a $1.6 million benefit ($.05 per
share) from the cumulative effect of a change in accounting for postretirement
life and medical benefits calculated under FAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" in respect of continuing
operations.
Net income of $6.1 million, or $.19 per share, compared with a net loss for
the 1995 period of $2.0 million, or $.07 per share. These amounts include
income from discontinued operations of $4.3 million, or $.13 per share, in the
1996 period, compared with income from discontinued operations of $2.1
million, or $.07 per share, in 1995. Results for the discontinued operations
for the first nine months of 1996 included a $1.1 million benefit from the
elimination of retiree life and medical benefits for certain active domestic
employees and related assumption and accounting changes. Net income for the
first nine months of 1995 was reduced by a $3.4 million ($.11 per share)
extraordinary item which was recorded in the second quarter of 1995 to write
off deferred debt issuance costs related to the early retirement of a portion
of the Company's bank debt.
11
NINE MONTH SEGMENT
RESULTS
--------------------------
OPERATING
NET SALES PROFIT
------------- ------------
1996 1995 1996 1995
------ ------ ----- -----
(IN MILLIONS)
Engineered Materials
Special Materials.......................... $130.8 $134.8
Aerospace Components....................... 62.5 53.1
------ ------
193.3 187.9 $28.9 $30.2
Handling..................................... 320.6 329.1 13.7 13.5
------ ------
Corporate Items.............................. (1.2) (1.5)
----- -----
Consolidated Totals.......................... $513.9 $517.0 $41.4 $42.2
====== ====== ===== =====
Engineered Materials
For the first nine months of 1996, sales were up 3% from 1995, and profit
decreased 5%. Special Materials' sales declined 3% and profit declined 11%,
due to lower production volume and higher expenses. Aerospace Components'
sales increased 18% and profit increased 49% due to higher volumes and
improved manufacturing performance.
Handling
For the first nine months of 1996, Handling sales (at comparable exchange
rates) declined 1% compared with the 1995 period and profit was up 2%.
Excluding the 1995 provision, profit declined 10% due to lower prices in
Europe and North America, somewhat offset by selling and administrative
expense savings in Europe resulting from the cost reduction actions taken in
the third quarter of 1995.
FINANCIAL CONDITION
The Company's total debt at the end of the third quarter was $449.3 million,
up $5.7 million from year-end 1995. Cash totaled $27.0 million at the end of
the quarter, compared with $41.6 million at the end of 1995, reflecting
increased working capital requirements and capital expenditures. Capital
expenditures of $7.7 million during the quarter brought the year-to-date total
to $17.8 million, compared with $12.7 million for the first nine months of
1995.
Under its bank credit agreement, as of September 29, 1996, the Company had
available revolving facilities of up to an additional $29.2 million over its
then outstanding revolving indebtedness which, together with cash resources,
the Company believes provided it with adequate liquidity. The subsequent event
(see below) enhanced liquidity and reduced the Company's total debt.
SUBSEQUENT EVENT
On October 4, 1996, the Company sold its packaging businesses to Samuel
Manu-Tech Inc. of Etobicoke, Ontario, Canada. The gain of approximately $40.0
million on this sale will be recorded in the fourth quarter of 1996. The
Company anticipates using the proceeds from the sale to reduce its long-term
debt and to invest in its other businesses. The consolidated financial
statements of the Company have been restated to report separately the net
assets and operating results of the packaging businesses as discontinued
operations.
12
PART II.--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved
in legal proceedings incidental to its business. None of these proceedings is
material within the meaning of regulations of the Securities and Exchange
Commission.
The Company is a party in certain litigation and a proceeding before a
governmental agency which relate to the contamination of the environment.
These matters are described in Note 7 and Note 8 of Notes to Consolidated
Financial Statements included herein. Reference is also made to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, Part
I, Item 3--Legal Proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 4.1 Tenth Amendment, dated as of September 25, 1996, to the Amended
and Restated Credit Agreement
Exhibit 10.1 U.S. Asset Purchase Agreement, dated October 1, 1996, between
Interlake Packaging Corporation and Samuel Strapping Systems
(Tennessee), Inc.
Exhibit 10.2 Canadian Stock Purchase Agreement, dated September 30, 1996,
between Interlake Packaging Corporation, The Interlake Companies,
Inc. and Samuel Manu-Tech Inc.
Exhibit 10.3 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.
Exhibit 27.1 Financial Data Schedules, for the year ended December 25, 1994
and the quarters ended April 2, 1995, July 2, 1995 and October 1,
1995
Exhibit 27.2 Financial Data Schedules, for the year ended December 31, 1995
and the quarters ended March 31, 1996, June 30, 1996 and
September 29, 1996
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K dated October 2, 1996, reporting that the Company
had signed a definitive agreement for the sale of its packaging businesses to
Samuel Manu-Tech Inc.
Current Report on Form 8-K dated October 4, 1996, reporting that the Company
had completed the sale of its packaging businesses
Current Report on Form 8-K, including Unaudited Pro Forma Condensed
Consolidated Statements of Income for the six months ended June 30, 1996 and
the year ended December 31, 1995, and Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of June 30, 1996, and notes thereto, dated
October 21, 1996
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Interlake Corporation
/s/ Stephen Gregory
-------------------------------------
Stephen Gregory
Vice President--Finance
and Chief Financial Officer
October 24, 1996
14