<PAGE> 1
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, 1998, 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 8, 1998 there were 23,000 shares of Common Stock, no par value,
outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ironton Iron, Inc.
Interim Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Assets
Current assets:
Cash $ 30 $ 21
Accounts receivable:
Trade, less allowance for doubtful accounts of
$375 in 1998 and $300 in 1997 6,700 5,255
Other 840 262
Inventories 2,533 2,578
Other current assets 69 137
-------------- -----------------
Total current assets 10,172 8,253
Property, plant and equipment:
Land 295 295
Building and improvements 5,799 5,360
Machinery and equipment 29,124 28,670
Construction in progress 1,228 1,548
-------------- -----------------
36,446 35,873
Less accumulated depreciation 20,435 19,778
-------------- -----------------
Net property, plant and equipment 16,011 16,095
Other non current assets 14 18
-------------- -----------------
$26,197 $24,366
============== =================
</TABLE>
2
<PAGE> 3
Ironton Iron, Inc.
Interim Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Liabilities and shareholders' deficiency
Current liabilities:
Accounts payable $ 3,332 $ 2,781
Accrued wages and benefits 1,235 1,093
Accrued workers' compensation 419 597
Other accrued liabilities 232 373
------------- ----------------
Total current liabilities 5,218 4,844
Due to affiliates 41,900 40,309
Redeemable preferred stock 3,419 3,389
Net shareholder's deficiency:
Common stock 2,000 2,000
Additional paid-in capital 49,523 49,523
Accumulated deficit (75,863) (75,699)
------------- ----------------
Net shareholder's deficiency: (24,340) (24,176)
------------- ----------------
$ 26,197 $ 24,366
============= ================
</TABLE>
See accompanying notes.
3
<PAGE> 4
Ironton Iron, Inc.
Interim Condensed Statements of Income
<TABLE>
<CAPTION>
Three months ended
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Net sales $14,441 $12,506
Cost of sales 14,856 13,824
------------- ------------
Gross profit (415) (1,318)
Operating income (expense):
Corporate charges from parent (420) (493)
Other operating income 150 -
------------- ------------
Operating loss (685) (1,811)
Interest expense 170 108
------------- ------------
Loss before income taxes and
cumulative effect of accounting
change (855) (1,919)
Provision for income taxes - -
------------- ------------
Loss before cumulative effect of
accounting change (855) (1,919)
Cumulative effect of accounting
change 290 -
------------- ------------
Net loss ($565) ($1,919)
============= ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
Ironton Iron, Inc.
Interim Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Operating activities:
Net loss ($565) ($1,919)
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 661 737
Changes in operating assets and liabilities:
Accounts receivable (2,023) (1,702)
Inventories 45 165
Accounts payable and accrued liabilities 374 336
Other assets and liabilities 66 (3)
------------- -------------
Net cash used in operating activities (1,442) (2,386)
Investing activities:
Additions to property, plant and equipment (573) (395)
------------- -------------
Net cash used in investing activities (573) (395)
Financing activities:
Increase in due to affiliates 2,024 2,794
------------- -------------
Net cash provided by financing activities 2,024 2,794
------------- -------------
Net increase in cash and cash equivalents 9 13
Cash at beginning of period 21 53
------------- -------------
Cash at end of period $ 30 $ 66
============= =============
</TABLE>
See accompanying notes.
5
<PAGE> 6
Ironton Iron, Inc.
Notes to Interim Condensed Financial Statements
March 31, 1998 (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, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. 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, 1997.
Inventories
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- -----------------
<S> <C> <C>
Finished goods $ 71 $ 64
Work in process 457 376
Raw materials 447 554
Supplies and patterns 1,558 1,584
-------------- -----------------
$2,533 $2,578
============== =================
</TABLE>
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.
6
<PAGE> 7
Ironton Iron, Inc.
Notes to Interim Condensed Financial Statements (continued)
March 31, 1998 (Unaudited)
2. Inventory Change in Accounting Method
Effective January 1, 1998, the Company changed its method of accounting for
spare parts used in its equipment. Previously, the Company expensed these
parts in the period during which they were purchased but will now inventory the
parts and charge them to expense in the period in which they are used. This
method is consistent with prevailing industry practice, as well as with the
policy followed by Intermet's other foundry subsidiaries. In management's
opinion, this method of accounting results in better matching of costs and
related revenues. The cumulative effect of this change decreases the net loss
$290,000 for the three months ended March 31, 1998. Proforma results for the
three month period ended March 31, 1997 would not have been materially
different from historical results had this new method been employed at that
time.
3. Comprehensive Income
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
the Company adopted as of January 1, 1998. Statement 130 establishes new rules
for reporting and display of comprehensive income and its components. The
Company's comprehensive losses for the first quarters of 1998 and 1997 are the
same as the net losses reported, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF MATERIAL CHANGES IN FINANCIAL
CONDITION AND MATERIAL CHANGES IN RESULTS OF OPERATIONS CONTAINS
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,
AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS INCLUDING, BUT NOT LIMITED TO: (I)
GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY OPERATES; (II)
FLUCTUATIONS IN WORLDWIDE OR REGIONAL AUTOMOBILE AND LIGHT AND HEAVY TRUCK
PRODUCTION; (III) LABOR DISPUTES INVOLVING THE COMPANY OR ITS SIGNIFICANT
CUSTOMERS; (IV) CHANGES IN PRACTICES AND/OR POLICIES OF THE COMPANY'S
SIGNIFICANT CUSTOMERS TOWARD OUTSOURCING AUTOMOTIVE COMPONENTS AND SYSTEMS; (V)
FOREIGN CURRENCY AND EXCHANGE FLUCTUATIONS; AND (VI) 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.
7
<PAGE> 8
Material Changes in Financial Condition
Operating activities used $1.4 million in the three months ended March 31,
1998. Accounts receivable increased $2.0 million from December 31, 1997, as
sales during March 1998 were higher than those of December 1997 due to the
traditional holiday shutdown. Depreciation and amortization expense was $0.7
million. Additions to property, plant and equipment were $0.6 million during
the first quarter of 1998. The cash consumed in operating and investing
activities was fully funded by Intermet. The Company's financial condition has
continued to deteriorate since the fourth quarter of 1995 and the Company
remains dependent on Intermet for continued financial support. Cumulative
losses since 1988, when the Company was acquired by Intermet, are approximately
$75.9 million.
Material Changes in Results of Operations
Sales for the three months ended March 31, 1998 were $14.4 million, up from
$12.5 million for the same period in 1997. This increase relates to new
business, primarily with Advance Castings, General Products and Dana. This new
business has not fully replaced that of the Ford F-150 I-beam, the phase-out of
which began in the fourth quarter 1995 following a model change. The Company
has secured additional business for the dry sand process line which is expected
to start in mid 1998 and will provide additional volume for the Company.
Gross profit as a percentage of sales for the first quarter of 1998 was
negative 2.9% compared to a negative 10.5% for the first quarter of 1997. This
improvement is due primarily to the increase in sales, cost reduction measures
implemented by the Company and a change in accounting policy implemented in the
first quarter of 1998. Corporate charges have declined due to lower costs
incurred by the parent 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 net operating loss
carryforwards available at March 31, 1998 which are fully reserved. As such,
the Company has no tax provision for the first quarter of 1998.
As a result of the continued low sales volume, the Company incurred a loss of
$0.6 million in the first quarter of 1998 and $1.9 million in the first quarter
of 1997.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which the Company is a party or of which any of its property is
the subject.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
8
<PAGE> 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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
18 Preferability Letter for a Change in Accounting
for Spare Parts Used in Equipment.
27 Financial Data Schedule.
(b) The Company filed no reports on Form 8-K for the three
months ended March 31, 1998.
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
------------------------
Doretha J. Christoph
Vice President, Secretary, Treasurer
and Director (Principal Financial
and Accounting Officer)
Date: May 12, 1998
9
<PAGE> 10
Exhibits Index
Exhibit Number Description of Exhibit
18 Preferability Letter for a Change in Accounting for
Spare Parts Used in Equipment.
27 Financial Data Schedule.
10
<PAGE> 1
EXHIBIT 18
Preferability Letter for a Change in Accounting for Spare Parts Used in
Equipment
April 17, 1998
The Board of Directors
of Ironton Iron, Inc.
Note 2 of the notes to the interim condensed financial statements of Ironton
Iron, Inc. (the "Company"), included in its Form 10-Q for the quarter ended
March 31, 1998, describes a change in the method of accounting for spare parts
used in its equipment from expensing the spare parts at the time of purchase
to inventorying the spare parts at the time of purchase, and charging them to
expense in the period in which they are used. Management has advised us that
they believe that the change is to a preferable method in the circumstances
because this method results in a better matching of costs and revenues and is
consistent with prevailing industry practice as well as the policy followed by
Intermet's other foundry subsidiaries.
There is no authoritative criteria for determining a "preferable" spare parts
accounting method based on the particular circumstances; however, we conclude
that the change in the method of accounting for spare parts is to an acceptable
alternative method which, based on management's business judgment to make this
change for the reasons cited above, is preferable in the circumstances. We
have not conducted an audit in accordance with generally accepted auditing
standards of any financial statements of the Company as of any date or for any
period subsequent to December 31, 1997, and therefore we do not express any
opinion on any financial statements of Ironton Iron Inc. subsequent to that
date.
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 7,075
<ALLOWANCES> 375
<INVENTORY> 2,533
<CURRENT-ASSETS> 10,172
<PP&E> 36,446
<DEPRECIATION> 20,435
<TOTAL-ASSETS> 26,197
<CURRENT-LIABILITIES> 5,218
<BONDS> 0
3,419
0
<COMMON> 2,000
<OTHER-SE> (26,340)
<TOTAL-LIABILITY-AND-EQUITY> 26,197
<SALES> 14,441
<TOTAL-REVENUES> 14,441
<CGS> 14,856
<TOTAL-COSTS> 15,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> (855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 290
<NET-INCOME> (565)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
