<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 September 30, 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 November 6, 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>
September 30, December 31,
1998 1997
------------------ -----------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Assets
Current assets:
Cash $78 $21
Accounts receivable:
Trade, less allowance for doubtful accounts of
$440 in 1998 and $300 in 1997 6,071 5,255
Other 333 262
Inventories 3,515 2,578
Other current assets 87 137
------------------ -----------------
Total current assets 10,084 8,253
Property, plant and equipment:
Land 295 295
Building and improvements 5,858 5,360
Machinery and equipment 29,420 28,670
Construction in progress 1,828 1,548
------------------ -----------------
37,401 35,873
Less accumulated depreciation 21,532 19,778
------------------ -----------------
Net property, plant and equipment 15,869 16,095
Other non current assets 4 18
------------------ -----------------
$25,957 $24,366
================== =================
</TABLE>
2
<PAGE> 3
Ironton Iron, Inc.
Interim Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ -----------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Liabilities and shareholders' deficiency
Current liabilities:
Accounts payable $3,418 $2,781
Accrued wages and benefits 934 1,093
Accrued workers' compensation 375 597
Other accrued liabilities 196 373
------------------ -----------------
Total current liabilities 4,923 4,844
Due to affiliates 46,933 40,309
Redeemable preferred stock 3,477 3,389
Net shareholder's deficiency:
Common stock 2,000 2,000
Additional paid-in capital 49,523 49,523
Accumulated deficit (80,899) (75,699)
------------------ -----------------
Net shareholder's deficiency (29,376) (24,176)
------------------ -----------------
$25,957 $24,366
================== =================
</TABLE>
See accompanying notes.
3
<PAGE> 4
Ironton Iron, Inc.
Interim Condensed Statements of Income
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C> <C> <C>
Net sales $12,518 $12,531 $40,453 $38,432
Cost of sales 15,589 13,330 44,856 41,094
----------------- ----------------- ----------------- -----------------
Gross profit (3,071) (799) (4,403) (2,662)
Operating income (expense):
Corporate charges from parent (420) (493) (1,260) (1,479)
Other operating income 107 77 386 198
----------------- ----------------- ----------------- -----------------
Operating loss (3,384) (1,215) (5,277) (3,943)
Interest expense 196 133 556 369
----------------- ----------------- ----------------- -----------------
Loss before income taxes and cumulative
effect of accounting change (3,580) (1,348) (5,833) (4,312)
Provision for income taxes - - - -
----------------- ----------------- ----------------- -----------------
Loss before cumulative effect of accounting
change (3,580) (1,348) (5,833) (4,312)
Cumulative effect of accounting change - - 290 -
----------------- ----------------- ----------------- -----------------
Net loss ($3,580) ($1,348) ($5,543) ($4,312)
================= ================= ================= =================
</TABLE>
See accompanying notes.
4
<PAGE> 5
Ironton Iron, Inc.
Interim Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
September 30, September 30,
1998 1997
------------------ ------------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Operating activities:
Net loss ($5,543) ($4,312)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization 2,036 2,036
Changes in operating assets and liabilities:
Accounts receivable (887) (1,439)
Inventories (937) (922)
Accounts payable and accrued liabilities 79 32
Other assets and liabilities 50 859
------------------ ------------------
Net cash used in operating activities (5,202) (3,746)
Investing activities:
Additions to property, plant and equipment (2,151) (1,149)
Other - (14)
------------------ ------------------
Net cash used in investing activities (2,151) (1,163)
Financing activities:
Increase in due to affiliates 7,410 4,914
------------------ ------------------
Net cash provided by financing activities 7,410 4,914
------------------ ------------------
Net increase in cash and cash equivalents 57 5
Cash at beginning of period 21 52
------------------ ------------------
Cash at end of period $78 $57
================== ==================
</TABLE>
See accompanying notes.
5
<PAGE> 6
Ironton Iron, Inc.
Notes to Interim Condensed Financial Statements
September 30, 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 nine months
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ending 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>
September 30, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Finished goods $87 $64
Work in process 1,030 376
Raw materials 511 554
Supplies and patterns 1,887 1,584
----------------- -----------------
$3,515 $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)
September 30, 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
nine months ended September 30, 1998. Proforma results for the nine-month period
ended September 30, 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 three and nine months ended September 30,
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 FINANCIAL CONDITION AND 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; (VI) FACTORS AFFECTING THE ABILITY
OF THE COMPANY OR ITS KEY SUPPLIERS TO RESOLVE YEAR 2000 ISSUES IN A TIMELY
MANNER; AND (VII) 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 $5.2 million in the nine months ended September 30,
1998. Depreciation and amortization expense was $2.0 million. Accounts
receivable increased $0.9 million from December 31, 1997, as sales during
September 1998 were higher than those of December 1997 due to the traditional
holiday shutdown. In addition, because September only has 30 days, customer
payments that would have been received on the 31st day of the month were
received on the first day of the fourth quarter. Additions to property, plant
and equipment were $2.2 million during the nine months ended September 30, 1998.
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 $80.9 million.
Material Changes in Results of Operations
Sales for the quarters ended September 30, 1998 and 1997 were $12.5 million
each. Sales for the nine months ended September 30, 1998 were $40.5 million, up
from $38.4 million for the same period in 1997. This increase relates to new
business, primarily with Chrysler and Dana and increases in existing business.
The Company launched new business for the dry sand process line in June 1998
that is expected to provide additional volume for the Company. 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 continues
to evaluate alternatives to improve profitability as it is currently operating
below breakeven levels due to less than optimal manufacturing performance which,
in turn, caused under-utilization of capacity.
Gross profit as a percentage of sales for the third quarter of 1998 was negative
24.5% compared to a negative 6.4% for the third quarter of 1997. Beginning in
the second quarter of 1998 and continuing through the third quarter, the Company
experienced and continues to experience various operational difficulties. The
Company had a fire in July, which led to the need to run operations in over-time
in order to meet customer demand. In addition, there were costs associated with
the launch and production ramp-up of its newest product. The Company expects to
improve production processes in the fourth quarter as new production equipment
is installed and bottlenecks are alleviated. Gross profit as a percentage of
sales for the nine months ended September 30, 1998 and 1997 were negative 10.9%
and negative 6.9%.
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 September 30, 1998 that are fully reserved. As such,
the Company has no tax provision for the quarter ended or the nine-month period
ended September 30, 1998.
As a result of the continued low sales volume and operational performance, the
Company incurred a loss of $3.6 million in the third quarter of 1998 and $5.5
million for the calendar year to date period September 30, 1998.
8
<PAGE> 9
Year 2000
The Company has conducted an evaluation of its 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.
With the assistance of Intermet and as a part of Intermet's Year 2000 efforts,
the Company has completed a Year 2000 readiness assessment of its business
critical IT and non-IT systems. As a result of the assessment, the Company is in
the process of developing and implementing corrective action plans designed to
address Year 2000 issues. These plans include modification, upgrade and
replacement of the Company's critical administrative, production and research
and development computer systems to make them Year 2000 ready. Implementation of
corrective action plans has begun, and the Company expects to have its critical
systems Year 2000 ready by June 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.
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 were 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. 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.
Contingency plans are being or will be developed that are intended to avoid or
mitigate the risks that either key suppliers or the Company 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 elsewhere in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
9
<PAGE> 10
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
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
27 Financial Data Schedule.
(b) The Company filed no reports on Form 8-K for the three months ended
September 30, 1998.
10
<PAGE> 11
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: November 6, 1998
11
<PAGE> 12
Exhibits Index
Exhibit Number Description of Exhibit
27 Financial Data Schedule.
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 6,511
<ALLOWANCES> 440
<INVENTORY> 3,515
<CURRENT-ASSETS> 10,084
<PP&E> 37,401
<DEPRECIATION> 21,532
<TOTAL-ASSETS> 25,957
<CURRENT-LIABILITIES> 4,923
<BONDS> 0
3,477
0
<COMMON> 2,000
<OTHER-SE> (31,376)
<TOTAL-LIABILITY-AND-EQUITY> 25,957
<SALES> 40,453
<TOTAL-REVENUES> 40,453
<CGS> 44,856
<TOTAL-COSTS> 45,730
<OTHER-EXPENSES> 556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556
<INCOME-PRETAX> (5,833)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 290
<NET-INCOME> (5,543)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
