<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Series A Cumulative Preferred Stock*
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of March 15, 1999 none of the registrant's common stock was held by
non-affiliates of the registrant; therefore, the aggregate market value of the
registrant's voting stock held by non-affiliates of the registrant was $0.
Twenty three thousand shares of the registrant's common stock were outstanding
as of March 15, 1999.
*Registered as a result of the reclassification of the registrant's common
stock, no par value, into Series A Cumulative Preferred Stock, pursuant to an
amendment to the registrant's Articles of Incorporation filed on October 30,
1988, described in the registrant's Form 8 to its Registration Statement on Form
10, dated November 3, 1988, previously filed with the Commission. See Item 1,
"Business--General."
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
In July 1984, Ironton Iron, Inc. (the "Company") was incorporated under the laws
of the State of Ohio. The Company operates a foundry in Ironton, Ohio that
manufactures ductile iron castings for the transportation industry.
In October 1988, Intermet Foundries, Inc. ("IFI"), a Georgia corporation and
wholly-owned subsidiary of Intermet Corporation ("Intermet"), acquired through a
recapitalization, all of the outstanding common stock of the Company. In
connection with the recapitalization, IFI paid $2 million for newly issued
common stock of the Company and refinanced approximately $2.1 million of the
Company's debt. Also, the Company issued a new class of Series A Cumulative
Preferred Stock to the former holders of the Company's common stock in exchange
for all of their common shares. On March 31, 1996, IFI was merged into Intermet.
The Company has sustained operating losses since it was acquired in 1988 with
the exception of 1995, when it generated net income of $793,000. As of December
31, 1998, the Company had incurred cumulative losses of approximately $86.1
million. The cash consumed in operating and investing activities has been 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 financial support through intercompany cash advances.
PRODUCTS, MARKETS AND SALES
The Company markets its products principally to original equipment manufacturers
and their suppliers in the automotive industry. The following table sets forth
information regarding sales by the Company:
<TABLE>
<CAPTION>
% of total net sales
year ended December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Automotive 84% 82% 80%
Rail Car 12 12 10
Other 4 6 10
</TABLE>
Products manufactured for the automotive industry include brake parts, steering
and suspension system components and differential cases. The Company produces
brake adapter plates for the rail car industry.
The Company utilizes the in-house sales and customer service staff of Intermet.
The Company produces principally to customer order and does not maintain any
significant inventory of finished goods not on order.
The major customers of the Company during 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
% of total Company net sales
year ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dana 40% 30% 29%
General Products Delaware Corp. 29 28 24
DaimlerChrysler 6 12 11
Ford 5 5 12
</TABLE>
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The sales to General Products Delaware Corporation ("General Products") are
under the terms of a purchase order issued by Ford. Intermet, through a
subsidiary purchased in December 1996, owns a 35% interest in General Products,
a machining and assembly company with operations in Michigan and Indiana.
The loss of any of these customers or a substantial reduction in their purchases
from the Company would have a material adverse effect upon the Company unless
the work was replaced by sales to other customers. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DESIGN, MANUFACTURING AND MACHINING
The Company produces ductile iron castings. Ductile iron, which is produced by
removing sulfur from molten iron and adding magnesium and other alloys, has
greater strength and elasticity than the more widely used gray iron, and its use
as a higher-strength substitute for gray iron and a lower-cost substitute for
steel has grown steadily. In 1998, the Company introduced enhanced compacted
graphite as an alternative to gray and ductile iron. Enhanced compacted graphite
possesses some of the more attractive properties of both gray and ductile iron,
in that it is very easily machined like gray iron with strength characteristics
approaching that of ductile iron. The Company's castings range in size from
products weighing approximately six pounds to castings weighing 100 pounds.
The manufacturing process involves melting steel scrap and pig iron in a gas and
coke-fired cupola furnace, adding various alloys and pouring the molten metal
into molds made primarily of sand. The molten metal cools and solidifies in the
molds, and the molds are broken and removed.
The Company shipped approximately 58,000 tons, 56,000 tons and 58,000 tons
during 1998, 1997 and 1996 respectively.
Customers usually specify the properties their castings are to embody, such as
hardness and strength, and the Company determines how best to meet those
specifications. Constant testing and monitoring of the manufacturing process is
important in order to maintain the quality and performance consistency of the
castings. Electronic testing and monitoring equipment, including x-ray, cobalt
x-ray, ultrasonic and magnetic-particle testing equipment, are used extensively
in grading scrap metal, analyzing molten metal and testing castings. The Company
also uses its testing equipment and procedures to provide particular tests
requested by a customer for its castings.
RAW MATERIALS
The primary raw material the Company uses to manufacture iron castings is steel
scrap. The Company has no long-term contractual commitments with any steel scrap
supplier, and does not anticipate any difficulties in obtaining scrap because of
the large number of suppliers and because of Intermet's position as a major
purchaser. Scrap was obtained from a variety of sources during the three years
ended December 31, 1998. Competitive prices are assured through discussions with
various suppliers of steel scrap. The cost of steel scrap is subject to
fluctuations, but the Company has implemented arrangements with many of its
customers for adjusting its castings prices to reflect those fluctuations. The
Company can generally adjust its castings prices to reflect such cost
fluctuations.
Various alloys that are added to scrap steel in the manufacturing process have
been in short supply from time to time, resulting in price increases. The
Company has always been able to purchase necessary alloys; alternative alloys
may be substituted in some cases.
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The Company benefits from the contractual arrangements of Intermet and its
suppliers, which expire at various times through 2002, for the purchase of
various materials other than steel scrap used in or during the manufacturing
process. Although these contracts and Intermet's overall level of purchases
provide some protection against price increases, in most cases neither the
Company nor Intermet has specific arrangements in place to adjust its casting
prices for fluctuations in the price of alloys and other materials.
CYCLICALITY AND SEASONALITY
Most of the Company's products are generally not affected by year-to-year
automotive style changes. However, the cyclical nature of the automotive
industry has affected the Company's sales and earnings during periods of slow
economic growth or recession. The Company's third and fourth quarter sales are
usually lower than first and second quarter sales due to plant closings by
domestic automobile manufacturers for vacations and model changeovers.
BACKLOG
Most of the Company's business involves supplying all or a stated portion of the
customer's annual requirements, generally flexible in amount, for a particular
casting against blanket purchase orders. Credit is extended based on an
evaluation of the customer's financial condition and generally collateral is not
required. The lead-time and cost of commencing production of a particular
casting tend to inhibit transfer of production from one foundry to another.
Customers typically issue releases and shipping schedules on a monthly basis.
The Company's backlog at any given time therefore consists only of the orders
that have been released for shipment.
COMPETITION
The Company competes with many other foundries, including others owned by
Intermet, both in the United States and Europe. Some of these foundries are
owned by major users of iron castings, and a number of foundry operators have,
or are subsidiaries of companies which have, greater financial resources than
the Company. For example, the three largest automobile manufacturers in North
America, two of which are among the Company's largest customers, operate their
own foundries. However, they also purchase castings from the Company and others,
and there is a trend toward increased outsourcing by the domestic original
equipment manufacturers. Castings produced by the Company also compete to some
degree with malleable iron castings, other metal castings and steel forgings.
The Company competes on the basis of product quality, engineering, service and
price. The Company emphasizes its ability to produce complex,
precision-engineered products in order to compete for value-added castings,
which generally provide a higher profit margin.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local laws
and regulations relating to the protection of the environment. These
regulations, which are implemented principally by the United States
Environmental Protection Agency and the Ohio EPA, govern the management of solid
and hazardous waste, the discharge of pollutants into the air and into surface
and ground waters, and the manufacture, treatment and disposal of hazardous and
non-hazardous substances.
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The Company also has recurring costs related to environmental matters,
particularly the management and disposition of waste (principally non-hazardous)
generated as part of ongoing operations. In 1998, 1997 and 1996 such costs
totaled approximately $1.9 million, $1.3 million and $2.5 million, respectively.
Although the Company continues to take various steps to control environmental
costs, they may increase in the future. In addition, a portion of the Company's
capital expenditures are regularly incurred to limit or monitor pollution,
principally for ventilation and dust control equipment. Such expenditures were
approximately $0.3 million in 1997, $0.7 million in 1996 and $0.4 million in
1995.
In addition to these recurring and anticipated expenditures, the 1990 amendments
to the federal Clean Air Act are expected to have a major impact on the
compliance costs of many U.S. companies, including foundries of the type owned
by the Company. Until final regulations implementing these amendments have been
adopted by federal and state governments, it is not possible to estimate such
costs.
The Company currently does not anticipate any environmental costs that would
have a material adverse effect on its operations. However, it cannot be assured
that the Company's activities will not give rise to actions by governmental
agencies or private parties which could cause the Company to incur fines,
penalties, operational shutdowns, damages, cleanup costs or other similar
expenses. Also, the Company's foundry capacity levels and increases therein are
dependent upon the Company's ability to maintain, or obtain increases in such
capacity levels in its permits for air emissions or water discharges. In the
event the Company desires to increase its foundry capacity levels in the future,
it cannot be assured that the Company will be able to obtain approvals of such
increases under its applicable permits.
EMPLOYEES
As of February 28, 1999, the Company employed 513 members of the local
bargaining unit, United Steelworkers of America, and 79 salaried employees. The
current bargaining agreement expires January 31, 2000.
ITEM 2. PROPERTIES
The Company owns its foundry and offices located at 2520 South Third Street,
Ironton, Ohio. The foundry and offices consist of an aggregate of 514,000 square
feet situated on 26 acres of land zoned for industrial use.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of the 1998 fiscal year.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common stock or
Series A Cumulative Preferred Stock. As of March 15, 1999 none of the
registrant's common stock was held by non-affiliates of the registrant;
therefore, the aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was $0. As of this same date, there were 1,390
holders of record of the Company's Series A Cumulative Preferred Stock and
Intermet was the sole holder of the Company's common stock. The Company did not
sell unregistered securities within the past three years.
The Company has paid no dividends on its common stock or Series A Preferred
Stock since its organization. Because the Company has had cumulative operating
losses since its organization, it is unlikely that it will pay dividends in 1999
on its outstanding common stock or Series A Cumulative Preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Ironton Iron, Inc.
Selected Historical Financial Data
(in thousands of dollars)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 55,192 $ 51,305 $ 54,497 $ 74,746 $ 76,315
Operating (loss)/profit (9,774) (6,508) (6,007) 2,138 (6,186)
Net (loss)/profit before cumulative effect of
accounting change (c) (10,531) (7,016) (6,505) 793 (8,730)
Cumulative effect of accounting change (b) 290 -- -- -- --
Net (loss)/profit (c) (10,241) (7,016) (6,505) 793 (8,730)
Net (loss)/profit per common share (a) (a) (a) (a) (a)
Weighted average common shares outstanding (a) (a) (a) (a) (a)
Working capital $5,684 $3,409 $627 $3,626 $2,370
Property, plant and equipment, net 15,843 16,095 16,893 19,160 20,353
Total assets 27,317 24,366 23,597 28,041 31,416
Long-term liabilities 52,570 40,309 31,302 30,078 37,002
Redeemable preferred stock 3,506 3,388 3,272 3,155 3,038
Shareholders' deficiency (34,534) (24,176) (17,043) (10,421) (17,097)
Cash dividends declared -- -- -- -- --
</TABLE>
(a) On October 31, 1988 IFI became the sole shareholder of the Company's common
stock. On March 31, 1996, IFI was merged into Intermet, thus making
Intermet the sole shareholder of the Company's common stock. As a result,
common share data is not presented because it is no longer meaningful.
(b) Effective January 1, 1998, the Company changed its method of accounting for
spare parts used in its equipment. Proforma results for prior years would
not have been materially different from historical results had this new
method been employed at that time.
(c) On February 1, 1997, the Company reevaluated the service lives of certain
fixed assets. This change in accounting estimate decreased depreciation
expense by $82,000 per month.
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ITEM 7. 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.
RESULTS OF OPERATIONS
1998 Compared to 1997
- ---------------------
Sales in 1998 were $55.2 million compared to 1997 sales of $51.3 million, an
increase of 7.6%. 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.
This new business 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 decreased to a negative $8.1 million in 1998 from a negative $4.8
million in 1997. Beginning in the second quarter of 1998 and continuing through
the end of the year, 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.
Operating expenses in 1998 and 1997 were $1.7 million each.
Interest expense for the years ended December 31, 1998 and 1997 was $0.8 million
and $0.5 million, respectively. Intermet charges the Company for interest based
on specific working capital account balances. Because these balances were higher
for 1998 than 1997, interest expense for 1998 was higher than for 1997.
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 years ended December 31, 1998 and 1997.
7
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As a result of the continued low sales volume and operational performance, the
Company incurred a loss of $10.2 million in 1998. Included in the loss is net
income of $290,000, which results from a change in the method of accounting for
spare parts used in the Company's equipment.
1997 Compared to 1996
- ---------------------
Sales in 1997 were $51.3 million compared to 1996 sales of $54.5 million The
decline in sales was primarily due to the phase out of the Ford F-150 I-Beam
program without replacement.
Gross profit decreased to a negative $4.8 million in 1997 from a negative $3.6
million in 1996. This decrease occurred as a result of the underutilized
capacity caused by the volume decline.
Operating expenses in 1997 were $1.7 million, a decrease of $0.7 million from
1996. Corporate charges have declined because of the decrease in sales from the
prior year.
Interest expense for the years ended December 31, 1997 and 1996 was $0.5 million
each.
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 years
ended December 31, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, net cash used in operating activities was $9.8 million.
Depreciation and amortization expense was $2.7 million. Working capital
increased approximately $2.3 million to a balance of $5.7 million at December
31, 1998. This relates primarily to an increase in accounts receivable of $2.8
million. This is due in part to the fact that sales at the end of 1998 were
higher than at the end of 1997. Additions to property, plant and equipment were
$2.8 million during the year ended December 31, 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 financial
support through intercompany cash advances. Cumulative losses since 1988, when
the Company was acquired by Intermet, are approximately $86.1 million.
Prior to its acquisition by IFI, which was subsequently merged into Intermet,
the Company was in violation of certain loan agreements and had exhausted all
available sources of capital. Much of the Company's debt was refinanced by IFI
after it purchased the Company. Intermet and IFI have continued to provide
financial support to the Company by funding operating losses, working capital
increases and capital expenditures since the acquisition. During 1995 and 1994,
$6 million and $13 million, respectively, of the amount due to Intermet and IFI
was converted to equity in order to reduce the Company's debt levels. Intermet
intends to continue providing financial support to the Company. As such, the
Company believes it has adequate resources to satisfy its current obligations
due to non-affiliates.
The Company also incurs recurring costs to manage and dispose of waste
(principally non-hazardous waste) generated as part of ongoing operations. In
1998, 1997 and 1996 such costs totaled approximately $1.9 million, $1.3 million
and $2.5 million, respectively. Although the Company continues to take various
steps to control these costs, they may increase in the future. In addition, a
portion of the Company's capital expenditures are regularly incurred to limit or
monitor pollution, principally for ventilation and dust control equipment. Such
expenditures were approximately $0.3 million, $0.3 million and $0.7 million in
1998, 1997 and 1996, respectively.
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At December 31, 1998, the Company had commitments to purchase operating
equipment of approximately $0.4 million.
YEAR 2000
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 complete assurance.
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 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 highly unlikely that the Company could not 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 elsewhere in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risk exposures are considered immaterial to the Company's financial
position, results of operations and cash flows.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of independent auditors identified in
Item 14(a) are included in this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 15, 1999, the directors and executive officers of the Company, their
respective ages, positions, date of election and principal occupations were as
follows:
Name (Age) Principal Position(s)
- ---------- ---------------------
John Doddridge (58) Director
C. James Peterson (51) President, Chief Executive Officer and Director
Doretha J. Christoph (49) Vice President, Secretary, Treasurer and Director
Mr. Doddridge became Director of the Company in March 1995. He served as
President of the Company from March 1995 to January 1997. Mr. Doddridge became
Chairman of the Board and Chief Executive Officer of Intermet in 1994. He was
Vice Chairman and Chief Executive Officer of Magna International, Inc., a
supplier of motor vehicle parts, from November 1992 until November 1994. From
1989 to 1992 he served as President of North American Operations of Dana
Corporation, a motor vehicle parts manufacturer, and prior to that time he
served as President of Hayes-Dana Inc., a subsidiary of Dana Corporation.
Mr. Peterson became President and Chief Executive Officer of the Company in
January 1997 and became a Director of the Company in March 1995. He was Vice
President of the Company from March 1995 to January 1997. He became Vice
President - Foundry Operations of Intermet in February 1995, and he served as
Director of Manufacturing of IFI from 1993 to 1995. From 1985 to 1993 he was
with Columbus Foundries, Inc., a subsidiary of Intermet, most recently as
General Manager.
Ms. Christoph was named Vice President, Secretary and Director in January of
1997 and has been Treasurer of the Company since June 1995. Ms. Christoph became
Vice President - Finance of Intermet in June 1995. In addition, she was named
Chief Financial Officer and Treasurer of Intermet in April 1996 and Secretary in
January 1997. Prior to that time she served as Vice President and Director of
Administration of LNP Engineering Plastics, a worldwide supplier of engineered
plastics and a subsidiary of Kawasaki Steel Corporation, from November 1991
until May 1995. From 1989 to 1991, she served as Director of Finance for the
Engineering Plastics Americas operation of ICI, plc.
There are no family relationships between or among any of the officers and
directors of the Company.
The term of office for each director commences with his or her election and
continues until the next annual meeting of shareholders or until his or her
successor is elected and qualified.
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ITEM 11. EXECUTIVE COMPENSATION
The Company has paid no compensation or offered any benefits of any kind to its
executive officers or members of the Board of Directors since its acquisition by
IFI (and subsequently by Intermet). See Note 1 to the Financial Statements
included elsewhere herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1999, none of the officers or directors of the Company
beneficially owned any of the Company's common stock, the only class of voting
securities of the Company. As of that date, Intermet Corporation, 5445 Corporate
Drive, Suite 200, Troy, Michigan 48098-2683, owned 23,000 shares of the
Company's common stock (100% of the class).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note 7 to the Financial Statements included elsewhere herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)
(a) 1. Financial Statements
The following financial statements of the Company are incorporated by
reference into Item 8 of this Report:
- Report of Independent Auditors
- Balance Sheets at December 31, 1998 and 1997
- Statements of Operations for the years ended December 31, 1998, 1997
and 1996
- Statements of Shareholders' Deficiency for the years ended
December 31, 1998, 1997 and 1996
- Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996
- Notes to Financial Statements
2. Financial Statement Schedules
The following financial statement schedules for the Company are included in
Item 14(d):
- Schedule II - Valuation and Qualifying Accounts
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<PAGE> 12
3. Exhibits
The following exhibits are filed with this Report pursuant to Item 601 of
Regulation S-K:
Exhibit Number Description of Exhibit
3.1 Articles of Incorporation of Ironton Iron, Inc., as
amended (included as Exhibit 3.1 and 4 to the Company's
Annual Report on Form 10-K for the 1988 fiscal year, file
no. 0-17028, previously filed with the Commission and
incorporated herein by reference).
3.2 Code of Regulations of Ironton Iron, Inc., as amended
(included as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the 1988 fiscal year, file no. 0-17028,
previously filed with the Commission and incorporated herein
by reference).
4.1 Master Note and Continuing Guaranty, dated September 29,
1997, by and among Intermet Corporation, Lynchburg Foundry
Company, Ironton Iron, Inc., Northern Castings Corporation,
Intermet International, Inc., New River Castings Company and
Bank of America National Trust and Savings Association and
other subsidiaries or affiliates of BankAmerica Corporation
(included as Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the 1997 fiscal year, file no. 0-17028,
previously filed with the Commission and incorporated herein
by reference).
4.2 Third Amended and Restated Credit Agreement, dated
November 14, 1996, by and among Intermet Corporation,
SunTrust Bank, Atlanta (formerly known as Trust Company
Bank) as lender and agent and the various lenders named
therein (included as Exhibit 4.14 to the Intermet's Form
10-K for the year ended December 31, 1996, File No. 0-13787,
previously filed with the Commission and incorporated herein
by reference).
4.3 Letter agreement referencing Third Amended and Restated
Credit Agreement, dated January 28, 1999, by and among
Intermet, SunTrust Bank, Atlanta (formerly known as Trust
Company Bank) as lender and agent and the various lenders
named therein (included as Exhibit 4.13 to the Intermet's
Form 10-K for the year ended December 31, 1998, File No.
0-13787, previously filed with the Commission and
incorporated herein by reference).
4.4 Master Assignment and Acceptance Agreement dated
December 9, 1996, by and among Intermet Corporation and
various lenders named therein (included as Exhibit 4.15 to
Intermet's Form 10-K for the year ended December 31, 1996,
File No. 0-13787, previously filed with the Commission and
incorporated herein by reference).
4.4 Amended and Restated Note Agreement, dated March 21,
1996, by and between Intermet Corporation and The Prudential
Insurance Company of America, relating to $25,000,000
principal amount of 8.05% Senior Notes due December 11, 2002
and related Promissory Note (included as Exhibit 4.20 to
Intermet's Form 10-K for the year ended December 31, 1995,
File No. 0-13787, previously filed with the Commission and
incorporated herein by reference).
10.1 Ironton Iron, Inc. Retirement Plan, as amended (included as
Exhibit 10.1 to the Company's Annual Report on Form 10-K for
the 1988 fiscal year, file no. 0-17028, previously filed
with the Commission and incorporated herein by reference).
18 Preferability Letter for a Change in Accounting for Spare
Parts Used in Equipment. (Included as Exhibit 18 to the
Company's Form 10-Q for the quarter ended March 31, 1998,
File No. 0-17028, previously filed with the commission and
incorporated herein by reference.)
24 Power of Attorney is included on the signature pages of this
Report.
27 Financial Data Schedule
12
<PAGE> 13
(b) The Company did not file any reports on Form 8-K for the fourth quarter of
1998.
(c) The Company has filed as exhibits to this report those exhibits required by
Item 601 of Regulation S-K.
(d) The Company has filed as financial statement schedules to this report those
financial statement schedules required by Regulation S-X, which are
excluded from the Company's financial statements by Rule 14a-3(b).
- Schedule II - Valuation and Qualifying Accounts
The schedules not filed are omitted because the information required to be
contained therein is disclosed elsewhere in the Financial Statements or the
amounts involved are not sufficient to require submission.
13
<PAGE> 14
Ironton Iron, Inc.
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
---------------------------------
Balance at Charged to Balance at
Beginning of Costs and Charged to End of
Description Period Expenses Other Accounts Deductions Period
- ----------- ------------ ---------- -------------- ---------- ----------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for returns and doubtful accounts (a) $ 602 ($190)(b) $ - $ - $ 412
Inventory reserve (d) 35 45 - - 80
Deferred tax asset valuation allowance 25,634 - - 3,590(c) 29,224
Year ended December 31, 1997:
Allowance for returns and doubtful accounts (a) 300 302 (b) - 602
Inventory reserve (d) 35 - - - 35
Deferred tax asset valuation allowance 22,758 - - 2,876(c) 25,634
Year ended December 31, 1996:
Allowance for returns and doubtful accounts (a) 687 (387)(b) - - 300
Inventory reserve (d) - 35 - - 35
Deferred tax asset valuation allowance 20,860 - - 1,898(c) 22,758
</TABLE>
(a) Reflected as reduction of trade accounts receivable on balance sheet.
(b) Net effect of amounts charged to expense less actual returns and
write-offs.
(c) Increase in certain deferred tax assets due to operating loss
carryforwards.
(d) Reflected as reduction of inventory on the balance sheet.
14
<PAGE> 15
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
----
Report of Independent Auditors F-1
Balance Sheets at December 31, 1998 and 1997 F-2
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Statements of Shareholders' Deficiency for the years ended
December 31, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-7
15
<PAGE> 16
Report of Independent Auditors
The Board of Directors and Shareholders
Ironton Iron, Inc.
We have audited the accompanying balance sheets of Ironton Iron, Inc. (a
wholly-owned subsidiary of Intermet Corporation) as of December 31, 1998 and
1997 and the related statements of operations, shareholders' deficiency, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ironton Iron, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the financial statements, in 1998 the Company changed
its method of accounting for spare parts used in its equipment.
/s/ Ernst & Young LLP
Detroit, Michigan
January 28, 1999
F-1
<PAGE> 17
Ironton Iron, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13 $ 21
Accounts receivable:
Trade, less allowance of $412 and $602 in 1998
and 1997, respectively 7,908 5,255
Other 410 262
Inventories 3,026 2,578
Other current assets 102 137
------- -------
Total current assets 11,459 8,253
Property, plant and equipment, cost:
Land 295 295
Buildings and improvements 5,858 5,360
Machinery and equipment 29,749 28,670
Construction in progress 2,159 1,548
------- -------
38,061 35,873
Less accumulated depreciation and amortization 22,218 19,778
------- -------
Net property, plant and equipment 15,843 16,095
Other noncurrent assets 15 18
------- -------
$27,317 $24,366
======= =======
</TABLE>
F-2
<PAGE> 18
Ironton Iron, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Liabilities and shareholders' deficiency
Current liabilities:
Accounts payable $ 4,020 $ 2,781
Accrued wages and benefits 858 1,093
Accrued workers' compensation 375 597
Other accrued liabilities 522 373
-------- --------
Total current liabilities 5,775 4,844
Due to affiliates 52,570 40,309
Redeemable preferred stock, $200 par value,
20,000 shares authorized; 11,685 shares issued 3,506 3,389
Shareholders' deficiency:
Common stock, no par value, 25,000 shares authorized;
23,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 49,523 49,523
Accumulated deficit (86,057) (75,699)
-------- --------
Shareholders' deficiency (34,534) (24,176)
======== ========
$ 27,317 $ 24,366
======== ========
</TABLE>
See accompanying notes
F-3
<PAGE> 19
Ironton Iron, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Net sales $ 55,192 $51,305 $54,497
Cost of sales 63,286 56,116 58,117
-------- ------- -------
Gross profit (8,094) (4,811) (3,620)
Operating expense:
Corporate charges from parent 1,680 1,697 2,387
-------- ------- -------
Operating loss (9,774) (6,508) (6,007)
Interest expense (757) (508) (498)
-------- ------- -------
Loss before income taxes and cumulative effect
of accounting change (10,531) (7,016) (6,505)
Provision for income taxes - - -
--------- -------- -------
Loss before cumulative effect of accounting change (10,531) (7,016) (6,505)
Cumulative effect of accounting change 290 - -
======== ======= =======
Net loss ($10,241) ($7,016) ($6,505)
======== ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 20
Ironton Iron, Inc.
Statements of Shareholders' Deficiency
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated Shareholders'
Stock Capital Deficit Deficiency
------ ------- -------- -------------
(in thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $2,000 $49,523 ($61,944) ($10,421)
Accrued dividends on
Redeemable preferred stock
($10 per share) - - (117) (117)
Net loss - - (6,505) (6,505)
------ ------- -------- --------
Balance at December 31, 1996 2,000 49,523 (68,566) (17,043)
Accrued dividends on
redeemable preferred stock
($10 per share) - - (117) (117)
Net loss - - (7,016) (7,016)
------ ------- -------- --------
Balance at December 31, 1997 2,000 49,523 (75,699) (24,176)
Accrued dividends on
redeemable preferred stock
($10 per share) - - (117) (117)
Net loss - - (10,241) (10,241)
====== ======= ======== ========
Balance at December 31, 1998 $2,000 $49,523 ($86,057) ($34,534)
====== ======= ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 21
Ironton Iron, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net loss ($10,241) ($7,016) ($6,505)
Adjustments to reconcile net loss to cash (used in)
provided by operating activities:
Depreciation and amortization 2,725 2,709 3,610
Loss on disposal of fixed assets - - 420
Cumulative effect of accounting change (290) - -
Changes in operating assets and liabilities:
Accounts receivable (2,801) (1,224) 2,465
Inventories (158) (295) (518)
Accounts payable and accrued liabilities 931 (1,222) 837
Other assets and liabilities 35 (73) (22)
-------- ------- -------
Net cash (used in) provided by operating activities (9,799) (7,121) 287
Investing activities:
Additions to property, plant and equipment (2,810) (1,549) (1,748)
Other (15) (14) -
-------- ------- -------
Net cash used in investing activities (2,825) (1,563) (1,748)
Financing activities:
Increase in due to affiliates 12,616 8,652 1,224
-------- ------- -------
Net cash provided by financing activities 12,616 8,652 1,224
-------- ------- -------
Net decrease in cash and cash equivalents (8) (32) (237)
Cash and cash equivalents at beginning of year 21 53 290
-------- ------- -------
Cash and cash equivalents at end of year $ 13 $ 21 $ 53
======== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 22
Ironton Iron, Inc.
Notes to Financial Statements
Years ended December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements, presented in conformity with generally
accepted accounting principles ("GAAP"), include all the accounts of Ironton
Iron, Inc. (the "Company").
Description of Business
Ironton Iron, Inc. (the "Company") is engaged in the production and sale of
ductile iron castings, primarily for the automotive industry. The Company was a
wholly owned subsidiary of Intermet Foundries, Inc. ("IFI"), a wholly-owned
subsidiary of Intermet Corporation ("Intermet"). In March 1996, IFI was merged
into Intermet and the Company became a wholly-owned subsidiary of Intermet
thereafter. The Company has transactions with Intermet as described in Note 7.
The Company is a single operating unit with essentially one production process.
Virtually all sales are made to one geographic area (United States). Thus, the
Company has only one segment. The Company has no items of other comprehensive
income. Thus, the Company's comprehensive losses for each of the three years
ended December 31, 1998 are the same as the losses reported in the statements of
operations.
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.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts previously reported in the 1997 financial statements and notes
thereto have been reclassified to conform to the 1998 presentation.
Revenue Recognition
The Company recognizes revenue upon shipment of products.
Loss Per Common Share
Intermet is the sole shareholder of the Company's common stock. As a result,
loss per share data is not presented since it is not meaningful.
F-7
<PAGE> 23
Ironton Iron, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
All short-term investments with original maturities of less than 90 days are
deemed to be cash equivalents for purposes of the statements of cash flows.
Inventories
Inventories are stated at the lower of cost or market. Raw material and supplies
are valued on a weighted average cost basis. Work in process and finished goods
inventories are valued at standard costs that approximate actual costs
determined on a first-in, first-out basis. The specific identification method is
used for patterns.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. The provision for
depreciation of property, plant and equipment is determined on the basis of
estimated useful lives using the straight-line method.
Other Noncurrent Assets
Other noncurrent assets consist of deferred pattern and tooling charges. Such
costs are amortized over their estimated economic lives using the straight-line
method.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts receivable
and accounts payable approximate fair values.
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
year ended December 31, 1998. Proforma results for the years ended December 31,
1997 and 1996 would not have been materially different from historical results
had this new method been employed at that time.
F-8
<PAGE> 24
Ironton Iron, Inc.
Notes to Financial Statements (continued)
3. Inventories
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Finished goods $40 $64
Work in process 366 376
Raw materials 686 554
Supplies and patterns 1,934 1,584
------ ------
Totals $3,026 $2,578
====== ======
</TABLE>
4. Redeemable Preferred Stock
IFI acquired all of the common stock of the Company in October 1988. As part of
this transaction, the existing preferred stock of the Company was canceled and
the previous common stockholders of the Company received an equivalent number of
shares of the Company's new 5% cumulative preferred stock with an aggregate par
value of $2,337,000. The preferred shares, by their terms, were to be retired at
par value from net income, if available, in four annual installments beginning
in 1993. However, no shares have been retired and no dividends have been paid to
date since the Company has incurred a cumulative net loss since 1988. Accrued
but unpaid dividends on the preferred stock totaled $1,169,000 and $1,052,000 at
December 31, 1998 and 1997, respectively.
5. Retirement Plans and Benefits
Intermet has an Employee Stock Ownership Plan for certain of its United States
employees who are not covered by collective bargaining agreements, including
employees of the Company. The plan requires contributions equal to 3% of the
annual compensation of the plan participants. Intermet may, at its discretion,
make additional contributions within specified limits. Intermet also has a
defined contribution plan for domestic salaried employees, including employees
of the Company. Intermet and its subsidiaries make contributions equal to 2% of
the annual compensation of participants. Participants are also allowed to make
contributions to the plan, on a pre-tax basis, of up to 15% of their annual
compensation. Intermet and its subsidiaries match 50% of participant's
contributions, up to a specified limit. The Company accrued contributions to the
two plans of $229,000, $189,000 and $217,000 in 1998, 1997 and 1996,
respectively.
The Company has also established a defined contribution plan for hourly
employees. Contributions to the plan are based on hours worked by each employee
and totaled $288,000, $252,000 and $202,000 in 1998, 1997 and 1996,
respectively. The plan also allows employees to make contributions, on a pre-tax
basis, of up to 15% of their compensation.
Intermet provides health care and life insurance benefits to certain retired
salaried employees and their dependents, including employees of the Company.
Costs for these benefits are incurred by Intermet and are not allocated back to
the Company. Certain salaried employees can become eligible for retiree health
care benefits at age 55 depending on years of service. Retirees receive
substantially the same benefits as active employees. The medical plan generally
pays 80% of most medical expenses, less deductible amounts, with employees
contributing to the cost of dependent coverage. Coverage converts to a Medicare
supplement at age 65.
F-9
<PAGE> 25
Ironton Iron, Inc.
Notes to Financial Statements (continued)
6. Income Taxes
Intermet files a consolidated federal income tax return that includes the
Company. The Company's income tax provisions are calculated and reported as if
the Company filed a separate federal income tax return.
The provision for income taxes differs from the amount computed using the
statutory U.S. federal income tax rate for the following reasons (in thousands
of dollars):
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Provision for income taxes at U.S.
statutory rate ($3,686) ($2,456) ($2,277)
Change in deferred valuation allowance 3,590 2,876 1,898
Other 96 (420) 379
------- ------- -------
Totals $ - $ - $ -
======= ======= =======
</TABLE>
The tax effects of the types of temporary differences and loss carryforwards
that give rise to deferred tax assets (liabilities) at December 31, 1998 and
1997 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Losses after IFI acquisition $28,008 $24,118
Losses before IFI acquisition 1,975 1,975
Other temporary differences 503 668
------- -------
Gross deferred tax assets 30,486 26,761
Valuation allowance (29,224) (25,634)
------- -------
1,262 1,127
Depreciation (1,262) (1,127)
======= =======
Totals $ - $ -
======= =======
</TABLE>
There are certain limitations on the use of the loss carryforwards generated
prior to the Company's acquisition by IFI. These loss carryforwards expire as
follows: $1,354,000 in 2001 and $621,000 in 2002.
The loss carryforwards generated after the acquisition by IFI on October 31,
1988 result from calculating the Company's income tax provision on a separate
tax return basis. These losses have already been utilized by Intermet in its
consolidated federal income tax return.
F-10
<PAGE> 26
Ironton Iron, Inc.
Notes to Financial Statements (continued)
7. Related Party Transactions
Intermet incurs various selling, general and administrative costs principally
related to salaries, professional services, aircraft and occupancy, which are
allocated to each of its subsidiaries, including the Company. Amounts charged to
each subsidiary by Intermet are a function of the subsidiary's sales and total
assets. Intermet and the Company believe the resulting allocation to be
reasonable.
Intermet and its subsidiaries are jointly and severally liable for any
borrowings under the agreements described below.
Intermet has an unsecured revolving credit agreement with a bank group, which
has been extended to January 1, 2000, and provides for loans up to $200,000,000
in the aggregate. Certain standby letters of credit reduce the borrowing limit.
At December 31, 1998 such standby letters of credit totaled $4,959,279. The
revolving credit agreement provides Intermet with several interest rate-pricing
mechanisms ranging from 5.71% to 6.12% per annum at December 31, 1998. Intermet
must also pay a fee, at a rate of 0.15% per annum, on any unused portion of the
loan commitment. The revolving credit agreement requires Intermet to maintain
certain financial ratios and imposes limitations on certain activities.
Intermet has $20,000,000 outstanding under an unsecured term loan agreement with
The Prudential Insurance Company of America. The note bears interest at a rate
of 8.05% per annum, payable quarterly. Annual principal payments of $5,000,000
are required. The note agreement requires Intermet to maintain certain financial
ratios and imposes limitations on certain activities.
Intermet maintains various uncommitted bank lines of credit which are payable on
demand. At December 31, 1998, Intermet's borrowings under the lines of credit
totaled $1,000,000. Availability under these lines of credit at December 31,
1998 was $24,000,000. At December 31, 1997, Intermet's borrowings under the
lines of credit totaled $5,000,000. Availability under these lines of credit at
December 31, 1997 was $40,000,000. Interest is paid on a daily basis at a
negotiated rate. At December 31, 1998, the interest rate was 7.25% per annum.
Intermet loans money to, or invests the excess cash of, each of its
subsidiaries, including the Company, depending on the cash requirements of each
subsidiary. Interest charged by Intermet to each of its subsidiaries is
calculated monthly based on specific working capital account balances. Interest
expense charged by Intermet totaled $757,000, $508,000, and $498,000 in 1998,
1997 and 1996, respectively, which the Company has not paid as of December 31,
1998.
F-11
<PAGE> 27
Ironton Iron, Inc.
Notes to Financial Statements (continued)
8. Major Customers
Net sales to customers exceeding 10% of total net sales in any period were as
follows (as a percentage of total net sales):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dana 40 % 30 % 29 %
General Products Delaware Corporation 29 28 24
DaimlerChrysler 6 12 11
Ford 5 5 12
</TABLE>
Sales to General Products Delaware Corporation are under the terms of a purchase
order issued by Ford. Intermet, through a subsidiary purchased in December 1996,
owns a 35% interest in General Products Delaware Corporation.
9. Commitments and Contingencies
At December 31, 1998, the Company had commitments to purchase operating
equipment of approximately $432,000.
The Company entered into a consent order with the Office of the Ohio Attorney
General, which was filed in Ohio State Court, with respect to certain past
violations of Ohio water pollution laws and regulations by the Company. The
Attorney General's Office advised the Company that it could avoid litigation
with respect to such violations by entering into this consent order. The consent
order decreed that the Company reimburse the Attorney General's Office $13,000
for the costs of investigating this case, which were paid in July 1997. The
Company paid $272,103 in civil penalties in August 1997, which was fully accrued
in 1995.
The Company has initiated preventive environmental projects to ensure the safe
and lawful operation of its facility. There could exist, however, unknown
environmental situations for which the future cost is not known.
The Company is also engaged in various legal proceedings and other matters
incidental to its normal business activities. The Company does not believe any
of these matters will have a material adverse effect on the Company's financial
position or results of operations or cash flows.
10. Changes in Accounting Estimates
The Company has a production line consisting of many fixed assets with differing
useful lives, all depreciated using the straight-line method. On February 1,
1997, the Company reevaluated the service lives of substantially all of the
fixed assets of this production line and extended them an additional three
years. This change in accounting estimate decreases depreciation expense by
$82,000 per month.
F-12
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ C. James Peterson
------------------------------
C. James Peterson
President, Chief Executive Officer and Director
Date: March 30, 1999
POWER OF ATTORNEY AND SIGNATURES
Know all men by these presents, that each person whose signature appears below
constitutes and appoints John Doddridge and Doretha J. Christoph, or either of
them, as attorney-in-fact, each with power of substitution, for such person in
any and all capacities, to sign any amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of March 30, 1999, by the following persons on behalf
of the Company in the capacities indicated.
Signature Capacity
/s/ John Doddridge Director
- -----------------------------
John Doddridge
/s/ C. James Peterson President, Chief Executive Officer and Director
- -----------------------------
C. James Peterson
/s/ Doretha J. Christoph Vice President, Secretary, Treasurer and
- ----------------------------- Director (Principal Financial and Accounting
Doretha J. Christoph Officer)
<PAGE> 29
Exhibits Index
Exhibit Number Description of Exhibit
3.1 Articles of Incorporation of Ironton Iron, Inc., as amended
(included as Exhibit 3.1 and 4 to the Company's Annual
Report on Form 10-K for the 1988 fiscal year, file no.
0-17028, previously filed with the Commission and
incorporated herein by reference).
3.2 Code of Regulations of Ironton Iron, Inc., as amended
(included as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the 1988 fiscal year, file no. 0-17028,
previously filed with the Commission and incorporated herein
by reference).
4.1 Master Note and Continuing Guaranty, dated September 29,
1997, by and among Intermet Corporation, Lynchburg Foundry
Company, Ironton Iron, Inc., Northern Castings Corporation,
Intermet International, Inc., New River Castings Company and
Bank of America National Trust and Savings Association and
other subsidiaries or affiliates of BankAmerica Corporation.
4.2 Third Amended and Restated Credit Agreement, dated
November 14, 1996, by and among Intermet Corporation,
SunTrust Bank, Atlanta (formerly known as Trust Company
Bank) as lender and agent and the various lenders named
therein (included as Exhibit 4.14 to the Intermet's Form
10-K for the year ended December 31, 1996, File No. 0-13787,
previously filed with the Commission and incorporated herein
by reference).
4.3 Letter agreement referencing Third Amended and Restated
Credit Agreement, dated January 28, 1999, by and among
Intermet, SunTrust Bank, Atlanta (formerly known as Trust
Company Bank) as lender and agent and the various lenders
named therein (included as Exhibit 4.13 to the Intermet's
Form 10-K for the year ended December 31, 1998, File No.
0-13787, previously filed with the Commission and
incorporated herein by reference).
4.4 Master Assignment and Acceptance Agreement dated December 9,
1996, by and among Intermet Corporation and various lenders
named therein (included as Exhibit 4.15 to Intermet's Form
10-K for the year ended December 31, 1996, File No. 0-13787,
previously filed with the Commission and incorporated herein
by reference).
4.4 Amended and Restated Note Agreement, dated March 21,
1996, by and between Intermet Corporation and The Prudential
Insurance Company of America, relating to $25,000,000
principal amount of 8.05% Senior Notes due December 11, 2002
and related Promissory Note (included as Exhibit 4.20 to
Intermet's Form 10-K for the year ended December 31, 1995,
File No. 0-13787, previously filed with the Commission and
incorporated herein by reference).
10.1 Ironton Iron, Inc. Retirement Plan, as amended (included as
Exhibit 10.1 to the Company's Annual Report on Form 10-K for
the 1988 fiscal year, file no. 0-17028, previously filed
with the Commission and incorporated herein by reference).
18 Preferability Letter for a Change in Accounting for Spare
Parts Used in Equipment. (Included as Exhibit 18 to the
Company's Form 10-Q for the quarter ended March 31, 1998,
File No. 0-17028, previously filed with the commission and
incorporated herein by reference.)
24 Power of Attorney is included on the signature pages of
this Report.
27 Financial Data Schedule
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3,506
0
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