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Previous: NUVEEN TAX EXEMPT UNIT TRUST SERIES 337, 24F-2NT, 1999-11-15 |
Next: JMB MANHATTAN ASSOCIATES LTD, 10-Q, 1999-11-15 |
UNITED STATES
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, 1999, or |
| [ ] |
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from to . |
Commission File Number 0-17028
IRONTON IRON, INC.
| 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
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 12, 1999 there were 23,000 shares of Common Stock, no par value, outstanding.
Ironton Iron, Inc.
| September 30, | December 31, | |||||||||
| 1999 | 1998 | |||||||||
| (Unaudited) | ||||||||||
| (in thousands of dollars) | ||||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 88 | $ | 13 | ||||||
| Accounts receivable: | ||||||||||
| Trade, less allowance for doubtful accounts of $446 in 1999 and $412 in 1998 | 7,318 | 7,908 | ||||||||
| Other | 665 | 410 | ||||||||
| Inventories | 3,610 | 3,026 | ||||||||
| Other current assets | 15 | 102 | ||||||||
| Total current assets | 11,696 | 11,459 | ||||||||
| Property, plant and equipment: | ||||||||||
| Land | 295 | 295 | ||||||||
| Building and improvements | 5,959 | 5,858 | ||||||||
| Machinery and equipment | 32,656 | 29,749 | ||||||||
| Construction in progress | 1,029 | 2,159 | ||||||||
| 39,939 | 38,061 | |||||||||
| Less accumulated depreciation | 24,273 | 22,218 | ||||||||
| Net property, plant and equipment | 15,666 | 15,843 | ||||||||
| Other noncurrent assets | 407 | 15 | ||||||||
| $ | 27,769 | $ | 27,317 | |||||||
2
Ironton Iron, Inc.
Interim Condensed Balance Sheets
| September 30, | December 31, | ||||||||
| 1999 | 1998 | ||||||||
| (Unaudited) | |||||||||
| (in thousands of dollars) | |||||||||
| Liabilities and shareholders’ deficiency | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | 3,913 | $ | 4,020 | |||||
| Accrued wages and benefits | 1,072 | 858 | |||||||
| Accrued workers’ compensation | 425 | 375 | |||||||
| Other accrued liabilities | 431 | 522 | |||||||
| Total current liabilities | 5,841 | 5,775 | |||||||
| Due to affiliates | 65,279 | 52,570 | |||||||
| Redeemable preferred stock | 3,594 | 3,506 | |||||||
| Shareholders’ deficiency: | |||||||||
| Common stock | 2,000 | 2,000 | |||||||
| Additional paid-in capital | 49,523 | 49,523 | |||||||
| Accumulated deficit | (98,468 | ) | (86,057 | ) | |||||
| Shareholders’ deficiency | (46,945 | ) | (34,534 | ) | |||||
| $ | 27,769 | $ | 27,317 | ||||||
See accompanying notes.
3
Ironton Iron, Inc.
| Three months ended | Nine months ended | ||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | ||||||||||||||
| 1999 | 1999 | 1999 | 1999 | ||||||||||||||
| (Unaudited) | |||||||||||||||||
| (in thousands of dollars) | |||||||||||||||||
| Net sales | $ | 13,939 | $ | 12,518 | $ | 44,757 | $ | 40,453 | |||||||||
| Cost of sales | 18,083 | 15,589 | 55,427 | 44,856 | |||||||||||||
| Gross profit | (4,144 | ) | (3,071 | ) | (10,670 | ) | (4,403 | ) | |||||||||
| Operating income (expense): | |||||||||||||||||
| Corporate charges from parent | (383 | ) | (420 | ) | (1,148 | ) | (1,260 | ) | |||||||||
| Other operating income | 0 | 107 | 0 | 386 | |||||||||||||
| Operating loss | (4,527 | ) | (3,384 | ) | (11,818 | ) | (5,277 | ) | |||||||||
| Interest expense | 157 | 196 | 505 | 556 | |||||||||||||
| Loss before income taxes and cumulative effect of accounting change | (4,684 | ) | (3,580 | ) | (12,323 | ) | (5,833 | ) | |||||||||
| Provision for income taxes | — | — | — | — | |||||||||||||
| Loss before cumulative effect of accounting change | (4,684 | ) | (3,580 | ) | (12,323 | ) | (5,833 | ) | |||||||||
| Cumulative effect of accounting change | — | — | — | 290 | |||||||||||||
| Net loss | $ | (4,684 | ) | $ | (3,580 | ) | $ | (12,323 | ) | $ | (5,543 | ) | |||||
See accompanying notes.
4
Ironton Iron, Inc.
| Nine months ended | ||||||||||
| September 30, | September 30, | |||||||||
| 1999 | 1998 | |||||||||
| (Unaudited) | ||||||||||
| (in thousands of dollars) | ||||||||||
| Operating activities: | ||||||||||
| Net loss | $ | (12,323 | ) | $ | (5,543 | ) | ||||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||||
| Depreciation and amortization | 2,149 | 2,036 | ||||||||
| Cumulative effect of accounting change | — | (290 | ) | |||||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts receivable | 335 | (887 | ) | |||||||
| Inventories | (584 | ) | (647 | ) | ||||||
| Accounts payable and accrued liabilities | 66 | 79 | ||||||||
| Other assets and liabilities | 87 | 50 | ||||||||
| Net cash used in operating activities | (10,270 | ) | (5,202 | ) | ||||||
| Investing activities: | ||||||||||
| Additions to property, plant and equipment | (1,878 | ) | (2,151 | ) | ||||||
| Other | (486 | ) | — | |||||||
| Net cash used in investing activities | (2,364 | ) | (2,151 | ) | ||||||
| Financing activities: | ||||||||||
| Increase in due to affiliates | 12,709 | 7,410 | ||||||||
| Net cash provided by financing activities | 12,709 | 7,410 | ||||||||
| Net increase in cash and cash equivalents | 75 | 57 | ||||||||
| Cash and cash equivalents at beginning of period | 13 | 21 | ||||||||
| Cash and cash equivalents at end of period | $ | 88 | $ | 78 | ||||||
See accompanying notes.
5
Ironton Iron, Inc.
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 and nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 1998.
Inventories
Inventories consist of the following (in thousands of dollars):
| September 30, | December 31, | |||||||
| 1999 | 1998 | |||||||
| Finished goods | $ | 246 | $ | 40 | ||||
| Work in process | 307 | 366 | ||||||
| Raw materials | 770 | 686 | ||||||
| Supplies and patterns | 2,287 | 1,934 | ||||||
| $ | 3,610 | $ | 3,026 | |||||
Dependency on Parent
The Company has incurred significant operating losses since its inception. Intermet Corporation (“Intermet”), the Company’s parent, 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, for the Company’s ongoing operations.
Loss per Common Share
Because Intermet owns all common stock of the Company, no income or loss per common share information is included herein.
6
Ironton Iron, Inc.
Notes to Interim Condensed Financial Statements (continued)
2. Reporting for Business Segments
The Company is a single operating unit with essentially one product line. Virtually all sales are made to one geographic area (United States). Thus, the Company has only one reportable segment.
3. Comprehensive Income
The Company’s comprehensive losses for the three and nine months ended September 30, 1999 and 1998 are the same as the net losses reported, respectively.
4. Subsequent Events
On November 5, 1999, Intermet signed a five-year $300 million unsecured revolving credit agreement with a bank group. This agreement replaces the $200 million unsecured revolving credit facility, which was to expire January 1, 2000. In addition, Intermet executed a $100 million 364-day unsecured revolving credit agreement. Standby letters of credit reduce the borrowing limits of these two agreements. The revolving credit agreement provides Intermet with several interest rate-pricing mechanisms. Intermet must also pay a fee, at rates of 0.20% per annum and 0.175% per annum, on any unused portion of the $300 million and $100 million loan commitments, respectively. These revolving credit agreements require Intermet to maintain specified financial ratios and impose limitations on activities. The Company and other material subsidiaries of Intermet have jointly and severally guaranteed borrowings under these agreements.
7
Forward Looking Statement
The following Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 3. Quantitative and Qualitative Disclosures about Market Risk contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this section, the words “anticipate,” “believe,” “estimate” and “expect” and similar expressions are generally intended to identify forward-looking statements. Readers are cautioned that any forward-looking statements, including statements regarding the intent, belief or current expectations of the Company or its management, are not guarantees of future performance and involve risks and uncertainties. In addition, readers are cautioned that actual results may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to:
| • | general economic conditions in the markets in which the Company operates | |
| • | fluctuations in worldwide or regional automobile and light and heavy truck production | |
| • | labor disputes involving the Company or its significant customers | |
| • | changes in practices and/or policies of the Company’s significant customers toward outsourcing automotive components and systems | |
| • | interest rate fluctuations | |
| • | commodity price fluctuations | |
| • | factors affecting the ability of the Company or its key suppliers to resolve Year 2000 issues in a timely manner | |
| • | changes in the level of financial support provided by Intermet to the Company, and | |
| • | other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. |
The Company does not intend to update these forward-looking statements.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Material Changes in Financial Condition
Operating activities used $10.3 million in the nine months ended September 30, 1999 due primarily to the operating losses incurred during that period. Depreciation and amortization expense was $2.1 million. Accounts receivable decreased $0.3 million from December 31, 1998 because although June 1999’s sales were greater than December 1998’s, the Company enhanced its accounts receivable collection efforts. Additions to property, plant and equipment were $1.9 million during the nine months ended September 30, 1999. The cash consumed in operating and investing activities was fully funded by advances from Intermet. The Company’s financial condition has deteriorated since the fourth quarter of 1995 and the Company remains dependent on Intermet for continued intercompany cash advances. Cumulative losses since 1988, when the Company was acquired by Intermet, are approximately $98.5 million.
On November 5, 1999, Intermet signed a five-year $300 million unsecured revolving credit agreement with a bank group. This agreement replaces the $200 million unsecured revolving credit facility, which was to expire January 1, 2000. In addition, Intermet executed a $100 million 364-day unsecured revolving credit agreement. Standby letters of credit reduce the borrowing limits of these two agreements. The Company and other material subsidiaries of Intermet have jointly and severally guaranteed borrowings under these agreements.
8
Material Changes in Results of Operations
Sales for the quarters ended September 30, 1999 and 1998 were $13.9 and $12.5 million, respectively. Sales for the nine months ended September 30, 1999 and 1998 were $44.8 and $40.5 million, respectively. The Company launched the enhanced compacted graphite bedplate on the dry sand process line in June 1998 and moved it to the SPO line in the first quarter of 1999. This business has provided additional volume for the Company. The Company continues to evaluate alternatives to improve profitability as it is currently operating below breakeven levels due to less than optimal manufacturing and labor performance. Because of the Company’s continuing operational difficulties, customers representing a significant portion of the Company’s sales volumes have informed the Company that they have decided to place their business with alternative sources. A portion of this business has already ceased production and we anticipate that we may lose the remaining volume in 2000, which is expected to have a significant adverse impact on the Company.
Gross profit as a percentage of sales for the third quarter of 1999 was negative 29.7% compared to a negative 24.5% for the third quarter of 1998. Gross profit as a percentage of sales for the nine-month period ended September 30, 1999 was negative 23.8% compared to a negative 10.9% for the same period in 1998. Beginning in the second quarter of 1998 and continuing through the third quarter of 1999, the Company experienced and continues to experience various labor and operational difficulties. In addition, there were costs associated with the launch and production ramp-up of its newest product during the first quarter of 1999.
Intermet files a consolidated federal income tax return that includes the Company. The Company’s income tax provision is calculated and reported as if the Company filed a separate federal income tax return. The Company has incurred significant operating losses since its inception and has reserved its net operating loss carryforwards. As such, the Company has zero tax benefit recorded for the three and nine-month periods ended September 30, 1999 and 1998.
As a result of the continued operational performance problems, the Company incurred losses of $4.7 million and $12.3 million for the three and nine months ended September 30, 1999, respectively.
The Company completed a Year 2000 readiness assessment of its business critical Informational Technology (“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.
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. Based on this information, the Company is confident that its suppliers will be able to continue to provide materials and services. The Company intends to continue to monitor the Year 2000 readiness of its key suppliers.
9
The Company’s estimated pro-rata portion of Intermet’s cost for Year 2000 compliance is less than $150,000. It is possible that the actual cost of the Company’s Year 2000 readiness effort could exceed these estimates.
Although the Company has a process in place to assess Year 2000 readiness on the part of its suppliers, the Company considers the most reasonably likely worst case scenario is that one or more of the Company’s suppliers might encounter a Year 2000 problem and be unable to supply materials. If this was to occur and the Company could not obtain the same materials from another vendor, production could be interrupted, which could result in lost sales and profits. However, it is likely that the Company could obtain the same materials from another vendor. In addition, while the Company is taking action to correct deficiencies in its own systems, it is possible that one or more of the Company’s facilities or critical business systems might not achieve Year 2000 readiness as anticipated. This could also result in disruption of operations and lost sales and profits.
The Company has developed and is continually refining contingency plans for its critical systems. These contingency plans are intended to avoid or mitigate the risks that key suppliers might not achieve Year 2000 readiness in time to avoid disruption of the Company’s operations.
Readers are cautioned that forward looking statements contained in this Year 2000 discussion should be read in conjunction with the Company’s disclosures under the cautionary statement for the purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995, included before Management’s Discussion and Analysis of Financial Condition and Results of Operations.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
The Company is subject to market risk with regard to interest rate and commodity pricing. The Company has analyzed the effect of these risks on the balance sheet, results of operations and cash flows and it anticipates that the impact will be immaterial.
The Company is engaged in various legal proceedings and other matters incidental to its normal business activities. The Company does not believe there are any pending or threatened legal proceedings to which it is a party, or to which any of its property is subject, that will have a material effect on its consolidated financial position, results of operations or liquidity taken as a whole.
None
None
10
None
None
(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, 1999.
11
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) |
12
| Exhibit Number | Description of Exhibit | |||
| 27 | Financial Data Schedule. | |||
13
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