SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1994
Commission file number 1-6345
THE INTERLAKE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3428543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 Warrenville Road, Lisle, Illinois 60532-4387
(Address of Principal Executive Offices) (Zip Code)
(708) 852-8800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__X__ No_____
As of April 15, 1994, 22,026,695 shares of the Registrant's common stock were
outstanding.
PAGE
<PAGE>
THE INTERLAKE CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements as of March 27, 1994 are
unaudited, but include all adjustments which the Registrant considers necessary
for a fair presentation of results of operations and financial position for the
applicable periods. Except as noted, all adjustments are of a normal recurring
nature.
<TABLE>
<CAPTION>
Consolidated Statement of Income
For the Three Months Ended
March 27, 1994 and March 28, 1993
(In thousands except per share statistics)
____________________________________________________________________________________
<S> <C> <C>
1994 1993
____________________________________________________________________________________
Net Sales $169,336 $168,470
Cost of products sold 129,863 126,799
Selling and administrative expense __27,440 __29,976
Operating Income 12,033 11,695
Non-operating (income) expense ____(996) _____180
Earnings before Interest and Taxes 13,029 11,515
Interest expense 12,818 12,980
Interest income ____(277) ____(671)
Income (Loss) Before Taxes and Minority Interest 488 (794)
Provision for Income Taxes ___1,988 ___1,880
Income (Loss) Before Minority Interest (1,500) (2,674)
Minority Interest in Net Income of Subsidiaries _____895 _____886
Net Income (Loss) $ (2,395) $ (3,560)
Net Income (Loss) Per Share $ (.11) $ (.16)
Weighted Average Shares Outstanding 22,027 22,027
</TABLE>
- 2 -
PAGE
<PAGE>
<TABLE>
<CAPTION>
THE INTERLAKE CORPORATION
Consolidated Balance Sheet
March 27, 1994 and December 26, 1993
(All dollars in thousands)
_________________________________________________________________________________________
<S> <C> <C>
Assets 1994 1993
_________________________________________________________________________________________
Current Assets:
Cash and cash equivalents $ 17,606 $ 31,934
Receivables, less allowances for doubtful accounts of
$2,804 at March, 1994 and $2,775 at December, 1993 111,928 107,861
Inventories - Raw materials and supplies 24,903 22,230
- Semi-finished and finished products 54,089 54,795
Other current assets __10,212 ___9,720
Total Current Assets _218,738 _226,540
Goodwill and Other Assets:
Goodwill, less amortization 38,165 38,916
Other assets __62,598 __61,888
_100,763 _100,804
Property, Plant and Equipment, at cost 371,417 369,186
Less - Depreciation and amortization (224,006) (219,495)
_147,411 _149,691
Total Assets $466,912 $477,035
_________________________________________________________________________________________
Liabilities and Shareholders' Equity
_________________________________________________________________________________________
Current Liabilities:
Accounts payable $ 63,729 $ 60,382
Accrued liabilities 40,680 43,272
Interest payable 7,086 13,913
Accrued salaries and wages 13,631 14,713
Income taxes payable 18,296 17,866
Debt due within one year ___2,041 ___2,525
Total Current Liabilities _145,463 _152,671
Long-Term Debt _440,109 _440,610
Other Long-Term Liabilities and Deferred Credits _103,615 _104,366
Preferred Stock - 2,000,000 shares authorized
Convertible Exchangeable Preferred Stock - Redeemable,
par value $1 per share, issued 40,000 shares 39,155 39,155
Shareholders' Equity:
Common stock, par value $1 per share, authorized
100,000,000 shares, issued 23,228,695 shares 23,229 23,229
Additional paid-in capital 30,248 30,248
Cost of common stock held in treasury (1,202,000 shares) (28,047) (28,047)
Accumulated deficit (255,610) (253,215)
Unearned compensation (10,971) (11,279)
Accumulated foreign currency translation adjustments _(20,279) _(20,703)
(261,430) (259,767)
Total Liabilities and Shareholders' Equity $466,912 $477,035
</TABLE>
- 3 -
PAGE
<PAGE>
<TABLE>
<CAPTION>
THE INTERLAKE CORPORATION
Consolidated Statement of Cash Flows
For the Three Months Ended March 27, 1994 and March 28, 1993
(In thousands)
_________________________________________________________________________________
<S> <C> <C>
1994 1993
_________________________________________________________________________________
Cash flows from (for) operating activities:
Net income (loss) $ (2,395) $ (3,560)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,987 6,304
Debt issuance costs (1,137) -
Other operating adjustments (482) (743)
(Increase) decrease in working capital:
Accounts receivable (3,952) 14,205
Inventories (1,914) (1,120)
Other current assets (540) (1,394)
Accounts payable 4,318 (944)
Other accrued liabilities (10,537) (8,952)
Income taxes payable _____577 ____(491)
Total working capital change _(12,048) ___1,304
Net cash provided (used) by operating activities _(10,075) ___3,305
Cash flows from (for) investing activities:
Capital expenditures (3,675) (3,757)
Proceeds from disposal of PP&E 38 76
Other investment flows ______93 _____181
Net cash provided (used) by investing activities __(3,544) __(3,500)
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt - 66
Retirements of long-term debt (925) (969)
Other financing flows _____302 _____372
Net cash provided (used) by financing activities ____(623) ____(531)
Effect of exchange rate changes _____(86) ______30
Increase (Decrease) in cash and cash equivalents (14,328) (696)
Cash and cash equivalents, beginning of period __31,934 __38,640
Cash and cash equivalents, end of period $ 17,606 $ 37,944
</TABLE>
- 4 -
PAGE
<PAGE>
NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMENTS
Note 1 - Financial Statements
The information furnished in these financial statements is unaudited.
The Registrant and its subsidiaries are referred to herein collectively as the
Company.
Note 2 - Computation of Common Share Data
The weighted average number of common shares outstanding used to compute income
(loss) per common share for the first quarter was 22,027,000 in 1994 and 1993.
(The weighted average number of shares outstanding excludes common stock
equivalents of 7,055,000 shares in 1994 and 6,452,000 shares in 1993 related to
the convertible preferred stock because the conversion of the preferred stock
into such shares would have an anti-dilutive effect.)
Note 3 - LIFO Inventories
In 1994, the liquidation of LIFO inventories benefited income before taxes in
the first quarter by $.6 million, and in 1993, by $1.0 million.
Note 4 - Income Taxes
The high level of net interest expense caused domestic losses, in 1994 and
1993, which were not eligible for federal tax benefits in the periods in which
they were incurred (although such losses may be carried forward and tax
benefits realized in future years to the extent that domestic income is
earned). As a result, the taxes due to foreign and state authorities were not
offset by U.S. federal income tax benefits. Consequently, the Company recorded
tax expense in excess of pretax income in 1994 and a tax expense
notwithstanding a pretax loss in 1993.
- 5 -
PAGE
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results_of_Operations
First_Quarter_1994_Compared_with_First_Quarter_1993
First quarter 1994 net sales of $169.3 million increased slightly compared with
1993. Earnings before interest and taxes (EBIT) for the first quarter
increased 13% to $13.0 million. The improvement was largely in the
Handling/Packaging Systems segment, where operating profit was up 26% as the
effects of higher domestic material handling volumes and improved selling
prices more than offset volume and margin declines in continental Europe.
Selling and administrative expenses were 8% lower than the prior year due to
continued cost reductions.
The first quarter net loss was $2.4 million, or $.11 per share, which compared
with a net loss of $3.6 million, or $.16 per share, a year earlier.
Segment_Results
Interlake's businesses are organized into two segments: Engineered Materials
and Handling/Packaging Systems. Businesses in Engineered Materials are Special
Materials (ferrous metal powders) and Aerospace Components (precision aerospace
component fabrication and aviation repair). Businesses in Handling/Packaging
Systems are Handling (U.S. and foreign material handling operations) and
Packaging (U.S. and foreign packaging operations).
<TABLE>
<CAPTION>
_____First_Quarter_Segment_Results______
____Net_Sales______ __Operating_Profit__
_1994_ _1993_ _1994_ _1993_
(in millions)
<S> <C> <C> <C> <C>
Engineered Materials
Special Materials $ 35.7 $ 34.1
Aerospace Components ___12.5 __17.4
___48.2 __51.5 $__7.8 $__7.7
Handling/Packaging Systems
Handling 91.6 87.1
Packaging ___29.5 __29.9
__121.1 _117.0 ___5.5 ___4.3
Corporate Items ___(.3) ___(.5)
Earnings Before Interest and Taxes 13.0 11.5
Net Interest Expense _(12.5) _(12.3)
Consolidated Totals $ 169.3 $168.5 $ .5 $ (.8)
</TABLE>
- 6 -
PAGE
<PAGE>
Engineered_Materials
First quarter sales of $48.2 million in this segment were down 6%, while
operating profit for the quarter increased 2% compared with the prior year
period.
For the first quarter, Special Materials' powder metal sales increased 5%
compared with the same period last year, due to higher demand from the
automotive industry. However, operating profit was down 5% for the quarter,
due primarily to significantly higher scrap steel costs. The average cost for
scrap steel during the quarter was over 30% higher than the first quarter
1993. Special Materials expects to partially recover increases in scrap
costs during 1994 through higher selling prices, including a general price
increase taking effect in April.
Aerospace Components' first quarter sales declined 28% compared with the 1993
period, due to lower fabrication shipments and lower aviation repair sales.
Fabrication shipments declined due to the on-going reduction in demand for
military programs. However, commercial fabrication sales increased 43%
compared with the prior year period primarily on the strength of new programs.
Aviation repair sales continue to be affected by weak demand from the airline
industry, which has led to intensified price competition. Excluding a one-time
gain from settlement of a real estate matter with a local transportation
authority, operating profit for the quarter declined 48%, due to the lower
overall volume and weaker prices in the aviation repair business.
Order backlogs in this segment were $80.6 million at the end of the quarter,
down from $83.3 million at the end of March 1993. Special Materials' backlog
increased to its highest level since March 1989, reflecting stronger demand
from the automotive industry. However, a decline in Aerospace Components'
backlog on long-term military programs more than offset the increase at Special
Materials.
Handling/Packaging_Systems
First quarter sales of $121.1 million in this segment increased 4% compared
with the prior year period, while operating profit was up 26%.
For the first quarter, Handling's sales increased 5% compared with 1993, as
much stronger domestic sales (up 24% during the quarter) more than offset a 19%
decline in continental Europe resulting from the continuing economic weakness.
Handling's operating profit increased 15% compared with the first quarter 1993,
as stronger domestic earnings (up 64% from the year earlier period) more than
offset the impact of lower European sales volumes and lower LIFO inventory
liquidation benefits.
Packaging's first quarter 1994 sales essentially matched the prior year period,
with all operations reporting improved sales, except the U.K. plastic strapping
unit which had lower export sales. Operating profit increased 17%, due
primarily to improved earnings from higher sales in the U.S. plastics and
stitching businesses, lower SG&A expense and LIFO inventory liquidation
benefits in the U.K.
- 7 -
PAGE
<PAGE>
Order backlogs in this segment were $71.5 million at the end of the quarter,
down from $81.8 million for the same period in 1993 (at comparable exchange
rates), resulting from substantially higher shipments and weaker order rates in
the domestic Handling business. Handling's European orders increased 13% above
the first quarter 1993 level.
Non-operating_Income
Non-operating income reflected a $1.1 million non-recurring gain at Aerospace
Components from the settlement of a real-estate matter with a local
transportation authority.
Financial_Condition/Liquidity
Cash totaled $17.6 million at the end of the quarter, compared with $31.9
million at the end of 1993, reflecting increased working capital requirements,
particularly the effect of the semiannual interest payment related to the
Company's subordinated debt. Total debt at the end of the first quarter was
$442.1 million, down $1.0 million from year end 1993.
Capital expenditures of $3.7 million during the quarter virtually matched
spending of the prior year period. The Company expects that 1994 capital
spending will be approximately $20.0 million.
Under its bank credit agreement, during 1994 the Company will be able to borrow
for general and corporate purposes up to an additional $35 million over its
March 27, 1994 indebtedness. However, outstanding bank borrowings at the end
of each of the Company's fiscal 1994 quarters will be limited to between $8
million and $15 million above its March 27, 1994 borrowings. Based on the
current level of operating profit, the Company believes that it will be
unlikely that operating cash flow combined with the additional borrowing
capacity available under the amended credit agreement will be sufficient to
meet the Company's projected cash requirements in 1995 and 1996, which include
long-term debt amortization of $24.7 million in 1995 and $88.2 million in 1996.
The Company continues to evaluate alternative actions to refinance some or all
of its long-term bank obligations in order to improve its financial flexibility
beyond 1994.
Nonoperating_Items
The Company has been identified by the United States Environmental Protection
Agency and the Minnesota Pollution Control Agency ("MPCA") as a potentially
responsible party in connection with the investigation and remediation of a
site on the St. Louis River in Duluth, Minnesota. The Site has been listed on
the National Priorities List (also known as the "Superfund" list) pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA).
Note 17 - Environmental Matters, in the Notes to Consolidated Financial
Statements incorporated by reference in the Company's Form 10-K for the fiscal
year ended December 26, 1993, describes the status of this matter as of the
date thereof.
In December 1993, the Company and other parties (the "tar companies") received
a letter from the MPCA informing them that it intended to issue another Request
for Response Action for the third and final operable unit at the Site, the
- 8 -
PAGE
<PAGE>
underwater sediment operable unit. In March 1994, the board of the MPCA named
the Company as the responsible party with respect to the underwater sediment
operable unit. Contrary to the recommendation of its staff, the board did not
name the tar companies as responsible parties. The Company has maintained that
the tar companies are the cause of a major portion of the underwater
contamination at the Site. The Company is reviewing its options with respect
to the reconsideration of the MPCA decision, the inclusion of the tar companies
as responsible parties for the underwater sediments through other means, or the
eventual recovery of costs from the tar companies. The Company believes that
whether remediation of the underwater sediments is appropriate or will be
required and, if so, what the costs will be, cannot be reasonably determined
absent further investigation. Accordingly, the Company has not provided for
costs with respect to remediation of the underwater sediments operable unit;
however, such costs could be material to the financial condition of the
Company.
The Company is subject to pending litigation in which the City of Toledo, Ohio,
is seeking a judgment finding the Company and other defendants liable for
certain environmental remediation costs. See "Part II, Legal Proceedings" of
the Form 10-Q.
The Company is pursuing coverage under certain insurance policies for costs
incurred in connection with the Duluth site, the Toledo site, and other
environmental matters.
- 9 -
PAGE
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation
On July 9, 1990, the City of Toledo, Ohio brought an action in federal district
court in Toledo, Ohio, against the Company, The Interlake Companies, Inc., Acme
Steel Company ("Acme" or the "old Interlake"), Beazer Materials and Services,
Inc. ("Beazer") and Toledo Coke Corporation ("Toledo Coke") in connection with
the alleged contamination of a 1.7 acre parcel of land the City had purchased
from Toledo Coke for purposes of building a road. The City has alleged various
claims, both with respect to the 1.7 acres of right-of-way it purchased and
owns and the entire coke facility owned by Toledo Coke which adjoins the
right-of-way. These claims seek a judgment finding the Company and the other
defendants liable for the environmental remediation costs and other relief.
The Company's alleged liability arises from its indemnification obligations
with respect to Acme, which as the old Interlake, operated coke ovens and
by-product recovery facilities on the site from 1930 through 1978. In 1978 the
old Interlake sold the coke plant to Koppers Company, Inc., which was later
acquired by Beazer, and which indemnified Interlake against environmental
liabilities. Koppers, in turn, sold the facility to Toledo Coke. Interlake
has cross-claimed against Beazer under its indemnity.
Prior to the filing of the preliminary injunction described below, the City of
Toledo and the defendants had been discussing possible remedial plans which the
defendants believe would enable the City to build the road in question. Under
these plans, the amounts required to be contributed by the Company would not
have been material to the business or financial condition of the Company. On
or about January 31, 1994, the City filed a motion seeking a preliminary
injunction under the Resource Conservation Recovery Act ordering the defendants
to take certain remedial actions with respect to the right-of-way. A hearing
on the City's motion commenced on March 15, 1994, and is ongoing. The City is
seeking an order compelling the defendants to perform a remedy which the City
asserts would cost approximately $4 million. The Company believes that the
right-of-way could be remedied to a degree sufficient to enable the building of
the road at a cost far less than $4 million. Although the Company believes
that it is entitled to be indemnified by Beazer, to the extent the Company
incurs any liabilities or costs, by virtue of the ongoing injunction hearing,
the Company could be compelled to incur costs prior to having its
indemnification cross-claim against Beazer decided by the court.
- 10 -
PAGE
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE INTERLAKE CORPORATION
\s\JOHN_J._GREISCH_________
May 6, 1994 John J. Greisch
Vice President - Finance,
Treasurer and Chief Financial Officer
- 11 -
