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 June 26, 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 July 15, 1994, 22,026,695 shares of the Registrant's common stock were
outstanding.
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THE INTERLAKE CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements as of June 26, 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 Operations
For the Periods Ended
June 26, 1994 and June 27, 1993
(In thousands except per share statistics)
Second Quarter Six Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales $182,052 $173,151 $351,388 $341,621
Cost of products sold 138,654 131,738 268,517 258,537
Selling and administrative expense 29,753 28,656 57,193 58,632
Operating Income 13,645 12,757 25,678 24,452
Non-operating (income) expense 270 1,149 (726) 1,329
Earnings Before Interest and Taxes 13,375 11,608 26,404 23,123
Interest Expense 12,773 12,696 25,591 25,676
Interest Income (290) (474) (567) (1,145)
Income (Loss) Before Taxes
and Minority Interest 892 (614) 1,380 (1,408)
Provision for Income Taxes 2,284 1,597 4,272 3,477
Income (Loss) Before
Minority Interest (1,392) (2,211) (2,892) (4,885)
Minority Interest in Net Income
of Subsidiaries 1,043 920 1,938 1,806
Net Income (Loss) $ (2,435) $ (3,131) $ (4,830) $(6,691)
Net Income (Loss) Per Share $ (0.11) $ (0.14) $ (0.22) $ (0.30)
Weighted Average Shares Outstanding 22,027 22,026 22,027 22,026
</TABLE>
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<TABLE>
<CAPTION>
THE INTERLAKE CORPORATION
Consolidated Balance Sheet
June 26, 1994 and December 26, 1993
(All dollars in thousands)
Assets 1994 1993
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 21,239 $ 31,934
Receivables, less allowances for doubtful accounts
of $2,889 at June, 1994 and $2,775 at December,
1993 115,442 107,861
Inventories - Raw materials and supplies 23,760 22,230
- Semi-finished and finished products 57,894 54,795
Other current assets 11,282 9,720
Total Current Assets 229,617 226,540
Goodwill and Other Assets:
Goodwill, less amortization 37,940 38,916
Other assets 61,359 61,888
99,299 100,804
Property, Plant and Equipment, at cost 376,724 369,186
Less - Depreciation and amortization (230,959) (219,495)
145,765 149,691
Total Assets $474,681 $477,035
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 61,104 $ 60,382
Accrued liabilities 42,380 43,272
Interest payable 13,241 13,913
Accrued salaries and wages 14,352 14,713
Income taxes payable 19,143 17,866
Debt due within one year 11,729 2,525
Total Current Liabilities 161,949 152,671
Long-Term Debt 430,790 440,610
Other Long-Term Liabilities and Deferred Credits 104,263 104,366
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 (258,045) (253,215)
Unearned compensation (10,365) (11,279)
Accumulated foreign currency translation
adjustments (18,496) (20,703)
(261,476) (259,767)
Total Liabilities and Shareholders' Equity $474,681 $477,035
</TABLE>
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<TABLE>
<CAPTION>
THE INTERLAKE CORPORATION
Consolidated Statement of Cash Flows
For the Six Months Ended June 26, 1994 and June 27, 1993
(In thousands)
1994 1993
<S> <C> <C>
Cash flows from (for) operating activities:
Net income (loss) $ (4,830) $ (6,691)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 12,135 12,731
Debt issuance costs (1,264) -
Other operating adjustments 919 (3,377)
(Increase) decrease in working capital:
Accounts receivable (5,489) 14,672
Inventories (2,948) (4,209)
Other current assets (1,379) (1,059)
Accounts payable 175 34
Other accrued liabilities (3,322) (2,887)
Income taxes payable 1,269 (2,035)
Total working capital change (11,694) 4,516
Net cash provided (used) by operating activities (4,734) 7,179
Cash flows from (for) investing activities:
Capital expenditures (5,724) (6,416)
Proceeds from disposal of PP&E 113 135
Acquisitions (746) -
Other investment flows (11) (230)
Net cash provided (used) by investing activities (6,368) (6,511)
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt 9,000 85
Retirements of long-term debt (10,280) (8,609)
Other financing flows 1,378 4,272
Net cash provided (used) by financing activities 98 (4,252)
Effect of exchange rate changes 309 (108)
Increase (Decrease) in cash and cash
equivalents (10,695) (3,692)
Cash and cash equivalents, beginning of period 31,934 38,640
Cash and cash equivalents, end of period $21,239 $34,948
</TABLE>
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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 second quarter was 22,027,000 in 1994 and
22,026,000 in 1993, and for the six-month period was 22,027,000 in 1994 and
22,026,000 in 1993. (The weighted average shares outstanding excludes common
stock equivalents of 7,366,000 shares in 1994 and 6,745,000 shares in 1993
related to the convertible preferred stock because the conversion of the pre-
ferred stock into such shares would have an anti-dilutive effect.)
Note 3 - LIFO Inventories
The liquidation of LIFO inventories benefited income before taxes by $.6 million
in the first six months of 1994 and by $1.0 million in the first six months of
1993.
Note 4 - Income Taxes
The high level of net interest expense caused domestic losses, in 1994 and 1993,
which were not currently 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Second Quarter 1994 Compared with Second Quarter 1993
Second quarter net sales of $182.1 million increased 5% compared with the prior
year period. Sales of $54.4 million in the Engineered Materials segment were up
12%, primarily due to increased metal powder sales. Sales of $127.7 million
in the Handling/Packaging Systems segment increased 3%, due mainly to improved
material handling product sales in the U.K. and Asia Pacific.
Earnings before interest and taxes (EBIT) for the second quarter ended June 26
increased 15% to $13.4 million, compared with EBIT of $11.6 million in the
second quarter of 1993 primarily due to stronger sales. The 1993 period
included a $1.2 million one-time gain from changes made to certain U.S. retiree
medical and life insurance benefits, and a $.9 million charge for environmental
remediation.
The second quarter 1994 net loss declined 22% to $2.4 million, or $.11 per
share, compared with a net loss of $3.1 million, or $.14 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 Pack-
aging (U.S. and foreign packaging operations).
<TABLE>
<CAPTION>
Second Quarter Segment Results
Net Sales Operating Profit
1994 1993 1994 1993
(in millions)
<S> <C> <C> <C> <C>
Engineered Materials
Special Materials $ 38.5 $ 33.3
Aerospace Components 15.9 15.4
54.4 48.7 $ 8.0 $ 7.3
Handling/Packaging Systems
Handling 95.9 93.0
Packaging 31.8 31.4
127.7 124.4 5.9 5.6
Corporate Items ( .5) (1.3)
Earnings Before Interest and Taxes 13.4 11.6
Net Interest Expense (12.5) (12.2)
Consolidated Totals $182.1 $173.1 $ .9 $ (.6)
</TABLE>
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Engineered Materials
Second quarter 1994 sales in this segment increased 12% to $54.4 million com-
pared with the second quarter 1993, while operating profit increased 10% from
the prior year period.
For the quarter, Special Materials' metal powder sales increased 16% compared
with the same period last year, due to higher demand from the automotive indus-
try. Operating profit increased 13% for the quarter, reflecting increased volume
and higher selling prices which were partially offset by higher scrap steel
costs. The average cost for scrap steel during the quarter was 23% higher than
in the second quarter of 1993.
Aerospace Components' second quarter sales increased 3% compared with the 1993
period, as increased fabrication shipments offset lower aviation repair sales.
Fabrication shipments were up 22%, as increased sales for commercial and space
programs more than offset declining military business. Aviation repair sales
continued to be affected by weak demand from the airline industry and severe
price competition. Operating profit for the quarter increased 21% on the
strength of higher fabrication volume and reductions in selling and administra-
tive expense.
Order backlogs in this segment were $103.5 million at the end of the quarter, up
28% from $80.7 million at the end of June 1993. Special Materials' backlog
surpassed the previous record level set in June 1988, reflecting the continued
strong demand from the automotive industry. Aerospace Components' backlog
increased 34%, as this unit received more than $31 million of new fabrication
orders during the quarter for commercial, military and space applications.
Handling/Packaging Systems
Second quarter sales of $127.7 million in this segment were up 3%, while opera-
ting profit for the quarter increased 5% compared with the prior year period.
For the second quarter, Handling's sales increased 3% compared with 1993, as
higher sales in the U.K. and Asia Pacific material handling operations more than
offset a 12% decline in U.S. sales, which were at record levels during the year
earlier period, and lower sales in Germany. Sales in the Asia Pacific region
were up 75% from the year earlier period on stronger Australian and Pacific Rim
sales. Handling's operating profit increased 20% compared with the second quar-
ter 1993. This increase was attributable to U.K. operating profits which more
than doubled, and improvements in the U.S. rack and Asia Pacific units, which
offset declines at the U.S. conveyor and continental European operations.
Packaging's second quarter 1994 sales increased 1% compared with 1993, but were
up 6% at comparable exchange rates, with all units except the U.K. steel strap-
ping operation reporting higher sales. Increases were most significant in
Canada, where steel strap volume reached a record level in June, and in conti-
nental Europe. Operating profit increased 19%, driven by the higher sales and
lower SG&A expense.
Order backlogs in this segment were at $84.5 million at the end of the quarter,
up from $80.6 million for the same period in 1993 (at comparable exchange
rates), due mainly to improved order rates at the U.S. and Asia Pacific Handling
operations. The U.S. Handling order backlog at the end of June 1994 was at the
highest level in three years and up 46% from the end of the first quarter.
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First Half 1994 Compared with First Half 1993
Sales for the first half of 1994 increased 3% to $351.4 million compared with
the prior year period. Sales in the Engineered Materials segment were up 2% due
to increased metal powder sales, which reached record levels in June.
Handling/Packaging Systems' segment sales increased 3% due to strong U.S. and
Asia Pacific Handling sales. For the first six months of 1994, EBIT increased
to $26.4 million, up 14% from 1993, due mainly to stronger sales for metal
powder and Handling products. The 1993 period included a $1.2 million one-time
gain from changes made to certain U.S. retiree medical and life insurance bene-
fits, and a $.9 million charge for environmental remediation.
The first half 1994 net loss of $4.8 million, or $.22 per share, declined 28%
compared with a net loss of $6.7 million, or $.30 per share, a year earlier.
<TABLE>
<CAPTION>
Six Month Segment Results
Net Sales Operating Profit
1994 1993 1994 1993
(in millions)
<S> <C> <C> <C> <C>
Engineered Materials
Special Materials $ 74.3 $ 67.4
Aerospace Components 28.3 32.8
102.6 100.2 $ 15.9 $ 15.0
Handling/Packaging Systems
Handling 187.5 180.1
Packaging 61.3 61.3
248.8 241.4 11.3 9.9
Corporate Items ( .8) (1.8)
Earnings Before Interest and Taxes 26.4 23.1
Net Interest Expense (25.0) (24.5)
Consolidated Totals $351.4 $341.6 $ 1.4 $ (1.4)
</TABLE>
Engineered Materials
Sales for the first half of 1994 increased to $102.6 million, compared with
$100.2 million in the prior year period. Special Materials' sales increased
10%, while Aerospace Components' sales were down 14%, as a 72% increase in com-
mercial and space fabrication shipments was more than offset by a 41% decline in
military fabrication shipments and lower aviation repair sales. Operating pro-
fit for the segment increased 6% to $15.9 million from 1993. The increase in
Special Materials' operating profit was limited to only 4%, because of a 27%
increase in scrap steel costs compared with 1993. Aerospace Components' opera-
ting profit increased 25%, as higher fabrication shipments and a one-time gain
from settlement of a real estate matter in the first quarter more than offset
the declines from lower volume and weaker prices in the aviation repair
business.
Handling/Packaging Systems
Sales for the first six months of 1994 were up 3% from 1993. Handling's sales
increased 4%, with higher sales at U.S., U.K. and Asia Pacific operations
offsetting declines in continental Europe. Packaging's 1994 sales matched 1993
levels, although sales in local currencies increased 3%, with all units
reporting higher sales. Operating profit for the segment increased 14% from
1993. Handling's operating profit increased 18%, as profits improved in all
regions other than continental Europe. LIFO inventory liquidation benefits
added $.1 million to earnings compared with $1.0 million in LIFO benefits for
the first half of 1993. Packaging's operating profit increased 18%, due
primarily to higher volume, lower SG&A expense and LIFO inventory liquidation
benefits in the U.K.
Non-operating Income
Non-operating income in 1994 reflected a $1.1 million non-recurring gain in the
first quarter at Aerospace Components from the settlement of a real estate
matter with a local transportation authority. In the second quarter of 1993,
non-operating income reflected a $.9 million charge for environmental
remediation.
Financial Condition/Liquidity
Interlake's total debt at the end of the second quarter was $442.5 million, down
$.6 million from year end 1993. Cash totaled $21.2 million at the end of the
quarter, compared with $31.9 million at the end of 1993, reflecting increased
working capital requirements.
Under its bank credit agreement, during the remainder of 1994 the Company will
be able to borrow for general and corporate purposes up to an additional $35
million over its June 26, 1994 indebtedness. However, outstanding bank bor-
rowings at the end of each of the Company's fiscal 1994 quarters will be limited
to between $8 million and $15 million above its June 26, 1994 borrowings. 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.
Capital expenditures of $2.0 million during the quarter brought the year-to-date
total to $5.7 million, compared with $6.4 million for the first six months of
1993. The Company expects that 1994 capital spending will be approximately
$18.0 million.
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PART II. - OTHER INFORMATION
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 under-
signed, thereunto duly authorized.
THE INTERLAKE CORPORATION
\s\JOHN J. GREISCH
August 5, 1994 John J. Greisch
Vice President - Finance,
Treasurer and Chief Financial
Officer
