SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1995 Commission file number 1-9149
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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, par value New York Stock Exchange
$1.00 per share Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 the Form 10-K or any amendment to the
Form 10-K. [ ]
Aggregate market value of common stock, $1.00 par value, held by non-affiliates
as of February 15, 1996: $46,494,455
As of February 15, 1996, 23,112,999 shares of the Registrant's common stock
were outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1995 are incorporated by reference into Part II. Portions
of the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders
(to be filed) are incorporated by reference into Part III.
THE INTERLAKE CORPORATION
Form 10-K Annual Report -- 1995
Table of Contents
PART I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings. . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters . . 12
Item 6. Selected Financial Data. . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data. . 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . 13
PART III
Item 10. Directors and Executive Officers, Promoters and Control
Persons of the Registrant 14
Item 11. Executive Compensation. . . . . . . . . . . . 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8- K . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART I
As used herein, the term "Company" means The Interlake Corporation and its
subsidiaries. The terms "Interlake" and "Registrant" mean The Interlake
Corporation, the parent company.
ITEM 1--BUSINESS
GENERAL
The Company is a multinational corporation engaged in the design, manufacture
and sale or distribution of products in the automotive, materials handling,
packaging, and aerospace industries. The Company's operations are divided into
two segments: Engineered Materials and Handling/Packaging Systems. For
certain information regarding these segments, including information regarding
geographic regions, see Note 6 of Notes to Consolidated Financial Statements.
ENGINEERED MATERIALS
The Engineered Materials segment includes Special Materials, which produces
ferrous metal powder used to manufacture precision parts, and Aerospace
Components, which manufactures precision jet engine components and repairs jet
engine fan blades. The two units which comprise Engineered Materials generally
use proprietary and patented processes to produce high quality metal powders or
components.
SPECIAL MATERIALS
General--The Company conducts its Special Materials business through its
Hoeganaes Corporation subsidiary. Hoeganaes is the North American market and
technology leader in the production of ferrous (iron-based) metal powders.
Ferrous metal powder is used by customers primarily to manufacture precision
parts for automobiles, light trucks, farm and garden equipment, heavy
construction equipment, hand tools and appliances. Precision parts produced
using powdered metal technology have certain cost and design advantages over
parts produced using conventional techniques such as forging, casting, stamping
or machining, as they may be manufactured with less wasted raw material, lower
labor costs and little or no additional machining.
The automotive industry is the largest market for Hoeganaes' products. Average
usage of ferrous metal powder per vehicle has increased from 18 pounds in 1986
to 29 pounds in 1995 due to new applications (for example, anti-lock brakes,
connecting rods and bearing end caps) as well as increased demand for vehicles
in the light truck category (including sport utility vehicles and minivans),
which use greater amounts of ferrous metal powder per vehicle.
Strategy--Hoeganaes' status as the North American market leader is based on its
broad product range and new product development coupled with cost-efficient
manufacturing processes producing a high quality metal powder. Hoeganaes'
strategy is to commercially develop new powder metal products, manufacturing
processes and applications, thereby promoting the increased use of powder
metallurgy generally and establishing Hoeganaes as the sole source for its
proprietary products. This strategy is based on the Company's ongoing research
and development efforts, whereby Hoeganaes representatives work closely with
customers to advance the performance characteristics achievable through powder
metallurgy.
Markets--The North American market for ferrous metal powders can be divided
into two segments: structural parts (metal powder to be compressed into solid
parts) and non-structural applications (powders principally used in welding,
chemicals and photocopying).
Uses for structural parts comprise an estimated 80% of the North American
market for ferrous metal powders. More than 50% of Hoeganaes' sales are for
automotive applications, which include components for transmissions, engines
and suspension systems. For automobile applications, Hoeganaes generally
supplies metal powder to component manufacturers as opposed to directly
supplying vehicle manufacturers.
The non-structural market for ferrous metal powders generally consists of
applications in welding, chemicals, friction applications such as brake pads
and linings, and for use as a carrier agent for photocopier toner. Ferrous
metal powders are also used by pharmaceutical companies as catalysts in blood
thinning agents and for use in nutritional iron supplements.
Customers--Although more than 50% of Hoeganaes' product shipments are
ultimately used in automobiles and other light vehicles, Hoeganaes' customers
generally are not the auto manufacturers, but rather intermediary parts
fabricators. In recent years, there has been increasing consolidation among
the powder metal parts manufacturers; however, no single customer accounted for
more than 3% of the Company's net sales in 1995. Sales are made by Hoeganaes'
direct sales force.
Products--The Company believes that Hoeganaes currently has the broadest
product line of all ferrous metal powder producers. It is also a leader in the
research and development of advanced proprietary powders and processes.
Hoeganaes' patented ANCORBOND(R) and ANCORDENSE(TM) blend technologies, for
example, allow the formulation of press-ready mixes that result in more
consistent metallurgical properties in finished parts with increased part
strength and density while also increasing press productivity for parts
fabricators.
To achieve specific performance objectives, powder metal parts producers
require steel powder mixed with various alloying constituents such as copper,
nickel, molybdenum or graphite plus other additives. In addition to producing
conventional mixes, Hoeganaes offers customers the unique advantages of
ANCORBOND premixes produced with a proprietary mixing process. With ANCORBOND
premixes, additives are bonded directly to the steel particles, resulting in
more consistent metallurgical properties and improved manufacturing
productivity.
Based on its ANCORBOND premix technology, in 1994 Hoeganaes introduced the new,
patented ANCORDENSE process that maintains its technological leadership,
leading to new parts applications. The ANCORDENSE process uses heat throughout
the part-forming operation. The combination of special, bonded premixed
powders and warm compaction enables fabricators to produce parts with
properties that previously could be obtained only through more expensive
processes. In 1995, the first commercial part using the ANCORDENSE process was
produced.
Production--Hoeganaes has two basic production processes. The first process is
atomizing, which converts selected scrap steel into powders through the use of
an electric furnace steel making and water atomization system. Hoeganaes has
the two largest atomizing plants in North America. The second process is
direct reduction which converts high purity iron ore into a unique, highly
porous metal powder. Hoeganaes has the only direct reduction process facility
in North America. Hoeganaes also formulates these powders into press-ready
mixes for its customers.
Minority Interest--The Company owns 80% of the capital stock of Hoeganaes. The
remaining 20% is owned by Hoganas AB, a Swedish corporation. Agreements
between the owners of Hoeganaes define the structure of the Hoeganaes board of
directors, grant to each party a right of first refusal with respect to a
proposed sale of Hoeganaes stock and provide for technology exchanges and tax
sharing arrangements.
AEROSPACE COMPONENTS
General--The Company conducts its Aerospace Components business through its
Chem-tronics, Inc. subsidiary. Chem-tronics is a leading producer of
lightweight, fabricated products for commercial and military aerospace
applications, and also provides jet engine fan blade repair services. Chem-
tronics offers its customers a vertically integrated facility, thereby
eliminating the need for numerous subcontractors for a single component. Chem-
tronics' principal products are sold directly to engine manufacturers under
arrangements which generally establish Chem-tronics as the sole source of
supply.
Strategy--Responding to the decline of the defense industry, Chem-tronics'
strategy during the 1990s has been to diversify and realign its fabrication
business by reducing dependence on a declining military business through
expansion of the commercial and space segments. Commercial and space programs
have substantially offset declining military business and represented 68% of
Chem-tronics' sales in 1995, up from 22% in 1986. At the end of 1995, Chem-
tronics had a backlog of over $100 million of fabrication orders, including
significant multi-year agreements with General Electric, Pratt & Whitney,
Rolls-Royce and Allison.
Products and Customers--Chem-tronics' fabricated products include rings, cases
and modules for large commercial aircraft jet engines, ducts for military jet
engines, exhaust nozzles and structures for jet engines and space launch
vehicles, and other complex fabrications for a variety of aerospace
applications. The primary fabrication customers are the original equipment
manufacturers ("OEMs") of jet aircraft and engines. The Company believes that
its sales have benefitted, and will continue to benefit, from the trend toward
outsourcing by OEMs.
Production Processes--The primary processes used in the fabrication businesses
are chemical milling, welding, forming, machining, non-destructive testing and
inspection. Chem-tronics uses a patented Unistructure(R) technology, a
chemical milling process which produces integral rib and skin structures that
are both stiff and lightweight. Unistructure components have significant cost
and performance advantages over parts produced using other fabrication methods.
Repair--In addition to its fabrication business, Chem-tronics provides
comprehensive repair services for jet engine fan and compressor blades, discs
and combustion liners. Repair services are sold directly and through sales
agents. Repair customers include all major jet engine manufacturers, major
domestic and international airlines and engine overhaul centers.
HANDLING/PACKAGING SYSTEMS
The Handling/Packaging Systems segment is comprised of the Company's domestic
and international Handling and Packaging units. Handling designs, manufactures
and sells storage rack, shelving, and related equipment primarily for use in
warehouses, distribution centers, retail stores and for other storage
applications. The Company believes that Handling is the world's largest
manufacturer of storage rack. Packaging designs and sells machinery for
applying strapping and stitching wire, and also supplies strapping and
stitching wire for use in these machines.
HANDLING
General--Handling designs, manufactures and sells storage rack, shelving,
conveyors and related order fulfillment equipment for use in warehouses,
distribution centers, retail stores and for other storage applications.
Handling also supplies equipment for retail display and office interiors.
The Company believes Handling is the world's largest manufacturer of storage
rack, with the largest market share in the U.S., the U.K., Belgium and
Australia and the second largest market share in Germany. Its customers are
primarily engaged in the retailing and wholesaling of food and consumer
durables and non-durables and industrial products. Handling's rack systems are
used in warehouse and distribution applications ranging from simple pallet
storage to sophisticated warehouse systems and warehouse-type retail store
environments.
Handling's direct sales and distribution networks allow it to satisfy the needs
of large customers and projects, as well as smaller, geographically distant
customers. Handling's design capabilities and large manufacturing capacity
enable it to undertake large scale projects for many of the largest retailers
in the world. In addition, its large size allows it to realize significant
economies of scale in product development, design and manufacturing.
Strategy--Handling's strategy is to enhance its position of market leadership
by continuously improving product quality, manufacturing efficiency and
customer service and support, while exploiting opportunities for geographic and
new product growth. The acquisition of a Hong Kong company and establishment
of sales offices in Malaysia and Singapore have expanded sales coverage in the
rapidly growing Asian marketplace. Sales offices have been opened in the Czech
Republic and Hungary to continue development of the emerging eastern European
market.
Products--Handling's primary product is storage rack which is used for storing
unit loads in distribution centers, warehouse facilities, retail stores and
factory shipping and receiving departments. Storage rack can be assembled in a
variety of configurations depending on individual customer needs. Handling
offers a broad range of products, including products that allow for FIFO and
LIFO storage and retrieval, for the storage of bulky, awkwardly shaped items
(lumber, carpet rolls, furniture, etc.) and for the storage and retrieval of
very heavy items.
Handling also sells conveyors and conveyor systems which range from simple
gravity conveyors to complex belt and chain powered conveyors. In Europe and
Australia, Handling manufactures and sells angle and shelving and office
storage equipment and, in Europe, partitioning for offices.
Product Development, Design and Manufacturing--In addition to competing on the
basis of cost and quality, Handling utilizes proprietary software, computer
aided design applications and its in-house structural engineering staff to
design the optimal solution for each customer's storage requirements.
Furthermore, extensive technical training for its sales staff and for third-
party distributors allows for improved responsiveness to customer needs.
Handling's design software is also used to generate detailed bills of material
which automatically specify the size, type and quantity of all components to be
used in the project, streamlining the selling, design and manufacturing
process.
Handling's facilities generally purchase steel coils and then form, finish and
paint the steel for various storage applications. Steel comprises
approximately 60% to 70% of production cost. Handling believes it is a low
cost producer. Continuing emphasis is placed on overhead and manufacturing
cost control and the efficient utilization of raw materials.
Sales and Distribution--The Company believes that Handling's domestic and
international direct sales force and extensive distributor network give it a
significant competitive advantage. Domestically, Handling is represented by a
network of over 150 distributors and a direct sales force. In the U.K.,
Handling utilizes an independent distributor network, wholly-owned distribution
centers and a direct sales force, while in Germany, Handling conducts its sales
efforts through a direct sales force and wholly-owned distribution centers.
Handling believes that its direct sales force allows it to satisfy the complex
needs of large customers and applications, while its extensive distributor
network allows it to reach smaller, geographically distant customers. Handling
has pursued geographic expansion by purchasing a distributor in Hong Kong and
opening sales offices in Malaysia and Singapore to improve sales coverage in
the rapidly growing Asian marketplace and establishing sales offices in the
Czech Republic and Hungary. In Europe and Asia Pacific, Handling operates
under the Dexion(TM) name, which is well recognized in those markets and
provides Handling with certain marketing advantages.
PACKAGING
General--The Company's Packaging business is one of the leading North American
and European suppliers of steel and plastic strap as well as the machinery and
tools to apply this strap. Packaging also manufactures and distributes wire
and stitching equipment.
Strategy--Packaging has concentrated on continually lowering fixed costs and
improving production efficiencies to enable it to maintain profitability even
during economic downturns. Its growth strategy is based on successfully
anticipating and meeting the changing needs of its customers through product
development.
In the near-term, a key growth area for plastic strapping is the conversion of
the fiber and lumber industries from steel to plastic strap. Packaging's
research and development efforts have been focused on developing the high-
strength polyester strap required by these applications.
Products and Customers--Packaging develops and markets solutions for companies
of all sizes utilizing a "total systems sales" approach--providing the customer
with engineering support, equipment and tools, strap, parts and service. The
Company believes this approach gives it a competitive advantage.
Plastic strap customers can choose from a broad line of machines, tools and
polypropylene and polyester strap of various widths and strengths. Packaging
specializes in newspaper strapping systems, with a complete line of strapping
machines, overwrapping and underwrapping systems, turners and conveyors. Other
large plastic strap customers include the textile, corrugated, graphics, can,
bottle and distribution industries.
Steel strap customers use zinc-coated and painted strap in the most demanding
strapping applications, where tensile strength and resistance to breakage is
essential, and apply it with Packaging's extensive line of manual, electric and
pneumatic hand tools and automated strapping machinery. Packaging's largest
steel strap customers are the lumber, steel, brick and concrete block
industries.
The largest customers of wire stitching products come from the graphic arts
industry, where Packaging supplies patented stitching products for binding
printed materials. Fruit and produce growers, corrugated box manufacturers and
numerous other businesses also use Packaging's stitching machines to assemble
shipping containers.
Production--For steel strapping, Packaging purchases raw materials in the form
of steel coils which are then slit into bands. The bands are further slit into
straps of various widths. The strap is then either zinc coated or painted in
order to prevent rusting. Rust resistant strap is important for the lumber and
brick industries where product is exposed to the elements.
For non-metallic strapping, Packaging purchases raw materials in the form of
pelletized or flake polyester and polypropylene which is often blended with
recycled materials. Non-metallic strapping is manufactured through a
continuous extrusion process. This material is then shaped and chilled, then
reheated and stretched to the appropriate width and thickness and, finally,
annealed, relaxed and either slit or embossed, cooled to minimize shrinkage and
wound into coils.
Market Share--The Company believes that the Canadian steel strapping unit
generally has the largest market share in Canada. The Company also believes
that the U.K. steel strapping unit has the second largest market share in its
market and the U.K. non-metallic strapping and machine unit has leading market
shares in certain areas. In the U.S., Packaging sells only plastic strapping
and stitching products and is a leading supplier of these products.
Sales, Distribution and Servicing--Packaging's direct sales force services
clients in the U.S., the U.K. and Canada. In the U.S., Packaging also utilizes
a network of over 350 distributors to service smaller customers. Within each
country's sales force, Packaging employs product specialists who are trained to
service the needs of specific industries such as publishing or lumber. Due to
the fact that most of Packaging's customers utilize its products for high
volume applications, Packaging has an extensive field service organization to
allow it to respond rapidly to customer service needs. The Company believes
that its sales/distributor network and its field service capabilities give it
significant advantages over smaller competitors.
CUSTOMERS; ORDER BACKLOGS
Engineered Materials--Sales to General Electric, Rolls-Royce and United
Technologies accounted for approximately 53% of Aerospace Components' sales,
equivalent to 15% of Engineered Materials' sales and 5% of total Company sales
in 1995. The Company is a supplier to these companies and has no other
significant relationship with them. Sales to these companies are made pursuant
to purchase orders.
At December 31, 1995 and December 25, 1994, the backlog of orders for
Engineered Materials was $142.7 million and $148.4 million, respectively.
Special Materials' backlog, which is generally short-term in nature, was up 7%.
Aerospace Components' backlog decreased 8%. All orders for Engineered
Materials at December 31, 1995 were believed to be firm, but approximately 39%
of these orders are subject to renegotiation. Approximately 75% of these
orders are expected to be delivered during 1996.
Handling/Packaging Systems--Handling/Packaging Systems' products are sold to a
substantial number of retail and industrial customers, none of which
individually purchased a significant portion of the segment's output in 1995.
The backlog of orders for this segment at December 31, 1995 was $88.4 million
compared with $94.5 million at December 25, 1994 (in each case applying foreign
exchange rates at December 31, 1995). All orders at December 31, 1995 were
believed to be firm and are expected to be filled during 1996.
COMPETITION
Competition is vigorous in both of the Company's business segments. Factors
normally affecting competitive conditions are product quality, technological
development, price and service. The Company competes with a variety of other
entities in each of its businesses.
RESEARCH AND DEVELOPMENT
Research activities are directed towards developing primary products and
processes. Expenditures on research activities by business segment were as
follows:
1995 1994 1993
(in millions)
Engineered Materials . . . . . . $2.1 $ 2.1 $2.1
Handling/Packaging Systems . . . 1.2 1.3 1.1
Total . . . . . . . . . . . $ 3.3 $ 3.4 $3.2
The Company believes that these amounts have been adequate to maintain its
competitive positions in the businesses in which it operates.
PATENTS
The Company holds domestic and foreign patents covering certain products and
processes in both business segments. While these patents are considered
important to the ability of the segments to compete, unpatented manufacturing
expertise is considered at least as important. Future profitability of these
segments is therefore not considered dependent upon any one patent or group of
related patents.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive and changing federal, state,
local and foreign environmental laws and regulations, including those relating
to the use, handling, storage, discharge and disposal of hazardous substances.
As a result, the Company is from time to time involved in administrative and
judicial proceedings and inquiries relating to environmental matters. In
addition, the Company's future capital and operating expenditures will continue
to be influenced by environmental laws and regulations; however, the Company
does not believe these expenditures are likely to have a material adverse
effect on its earnings or its ability to compete with other companies. In
1995, capital expenditures for environmental compliance were $.4 million and
the Company estimates that environmental capital spending for 1996 will be $.7
million. In 1993, the Company incurred special nonoperating charges of $4.8
million to provide for estimated environmental liabilities in connection with
certain sites not related to its ongoing operations. (See Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Nonoperating Items, and Notes 15 and 16 of Notes to Consolidated Financial
Statements.)
EMPLOYEES
At December 31, 1995 the Company employed a total of 4,558 persons, consisting
of 1,902 salaried and 2,656 hourly employees. Of the hourly employees, 55% are
represented by unions, with no single union representing a significant number
of the hourly employees. Labor contracts covering approximately 5% of hourly
employees will expire in 1996. The Company believes that it will not
experience difficulties in negotiating the renewal of these contracts.
RAW MATERIALS
The Company's principal raw materials are steel and steel scrap which are
purchased in the open market where no shortages are anticipated. The Company
also purchases large extruded metal shapes and milled products that are
available from a limited number of suppliers and high purity iron ore imported
from a limited foreign source. The Company believes these sources are adequate
to provide for the current and future needs of each of the Company's segments
and believes that, if necessary, adequate substitute supplies and suppliers
could be obtained without any material adverse effect on the Company's
operations or operating results. The Company's conclusions as to availability
and impact are based upon the Company's general knowledge of the markets for
its raw materials, and its use of alternative sources from time to time.
ITEM 2--PROPERTIES
<TABLE>
The following are the principal properties of the Company, listed by business
unit:
<CAPTION>
Usable Space
Business Unit Function Owned/Leased (Square Feet)
<S> <C> <C> <C>
HOEGANAES
Riverton, NJ Manufacture iron and steel metal powder Owned 542,000
Gallatin, TN Manufacture steel metal powder Owned 168,000
Milton, PA Bonding and blending metal powder, Owned 102,000
warehouse
CHEM-TRONICS
El Cajon, CA Manufacture aerospace components and Owned 230,000*
repair of jet engine fan blades Building owned 39,000
on leased land
Tulsa, OK Repair of jet engine fan blades Leased 42,000
HANDLING
Handling North
America
Pontiac, IL Manufacture storage rack and slotted angle Owned 400,000*
Sumter, SC Manufacture storage rack Owned 250,000*
Lodi, CA Manufacture storage rack Owned 125,000*
Shepherdsville, KY Manufacture conveyors Owned 106,000*
Handling Europe
Hemel Hempstead, U.K. Manufacture storage rack,slotted angle, Building owned 353,000
shelving and partitioning on leased land
Laubach, Germany Manufacture storage rack,slotted angle, Owned 335,000
shelving, partitioning and conveyors
Gainsborough, U.K. Manufacture conveyors Building owned 94,000
on leased land
Nivelles, Belgium Manufacture storage rack and slotted angle Owned 101,000
Halle, Germany Manufacture steelwork and conveyors Owned 90,000
Kilnhurst, U.K. Manufacture storage rack Owned 89,000*
Handling Asia Pacific
Blacktown, Australia Manufacture storage rack,slotted angle, Owned 135,000*
shelving and conveyors
Wacol, Australia Manufacture shelving and wireproducts Owned 30,000*
PACKAGING
Scarborough, Canada Manufacture steel strap,edgeboard, Owned 135,000*
collated nails and strapping equipment
Kilnhurst, U.K. Manufacture steel strap, seals, tools and Owned 97,000
machines
Racine, WI Manufacture stitching machines Leased 70,000
Fountain Inn, SC Manufacture non-metallicstrap Owned 61,000*
Hodgkins, IL Machine preparation, warehouse Leased 32,000
Maidenhead, U.K. Machine preparation,warehouse Owned 22,000
Strood, U.K. Manufacture over/under-wrappers and Leased 6,000
conveyors
The properties marked with an asterisk (*) are subject to mortgages pursuant to
the bank credit agreement. In addition to the facilities described above, the
Company owns and leases various warehouses and sales and administrative
facilities. The Company believes that its manufacturing facilities are
properly maintained and that production capacity is adequate to meet the
requirements of the Company.
</TABLE>
ITEM 3--LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved in
legal proceedings incidental to its business. None of these proceedings is
material within the meaning of regulations of the Securities and Exchange
Commission.
In a Request for Response Action issued by the Minnesota Pollution Control
Agency (the "MPCA") on March 29,1994, the Company was named a responsible party
for and requested to investigate and remediate certain contaminated soils, and
to investigate certain underwater sediments, at a Superfund site in Duluth,
Minnesota. With respect to the contaminated soils, the MPCA on September 27,
1995, issued a Record of Decision ("ROD") selecting a clean-up consistent with
the anticipated industrial development of the site. The Company's consultants
have estimated the cost of implementing the portion of the selected remedy for
which the Company is responsible to be between $3 million and $5 million. With
respect to the underwater sediments, the Company commenced an investigation in
early 1996. The Company believes that any estimate of the potential cost of
remediating the underwater sediments will not be meaningful until the
investigation is completed and possible remedial alternatives are reviewed by
the Company and the MPCA. See Note 15 of Notes to Consolidated Financial
Statements.
On July 9, 1990, the City of Toledo, Ohio, (the "City") brought an action in
Federal district court in Toledo, Ohio, against the Company, Acme Steel Company
("Acme" or the "old Interlake" and, together with the Company, the "Interlake
defendants"), Beazer Materials and Services, Inc. succeeded by Beazer East,
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 widening a road. 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 agreed to indemnify Interlake against environmental liabilities. In
January 1996, the Court ruled that the Interlake defendants were liable for
costs of investigation incurred by the City, and for future costs of
remediation to the extent they are consistent with the National Contingency
Plan under Superfund. The City represents its costs of investigation to have
been approximately $.4 million, and the costs of future remediation to be
between $4 million and $10 million. However, in November 1995, the Court ruled
that the Interlake defendants were entitled to be indemnified by Beazer. The
Company expects Beazer to appeal this ruling.
The Company's Hoeganaes Corporation subsidiary is one of approximately 100
defendants in litigation brought on March 10, 1995, by SC Holdings, Inc., a
subsidiary of Waste Management International Plc. in federal district court in
Trenton, New Jersey, seeking to recover amounts expended or to be expended in
the remediation of the Cinnaminson Groundwater Contamination Site in Burlington
County, New Jersey. The site is a broadly-defined Superfund site which
encompasses a landfill formerly operated by the plaintiff and may also include
the groundwater under Hoeganaes' Riverton, New Jersey, facility. Hoeganaes may
have shipped certain materials to the landfill. SC Holdings alleges that
Hoeganaes has liability as both an owner/operator and a generator. The matter
is in the preliminary stages of discovery. The Company believes Hoeganaes
Corporation has meritorious defenses to both of the alleged bases of liability.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal market for Interlake's common stock is the New York Stock
Exchange (ticker symbol IK). The common stock is also listed on the Chicago
Stock Exchange and is admitted to unlisted trading on the Pacific Stock
Exchange and the Boston Stock Exchange.
Interlake has not paid a dividend or made a distribution with respect to its
common stock since the third quarter of 1989. Restrictions under Interlake's
bank credit agreement and the indentures relating to its Senior Subordinated
Debentures and Senior Notes (see Note 13 of Notes to Consolidated Financial
Statements) will prevent it from paying any cash dividends in 1996 or in the
foreseeable future.
On December 31, 1995, there were approximately 6,987 holders of record of
Interlake's common stock.
High and low prices of Interlake's common stock as reported on the NYSE
composite ticker tape during each of the eight calendar quarters during the
period ending on December 31, 1995 were:
1995 1994
Price Price
High Low High Low
Calendar Quarter Ended
March 31 . . . . . . . . . $2 3/8 $1 3/4 $3 7/8 $2 5/8
June 30. . . . . . . . . . 3 1/4 2 1/4 3 1/4 2 1/8
September 30 . . . . . . . 3 1/4 2 1/8 2 5/8 1 7/8
December 31. . . . . . . . 2 1/2 1 5/8 2 3/8 1 1/2
ITEM 6--SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
information under the same caption in the Company's 1995 Annual Report to
Shareholders.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The information required by this item is incorporated by reference to the
information under the same caption in the Company's 1995 Annual Report to
Shareholders.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
financial statements and supplementary data in the Company's 1995 Annual Report
to Shareholders.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
(a)
Information about directors and nominees required by this item is
incorporated by reference to the information under the caption "DIRECTORS
AND NOMINEES" in the Registrant's definitive proxy statement to be filed
in connection with its 1996 Annual Meeting of Shareholders.
(b)
The executive officers listed below are elected annually by the Board of
Directors of the Registrant, to serve for a term of office of one year
and until their successors are elected.
Executive
Name Age Officer Since Positions During Last 5 Years
W. Robert Reum 53 1982 Chairman of the Board since April 1991
and President and Chief Executive
Officer since January 1991
Craig A. Grant 48 1991 Vice President-Human Resources since May
1991; human resources executive at The
Ceco Corporation for more than five
years prior to May 1991, of which two
were as Vice President--Human Resources
Stephen Gregory 46 1989 Vice President--Finance and Chief
Financial Officer since August 1995;
Vice President--Finance, Treasurer and
Chief Financial Officer from December
1994 to August 1995; Vice President from
August 1994 to December 1994; President
of the Material Handling Division of The
Interlake Companies, Inc. from June 1989
to August 1994
John P. Miller 38 1993 Controller since April 1993; Vice
President--Finance of the Material
Handling Division of The Interlake
Companies, Inc. from October 1989 to
April 1993
Stephen R. Smith 39 1991 Vice President, Secretary and General
Counsel since January 1993; Vice
President and General Counsel from
January through December 1992; Vice
President--Law from September to
December 1991; Partner in the Chicago
law firm of Hopkins & Sutter from 1987
to September 1991
Donn A. York 36 1995 Treasurer since August 1995; Director of
Treasury Operations from April 1993 to
August 1995; Director--Operation Control
from May 1991 to April 1993; Manager--
Financial Analysis from July 1988 to May
1991
The Registrant has designated the operating executives named below as
"executive officers" for purposes of certain provisions of the Securities
Exchange Act of 1934.
Executive
Name Age Officer Since Positions During Last 5 Years
Brenton S. Fuller 52 1994 Chairman and Managing Director, Dexion
(Australia) Pty. Ltd. since 1976
Robert J. Fulton 53 1994 President, Hoeganaes Corporation, the
subsidiary which produces powdered
metals, since July 1994;Chief Executive
Officer of Micafil, Inc. and consultant
to Sterling Stainless Tube - ITT
Automotive from 1992 to 1994; Executive
Vice President and Chief Operating
Officer of Doehler- Jarvis from 1990 to
1992
John J. Greisch 40 1991 President-Material Handling Group since
December 1994; Vice President since
December 1994; Vice President--Finance,
Treasurer and Chief Financial Officer
from February 1993 to December 1994;
Vice President from January through
February 1993; Managing Director of
Dexion Group plc from May 1991 through
December 1992; Managing Director of
Dexion Limited from February 1990 to
November 1992
James Legler 47 1988 President, Chem-tronics, Inc., the
subsidiary which manufactures
precision engine components and
provides jet engine component repairs
Wayne M. Osman 45 1995 Managing Director, Dexion Limited since
August 1995; Managing Director, Pakseal
Limited from August 1994 to August
1995;Acting Managing Director, Beaufort
Electronics Limited from September 1993
to August 1994; Managing Director,
Prestwick Holdings Plc from August 1990
to June 1993
Robert A. Pedersen 50 1986 President, Interlake Packaging
Corporation, the subsidiary which
produces and distributes strapping, and
strapping products and equipment
Bernd Stiller 55 1993 Managing Director, Dexion Continental
Europe since December 1994; Managing
Director, Dexion Group plc from January
1993 to December 1994; Managing
Director, Dexion GmbH since 1986
Daniel P. Wilson 51 1994 President Material Handling Division,
since January 1994; Vice President--
Sales, Material Handling Division, from
1988 to 1993
ITEM 11--EXECUTIVE COMPENSATION
The information required by this item is incorporated into this report by
reference to the information under the caption "Executive Compensation" in the
Registrant's definitive proxy statement to be filed in connection with its 1996
Annual Meeting of Shareholders. Notwithstanding the foregoing sentence, the
information set forth under "Executive Compensation - Report of the
Compensation Committee on Executive Compensation" and "Executive Compensation -
Performance Graph" in the Registrant's definitive proxy statement to be filed
in connection with its 1996 Annual Meeting of Shareholders is not incorporated
herein.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item and information regarding compliance with
Section 16 (a) of the Securities Exchange Act of 1934 to the extent required to
be disclosed, is incorporated into this report by reference to the information
under the caption "Voting Securities and Security Ownership By Certain Persons
and Management" in the Registrant's definitive proxy statement to be filed in
connection with its 1996 Annual Meeting of Shareholders.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information under the caption "General --Certain Relationships" in the
Registrant's definitive proxy statement to be filed in connection with its 1996
Annual Meeting of Shareholders.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this
report:
1. Financial Statements *
Report of Independent Accountants . . . . . . .
Consolidated Statement of Operations for the Years
Ended December 31, 1995, December 25, 1994 and
December 26, 1993
Consolidated Balance Sheet at December 31, 1995 and
December 25, 1994
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1995, December 25, 1994 and
December 26, 1993
Consolidated Statement of Shareholders' Equity
(Deficit) for the Years Ended December 31, 1995,
December 25, 1994 and December 26, 1993
Notes to Consolidated Financial Statements
*Incorporated by reference from the 1995
Annual Report to Shareholders
Page in
2. Financial Statement Schedules Form 10-K
Report of Independent Accountants on Financial Statement
Schedule 22
Schedule VIII--Valuation and Qualifying Accounts 23
All other schedules are omitted because of the absence of
conditions under which they would have been required or because
the required information is disclosed in the financial statements
or notes thereto.
3. Exhibits
Sequential
Numbering
Exhibit System
Number Item Page Number
3. Articles of Incorporation and Bylaws
3.1 Composite of the Registrant's Restated Certificate of
Incorporation as amended, incorporated by reference to Exhibit
3.1 of the Registrant's Registration Statement on Form S-2,
File No. 33-59003, as amended (the "1995 Debt S-2") None
3.2 Bylaws of Registrant as amended and restated dated August 23,
1990, incorporated by reference to Exhibit 3(b) of the
Registrant's Annual Report on Form 10-K for the year ended
December 30, 1990 (the "1990 10-K") None
4. Instruments Defining the Rights of Security Holders, including Indentures
4.1 Form of Indenture (including form of Senior Note),
incorporated by reference to Exhibit 4.1 of the 1995 Debt S-2 None
4.2 Form of Indenture (including form of Senior Subordinated
Debenture), incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-2, File No.
33-46247, as amended None
4.3 Rights Agreement dated as of January 26, 1989 between the
Registrant and the First National Bank of Chicago, as Rights
Agent, (the "Rights Agreement") incorporated by reference to
Exhibit 2 of the Registrant's Registration Statement on Form
8-A dated as of January 27, 1989 None
4.4 Amendment to Rights Agreement dated as of August 15,1989,
incorporated by reference to Exhibit (a) of the Company's
Form 8 dated May 22, 1990 None
4.5 Amendment to Rights Agreement dated as of May 7, 1990,
incorporated by reference to Exhibit (b) of the Company's
Form 8 dated May 22, 1990 None
4.6 Form of Amendment to Rights Agreement, incorporated by
reference to Exhibit 4.5 of the Registrant's Registration
Statement on Form S-2, File No. 33-46248, as amended (the
"Common Stock S-2") None
4.7 Amendment to Rights Agreement dated as of April 13, 1994,
incorporated by reference to Exhibit 7 of the Company's Form
8-A/A dated April 19, 1994 None
4.8 Preferred Stock Purchase Agreement dated as of March 6, 1992
among the Registrant and the persons listed on the Schedule of
Purchasers attached thereto, incorporated by reference to
Exhibit 4.6 of the Common Stock S- 2 None
4.9 Revised Form of Registration Rights Agreement among the
Registrant and the parties listed on the signature pages
thereof, incorporated by reference to Exhibit 4.4 of the
Registrant's Post-Effective Amendment No. 4 to the
Registration Statement on Form S-2, File No. 33-37041 (the
"IRN Post-Effective Amendment No. 4") None
4.10 Form of Series 1 Junior Convertible Subordinated Debenture,
incorporated by reference to Exhibit 4.11 of the Common Stock
S- 2 None
4.11 Form of Series 2 Junior Convertible Subordinated Debenture,
incorporated by reference to Exhibit 4.12 of the Common Stock
S- 2 None
4.12 Series A-3 Preferred Stock Purchase Agreement dated as of
May 7, 1992 by and between the Registrant and the persons
listed on the signature pages thereto, incorporated by
reference to Exhibit 4.9 of the IRN Post-Effective Amendment
No. 4 None
4.13 Form of Series 3 Junior Convertible Subordinated Debenture
(Exchange Debentures relating to the Series A-3 Preferred
Stock), incorporated by reference to Exhibit 4.10 of the IRN
Post-Effective Amendment No. 4 None
4.14 Stock Purchase Agreement dated November 2, 1989 between the
Registrant and LaSalle National Bank, trustee for The
Interlake Corporation Employee Stock Ownership Plan,
incorporated by reference to Exhibit 10(v) of the Registrant's
Annual Report on Form 10-K for the year ended December 29,
1991 ( the "1991 10-K") None
4.15 Form of Amended and Restated Credit Agreement, incorporated by
reference to Exhibit 10.15 of the IRN Post-Effective Amendment
No. 4 None
4.16 First Amendment, dated as of August 17, 1992, to the Amended
and Restated Credit Agreement, incorporated by reference to
Exhibit 4.18 of the Registrant's Annual Report on Form 10-K
for the year ended December 27, 1992 (the "1992 10-K") None
4.17 Second Amendment, dated as of October 30, 1992, to the Amended
and Restated Credit Agreement, incorporated by reference to
Exhibit 4.19 of the 1992 10-K None
4.18 Third Amendment, dated August 20, 1993, to the Amended and
Restated Credit Agreement, incorporated by reference to the
Registrant's quarterly report on Form 10-Q for the quarter
ending September 26, 1993 None
4.19 Fourth Amendment, dated December 22, 1993, to the Amended and
Restated Credit Agreement, incorporated by reference to
Exhibit 4.29 of the Registrant's Annual Report on Form 10-K
for the year ended December 26, 1993 ("1993 10-K") None
4.20 Fifth Amendment, dated February 23, 1994, to the Amended and
Restated Credit Agreement, incorporated by reference to
Exhibit 4.30 of the 1993 10- K None
4.21 Sixth Amendment, dated as of August 16, 1994, to the Amended
and Restated Credit Agreement, incorporated by reference to
Exhibit 4.20 of the Registrant's Annual Report on Form 10-K
for the year ended December 25, 1994 (the "1994 10-K") None
4.22 Seventh Amendment, dated as of January 24, 1995, to the Amended
and Restated Credit Agreement, incorporated by reference to
Exhibit 4.21 of the 1994 Form 10-K None
4.23 Eighth Amendment, dated as of February 1, 1995, to the Amended
and Restated Credit Agreement, incorporated by reference to
Exhibit 4.22 of the 1994 Form 10-K None
4.24 Ninth Amendment, dated as of June 1, 1995, to the Amended and
Restated Credit Agreement
4.25 The Registrant Term Notes dated June 18, 1992, incorporated by
reference to Exhibit 4.20 of the 1992 10-K None
4.26 The Registrant Revolving Notes dated June 18, 1992,
incorporated by reference to Exhibit 4.21 of the 1992 10-K None
4.27 Subsidiary Term Notes dated June 18, 1992, incorporated by
reference to Exhibit 4.22 of the 1992 10-K None
4.28 Subsidiary Revolving Notes dated June 18, 1992, incorporated
by reference to Exhibit 4.23 of the 1992 10-K None
4.29 The Registrant Delayed Draw Notes dated June 18, 1992,
incorporated by reference to Exhibit 4.24 of the 1992 10-K None
4.30 The Registrant Deferred Term Notes dated June 18, 1992,
incorporated by reference to Exhibit 4.25 of the 1992 10-K None
4.31 The Registrant Pledge Agreement dated September 27, 1989, made
by the Registrant and accepted by Chemical Bank, along with
stock certificates of the two subsidiaries, incorporated by
reference to Exhibit 10(t) of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989 None
4.32 Amended and Restated Security Agreement dated September 27,
1989 and amended and restated as of August 17, 1992 between
the Registrant and Chemical Bank, incorporated by reference
to Exhibit 4.27 of the 1992 10-K None
4.33 Amended and Restated Security Agreement among Certain
Subsidiaries of the Registrant and Chemical Bank dated as of
September 27, 1989 and amended and restated as of August 17,
1992, incorporated by reference to Exhibit 4.28 of the 1992
10-K None
10. Material Contracts
10.1* 1996 Senior Executive Incentive Compensation Program
10.2* 1995 Executive Incentive Compensation Plan, incorporated by
reference to Exhibit 10.1 to the 1994 10-K None
10.3* 1994 Executive Incentive Compensation Plan, incorporated by
reference to Exhibit 10.1 of the 1993 10-K None
10.4* Key Executive Retention Program adopted February 23, 1995,
incorporated by reference to Exhibit 10.3 of the 1994 10-K None
10.5* Amendment to Key Executive Retention Program, adopted
December 1, 1995
10.6* Form of Grant of Stock Award dated as of January 30, 1996
10.7* Form of Grant of Stock Award as of February 23, 1995,
incorporated by reference to Exhibit 10.4 of the 1994 10-K None
10.8* Form of Agreement dated August 27, 1992 for the Cancellation
and Re- Granting of Non-Qualified Stock Options between the
Registrant and U.S. executive officers and employees,
incorporated by reference to Exhibit 10.7 of the 1992 10-K None
10.9* Form of Non-Qualified Stock Option Agreement dated as of
January 25, 1996
10.10* Form of Non-Qualified Stock Option Agreement dated January
26, 1995 between the Registrant and one executive officer,
incorporated by reference to Exhibit 10.6 of the 1994 10-K None
10.11* Form of Grant of Stock Award as of May 23, 1991 - Outside
Director, incorporated by reference to Exhibit 10(a) of the
1991 10- K None
10.12* Form of Grant of Stock Award as of April 26, 1990 - Outside
Directors, incorporated by reference to Exhibit 10(a) of the
1990 10- K None
10.13* Amendment to Non-Qualified Stock Option Agreement and to
Stock Appreciation Rights granted July 23, 1987 by the
Registrant to one U.S. executive officer, incorporated by
reference to Exhibit 10(i) of the 1990 10- K None
10.14* Amendment to Non-Qualified Stock Option Agreement and to
Stock Appreciation Rights granted July 28, 1988 by the
Registrant to one U.S. executive officer, incorporated by
reference to Exhibit 10(j) of the 1990 10- K None
10.15* 1989 Stock Incentive Program, incorporated by reference to
the proxy statement filed in connection with the
Registrant's 1990 annual meeting of shareholders None
10.16* 1986 Stock Incentive Program, incorporated by reference to
Appendix D to the Registrant's Registration Statement on
Form S-4 filed with the Securities and Exchange Commission
on March 26, 1986 None
10.17 Trust Agreement between the Registrant and Continental
Illinois National Bank and Trust Company of Chicago with
respect to The Interlake Corporation Restated Directors'
Post-Retirement Income Plan dated September 30, 1988,
incorporated by reference to Exhibit 10(p) of the
Registrant's Annual Report on Form 10-K for the year ended
December 25, 1988 (the "1988 10- K") None
10.18 Trust Agreement between the Registrant and Continental
Illinois National Bank and Trust Company of Chicago with
respect to the Deferred Compensation Agreement dated May
29, 1986 (as amended August 5, 1988) between the Registrant
and Frederick C. Langenberg dated September 30, 1988,
incorporated by reference to Exhibit 10(q) of the 1988 10-K None
10.19 Form of Indemnification Agreement between the Registrant and
Outside Directors, incorporated by reference to Exhibit 10(a)
of the Registrant's Annual Report on Form 10-K for the year
ending December 27, 1987 (the "1987 10-K") None
10.20*Form of Indemnification Agreement between the Registrant
and executive officers, including inside directors,
incorporated by reference to Exhibit 10(b) of the 1987 10-K None
10.21*Form of Severance Pay Agreement between the Registrant and
12 executive officers, incorporated by reference to Exhibit
10.18 of the 1994 10-K None
10.22*Form of Severance Pay Agreement between the Registrant and
two executive officers, incorporated by reference to Exhibit
10.19 of the 1994 10-K None
10.23 Cross Indemnification Agreement dated as of May 29, 1986,
between the Registrant and Acme Steel Company, incorporated
by reference to Exhibit 10(b) of the Registrant's Annual
Report on Form 10-K for the year ended December 28, 1986
(the "1986 10-K") None
10.24 Parallel Loan Agreement dated as of May 29, 1986, between
Acme Steel Company and The Interlake Companies, Inc., as
amended by letter agreement dated June 27, 1986, incorporated
by reference to Exhibit 10(c) of the 1986 10-K None
10.25 Tax Indemnification Agreement dated as of May 29, 1986,
between the Registrant and Acme Steel Company, incorporated
by reference to Exhibit 10(i) of the 1986 10-K None
10.26*Deferred Compensation Agreement dated May 29, 1986, between
the Registrant and Frederick C. Langenberg, incorporated by
reference to Exhibit 10(j) of the 1986 10-K None
10.27 Instrument of Assumption and Release dated May 29, 1986,
between the Registrant, W. R. Reum and Acme Steel Company,
concerning an April 12, 1982 Agreement between W. R. Reum
and Interlake, Inc. (n.k.a. Acme Metals, Inc.), incorporated
by reference to Exhibit 10(l) of the 1986 10-K None
13. Portions of the Annual Report to Shareholders for fiscal year ended
December 31, 1995. (With the exception of the data described in
Part II, Items 6, 7 and 8, no other data appearing in the Annual
Report to Shareholders for fiscal year ended December 31, 1995 is
deemed filed as part of this Form 10-K.)
21. Subsidiaries of the Registrant
23. Consents of Experts and Counsel
23.1 Consent of Price Waterhouse LLP
27. Financial Data Schedule None
* Management contract or compensatory plan or arrangement
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of The Interlake Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 24, 1996 appearing in the 1995 Annual Report to Shareholders of
The Interlake Corporation (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
As discussed in Note 2 to the consolidated financial statements appearing
in the 1995 Annual Report to Shareholders of The Interlake Corporation, the
Company changed its method of evaluating the recoverability of goodwill and
other long-lived assets in 1994.
PRICE WATERHOUSE LLP
Chicago, Illinois
January 24, 1996
THE INTERLAKE CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Year Expenses Accounts(a) Deductions Year
(in thousands)
<CAPTION>
Valuation accounts deducted from assets to which they apply:
Allowance for doubtful accounts receivable--
<S> <C> <C> <C> <C> <C>
Year ended--
December 31, 1995 . . $ 2,977 $ 916 $ 91 $ (559)(b) $ 3,425
December 25, 1994 . . $ 2,775 $ 873 $ 89 $ (760)(b) $ 2,977
December 26, 1993 . . $ 3,989 $ 179 $ 163 $ (1,556)(b) $ 2,775
<CAPTION>
(a) consists principally of recoveries of accounts charged off in prior years
(b) consists principally of uncollectible accounts charged off and foreign
exchange rate fluctuations
Amortization of goodwill--
<S> <C> <C> <C> <C> <C>
Year ended--
December 31, 1995 . . $ 6,622 $ 536 $ -- $ -- $ 7,158
December 25, 1994 . . $20,141 $35,652 $ -- $(49,171)(c) $ 6,622
December 26, 1993 . . $18,646 $ 1,495 $ -- $ -- $ 20,141
<CAPTION>
(c) includes write-down of goodwill - see Note 2 of Notes to Consolidated
Financial Statements
Valuation accounts from deferred tax assets--
<S> <C> <C> <C> <C> <C>
Year ended--
December 31, 1995 . . $18,165 $ 3,067 $ -- $ -- $21,232
December 25, 1994 . . $23,489 $ (5,324) $ -- $ -- $18,165
December 26, 1993 . . $17,178 $ 6,311 $ -- $ -- $23,489
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By
/S/ W. ROBERT REUM
W. Robert Reum
Chairman, President and Chief
Executive Officer
February 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature
Title
/S/ W. ROBERT REUM Director, Chairman, President and
W. Robert Reum Chief Executive Officer
/S/ STEPHEN GREGORY
Vice President--Finance
Stephen Gregory Chief Financial Officer
/S/ JOHN P. MILLER Controller and Chief
John P. Miller Accounting Officer
/S/ JOHN A. CANNING JR.
Director
John A. Canning, Jr.
/S/ JAMES C. COTTING
Director
James C. Cotting
February 23, 1996
/S/ JOHN E. JONES
Director
John E. Jones
/S/ FREDERICK C. LANGENBERG Director
Frederick C. Langenberg
/S/ QUENTIN C. McKENNA Director
Quentin C. McKenna
/S/ WILLIAM G. MITCHELL Director
William G. Mitchell
/S/ ERWIN E. SCHULZE Director
Erwin E. Schulze
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-4266 and 33-11428) of The Interlake Corporation
of our report dated January 24, 1996 appearing in the 1995 Annual Report to
Shareholders of The Interlake Corporation which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation of our report on the
Financial Statement Schedule, which appears elsewhere in this Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 22, 1996
NINTH AMENDMENT TO EXHIBIT 4.24
AMENDED AND RESTATED CREDIT AGREEMENT
NINTH AMENDMENT (the "Amendment"), dated as of June 1, 1995, among
THE INTERLAKE CORPORATION, a Delaware corporation (the "Company"), each
Subsidiary Borrower party to the Credit Agreement referred to below, The
Interlake Corporation Employee Stock Ownership Trust (the "ESOP Borrower"),
acting by and through the LaSalle National Trust, N.A. (successor to LaSalle
National Bank), not in its individual or corporate capacity, but solely in its
capacity as trustee of the ESOP Trust (the "ESOP Trustee" and together with the
Company and the Subsidiary Borrowers, the "Credit Parties"), CHEMICAL BANK,
individually and as Administrative Agent (the "Administrative Agent"), THE
FIRST NATIONAL BANK OF CHICAGO, individually and as Co-Agent (the "Co-Agent"),
and the financial institutions party to the Credit Agreement referred to below
and listed on the signature pages hereto (the "Banks"). All capitalized terms
used herein and not otherwise defined herein shall have the respective meanings
provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, each of the Credit Parties, the Banks, the Administrative
Agent and the Co-Agent are parties to that certain Amended and Restated Credit
Agreement dated as of September 27, 1989 and amended and restated as of May 28,
1992 and as further amended by the First Amendment dated as of August 14, 1992,
the Second Amendment and Waiver dated as of October 30, 1992, the Third
Amendment and Waiver dated as of August 20, 1993, the Fourth Amendment dated as
of December 22, 1993, the Fifth Amendment dated as of February 23, 1994, the
Sixth Amendment dated as of August 16, 1994, the Seventh Amendment dated as of
January 24, 1995, and the Eighth Amendment dated as of February 1, 1995 (as so
amended and restated and further amended and as the same may hereafter be
amended, modified or supplemented from time to time, the "Credit Agreement");
and
WHEREAS, the Company, the Subsidiary Borrowers and the Banks wish to
amend the Credit Agreement as herein provided;
NOW THEREFORE, it is agreed:
1. On the Ninth Amendment Effective Date, Section 1.01(c) of the
Credit Agreement is hereby amended and restated in its entirety as follows:
(c) Each Revolving A Bank severally agrees: (x) on the Restatement
Effective Date, to continue outstanding (i) for the account of the Company and
on the terms and conditions of this Agreement, each of its Original Company
Revolving A Loans (as so continued, the "Continued Company Revolving A Loans")
and (ii) for the accounts of the respective Existing Subsidiary Revolving A
Borrowers and on the terms and conditions of this Agreement, each of its
Original Subsidiary Revolving A Loans (as so continued, the "Continued
Subsidiary Revolving A Loans"); and (y) to make, subject to and upon the terms
and conditions of this Agreement at any time and from time to time on and after
the Restatement Effective Date and prior to the Revolving Loan Maturity Date
(i) a revolving loan or loans to the Company (together with the Continued
Company Revolving A Loans, each a "Company Revolving A Loan" and collectively,
the "Company Revolving A Loans") and (ii) a revolving loan or loans to one or
more Subsidiary Revolving A Borrowers (together with the Continued Subsidiary
Revolving A Loans, each a "Subsidiary Revolving A Loan" and collectively, the
"Subsidiary Revolving A Loans"). Revolving A Loans first incurred on or after
the Restatement Effective Date shall, at the option of the respective Borrower,
be incurred as either Base Rate Loans or Eurodollar Loans, provided that all
Revolving A Loans incurred as part of the same Borrowing shall, unless
otherwise specifically provided herein, be of the same Type. Revolving A Loans
(i) may be repaid and reborrowed in accordance with the provisions of this
Agreement, (ii) shall not exceed for any Revolving A Bank at any time
outstanding that aggregate principal amount which, when added to the product of
(x) such Revolving A Bank's Revolving Percentage and (y) all Letter of Credit
Outstandings at such time plus the aggregate principal amount of all Permitted
Other Indebtedness then outstanding, equals such Revolving A Bank's Revolving A
Commitment at such time and (iii) shall not exceed in aggregate principal
amount for all Revolving A Banks at any time outstanding, when added to the
Letter of Credit Outstandings then outstanding plus the aggregate principal
amount of all Permitted Other Indebtedness then outstanding, the Borrowing
Base. Revolving A Loans made to any Subsidiary Revolving A Borrower by all the
Revolving A Banks shall not exceed in aggregate principal amount at any time
outstanding the Revolving Sub-Limit of such Subsidiary Revolving A Borrower.
2. On the Ninth Amendment Effective Date, Section 1.05(j) is hereby
amended by deleting the date "September 27, 1996" appearing in clause (iii)
thereof, and inserting in lieu thereof the date "June 30, 1999".
3. On the Ninth Amendment Effective Date, Section 1.09 is hereby
amended by deleting the date "September 27, 1996" appearing in clause (ix)
thereof, and inserting in lieu thereof the date "June 30, 1999".
4. On the Ninth Amendment Effective Date, Section 2.01(b) of the
Credit Agreement is hereby amended by inserting the word "or" immediately after
the comma at the end of the tenth line thereof, and deleting the language "or
(3) the limitations set forth in the last sentence of Section 1.01(c)"
appearing in clause (ii) thereof.
5. On the Ninth Amendment Effective Date, Section 3.02 of the Credit
Agreement shall be deleted in its entirety and the following shall be inserted
in lieu thereof:
"3.02 Intentionally Omitted."
6. On the Ninth Amendment Effective Date, Section 3.03(a) of the
Credit Agreement shall be deleted in its entirety and the following shall be
inserted in lieu thereof:
"(a) [Intentionally Omitted]."
7. On the Ninth Amendment Effective Date, Section 3.03(e) of the
Credit Agreement is amended and restated in its entirety as follows:
(e) On each date upon which a mandatory prepayment of Revolving A
Loans or Delayed Draw Loans would be required to be made in accordance with
Section 4.02(h), or on the date any voluntary prepayment of Revolving A Loans
or Delayed Draw Loans is made pursuant to Section 4.01(a), the Total Revolving
A Commitment and Total Delayed Draw Commitment shall be permanently reduced by
the amount of such prepayment (determined as if Revolving A Loans and Delayed
Draw Loans were outstanding in the full amount of the Total Revolving A
Commitment and Total Delayed Draw Commitment).
8. On the Ninth Amendment Effective Date, Section 4.01 of the Credit
Agreement is hereby amended by (i) inserting the letter "(a)" prior to the text
thereof, (ii) inserting the parenthetical "(other than Revolving A Loans repaid
pursuant to Sections 4.01(b) and 4.02(b))" after the first reference to the
word "Loans" in such Section 4.01(a), (iii) deleting clauses (iv) and (v) of
such Section 4.01(a) and re-designating clause "(vi)" as clause "(iv)", (iv)
deleting the last sentence of such Section 4.01(a), (v) inserting the following
new sentence at the end of such Section 4.01(a):
"In addition to the foregoing, all repayments of Loans under this
Section 4.01(a) shall be made on the same basis as mandatory prepayments
(and reductions to the Total Revolving A Commitment and Total Delayed Draw
Commitment) are made pursuant to Section 4.02(h)."
and (vi) adding the following new Section 4.01(b):
"(b) Each Borrower of Revolving A Loans shall have the right to
prepay the Revolving A Loans (without causing an automatic reduction in the
Total Revolving A Commitment), without premium or penalty, in whole or in part
from time to time on the following terms and conditions: (i) the respective
Borrower shall give the Administrative Agent prior to 11:00 A.M. (New York
time) at its Notice Office at least (x) two Business Days' prior notice of its
intent to prepay Fixed Rate Loans and (y) one Business Day's prior notice of
its intent to prepay Base Rate Loans, which notice shall identify (a) the
amount of such prepayment, (b) the Type of Revolving A Loans to be prepaid and
(c) in the case of Fixed Rate Loans, the specific Borrowing or Borrowings
pursuant to which made, which notice the Administrative Agent shall promptly
transmit to the respective Banks; (ii) each partial prepayment of Revolving A
Loans of a single Borrower shall be in an aggregate principal amount of at
least $1,000,000, provided that no partial prepayment of Fixed Rate Loans made
pursuant to any Borrowing shall reduce the outstanding Fixed Rate Loans made
pursuant to such Borrowing to an amount less than $5,000,000; and (iii) prepay-
ments of Fixed Rate Loans may be made pursuant to this Section 4.01(b) only on
the last day of an Interest Period applicable thereto. Each prepayment
pursuant to this Section 4.01(b) in respect of any Revolving A Loans, and to
any Borrowing in respect thereof, shall be applied pro rata among all Revolving
A Loans of such Borrowing."
9. On the Ninth Amendment Effective Date, Section 4.02(h) of the
Credit Agreement is hereby amended by (i) deleting the first sentence thereof
and (ii) inserting the following sentences in lieu thereof:
"All amounts required to be applied in accordance with this Section
4.02(h) shall be applied: (i) first, and with respect to repayments made
on the Ninth Amendment Effective Date only, to the repayments of the
outstanding Revolving A Loans in an aggregate amount not to exceed the
Priority Amount then in effect, (ii) second, to the repayments of all
outstanding Loans (other than ESOP Loans) and reductions to the Total
Revolving A Commitment and Total Delayed Draw Commitment pursuant to
Section 3.03(e), pro rata among the Banks, based on each Bank's pro rata
share of the Total Exposure on or after the Ninth Amendment Effective Date
(after giving effect thereto), and (iii) third, to the extent permitted by
applicable law, to repayments of the outstanding ESOP Loans. Each Bank
shall apply such amounts under clause (ii) above based on its pro rata
share of the Total Exposure (x) first, to repay all of its outstanding
Loans of Borrowers which are incorporated in the United States or any
State thereof in the following order: (A) first to all of its Deferred
Term Loans, (B) then to all of its Delayed Draw Term Loans, (C) then to
all of its Revolving B Loans, (D) then to all of its Term Loans; (y)
second, to repay all of its outstanding Loans of Borrowers which are
incorporated outside of the United States in the following order: (A)
first to all of its Term Loans denominated in U.S. Dollars, (B) then to
all of its Sterling Revolving B Loans, (C) then to all of its Sterling
Term Loans, (D) then to all of its Revolving B Loans; and (z) third, to
repay all of its Revolving A Loans (to the extent necessary to adjust the
outstanding Revolving A Loans of any Bank such that its outstanding
Revolving A Loans are proportionate to all outstanding Revolving A Loans
on the basis of its Revolving Percentage)."
10. On the Ninth Amendment Effective Date, Section 7.01(c) of the
Credit Agreement is hereby amended by deleting the number "75" in the first
line thereof and inserting in lieu thereof the number "90".
11. On the Ninth Amendment Effective Date, Section 7.09 of the
Credit Agreement is hereby amended by inserting the following sentence at the
end thereof:
"Notwithstanding the foregoing, there shall be no further obligation
to obtain or maintain Hedging Agreements after the Ninth Amendment
Effective Date."
12. On the Ninth Amendment Effective Date, (i) Section 8.05(d) of
the Credit Agreement is hereby amended by deleting the language "pursuant to
Section 7.09" in the second line thereof, and inserting in lieu thereof "prior
to the Ninth Amendment Effective Date", (ii) Section 8.05(k) of the Credit
Agreement is hereby amended by deleting "and" at the end of the fourth line
thereof, (iii) Section 8.05(l) of the Credit Agreement is hereby amended by
deleting the period at the end thereof and inserting in lieu thereof "; and",
and (iv) Section 8.05 of the Credit Agreement is hereby amended by inserting
the following new paragraph (m) at the end thereof:
"(m) Indebtedness evidenced by the Senior Notes."
13. On the Ninth Amendment Effective Date, Section 8.06 of the
Credit Agreement is hereby amended by (i) deleting the word "and" after the
semicolon in subsection (xvi) of such Section, (ii) deleting the period at the
end of subsection (xvii) of such Section and inserting in lieu thereof "; and",
and (iii) inserting the following new subsection (xviii) at the end of such
Section 8.06:
"(xviii) (x) the Company and its Subsidiaries may make advances or loans
to, or investments in, Subsidiaries of the Company in an amount not to
exceed $1,000,000 annually and (y) the Company and its Subsidiaries may
make investments described in the proviso to the definition of Capital
Expenditures."
14. On the Ninth Amendment Effective Date, Section 8.08 of the
Credit Agreement is hereby amended by (i) deleting the dollar amount of
"23,000,000" in the Amount column opposite the Period "Fiscal Year Ending
December, 1995 and each fiscal year thereafter" and inserting in lieu thereof
the dollar amount "25,000,000", and (ii) inserting the following new language
at the end of such Section 8.08:
"Notwithstanding anything to the contrary contained in this Section 8.08,
up to $5,000,000 (the "Carry-Over Amount") of unutilized capital
expenditure allowances created in any one fiscal year (beginning with the
fiscal year ending on December 31, 1995) may be carried over to increase
the following fiscal year's capital expenditure allowance."
15. On the Ninth Amendment Effective Date, Section 8.11 of the
Credit Agreement is hereby amended and restated in its entirety as follows:
"8.11 Minimum Consolidated Net Worth. The Company's Minimum
Consolidated Net Worth at any time may not be less than an amount
equal to (i) the Company's Consolidated Net Worth at December 25,
1994 (i.e., negative $257,280,386), minus (ii) $30,000,000, plus
(iii) Cumulative Consolidated Net Income at such time."
16. On the Ninth Amendment Effective Date, Section 8.12 of the
Credit Agreement is hereby amended and restated in its entirety as follows:
"8.12 Minimum Consolidated EBITDA. Consolidated EBITDA for (i)
the period beginning on December 26, 1994 and ending on the last day
of (x) the second quarter of 1995, taken as one accounting period,
shall be greater than $41,000,000 and (y) the third quarter of 1995,
taken as an accounting period, shall be greater than $62,000,000 and
(ii) any four fiscal quarter period ending on the last day of any
fiscal quarter set forth below, taken as one accounting period, shall
be greater than the amount set forth opposite such fiscal quarter:"
Fiscal Period Amount
For the fourth quarter of 1995 $85,000,000
For the first quarter of 1996 85,000,000
For the second quarter of 1996 85,000,000
For the third quarter of 1996 85,000,000
For the fourth quarter of 1996 87,500,000
For the first quarter of 1997 87,500,000
For the second quarter of 1997 87,500,000
For the third quarter of 1997 87,500,000
For the fourth quarter of 1997 90,000,000
For the first quarter of 1998 90,000,000
For the second quarter of 1998 90,000,000
For the third quarter of 1998 90,000,000
For the fourth quarter of 1998 92,500,000
For the first quarter of 1999 92,500,000
For the second quarter of 1999 92,500,000
Additionally, if the Company exceeds the required minimum
Consolidated EBITDA levels set forth above for the fiscal years ending December
31, 1995 or December 31, 1996, then 50% of the excess in each of those two
years, up to a maximum of $5,000,000 in the aggregate, will be available to the
Company as a credit to add to the actual Consolidated EBITDA of the Company in
any fiscal quarter thereafter, to be included in the calculation for any period
in which such quarter is included. The credit created by such excess may be
used in whole or in part."
17. On the Ninth Amendment Effective Date, Section 9.13 of the
Credit Agreement is hereby amended and restated in its entirety as follows:
"9.13 Environmental Liabilities. The Company makes payments in
excess of $5,000,000 pursuant to CERCLA in any single fiscal year
with respect to remediation at the St. Louis River Site, provided,
that the Company may carry over 100% of any year's unused remediation
expenditures, up to a maximum aggregate amount of $20,000,000;"
18. On the Ninth Amendment Effective Date, Section 10.01 of the
Credit Agreement is hereby amended as follows:
(a) The definition of Applicable Margin is amended by adding the
following sentence to the end thereof:
"Effective June 30, 1998, the percentages per annum set forth above
shall increase (x) in the case of Base Rate Loans and all other
interest rates determined by reference to the Alternate Base Rate, to
2.5%, and (y) in the case of Fixed Rate Loans, to 3.5%."
(b) The definition of Capital Expenditures shall be amended by
adding the following proviso to the end of the first sentence thereof:
"; provided that there shall be included in the definition of Capital
Expenditures up to $5,000,000 in any fiscal year in expenditures of
the Company for (i) securities acquired by the Company and/or its
Subsidiaries of another Person representing at least 50% of the
voting and economic interests in such Person and (ii) assets the
acquisition of which would not otherwise constitute a Capital
Expenditure and would not otherwise be permitted under Section 8.02."
(c) The definition of Consolidated Current Assets is amended and
restated in its entirety as follows:
"Consolidated Current Assets" shall mean, at any date, all the
current assets (other than cash and Cash Equivalents) of the Company
and its Subsidiaries determined on a consolidated basis in conformity
with generally accepted accounting principals.
(d) The definition of Deferred Term Loan Maturity Date is amended by
deleting the date "September 27, 1998" and inserting in lieu thereof the
date "June 30, 1999";
(e) The definition of Delayed Draw Maturity Date is amended by
deleting the date "March 27, 1997" and inserting in lieu thereof the date
"June 30, 1999";
(f) The definition of Excess Cash Flow is amended by inserting at
the end of clause (i)(x) the following:
"provided that such calculation shall only include the amount of any
decrease which is in excess of $5,000,000,";
(g) The definition of Consolidated Net Worth is hereby amended and
restated as follows:
"Consolidated Net Worth" shall mean, on any date of determination
thereof, shareholders' equity (including preferred stock) of the
Company and its Subsidiaries on a consolidated basis."
(h) The definition of Payment Office is amended by deleting the
address appearing in the third and fourth lines thereof and inserting in
lieu thereof the address "270 Park Avenue, New York, New York 10017"; and
(i) The definition of Scheduled Repayment Date shall be amended and
restated in its entirety as follows:
"Scheduled Repayment Date" shall mean (i) with respect to ESOP Loans,
the dates set forth under the heading "ESOP Loans" on Schedule III
and (ii) with respect to all other Installment Loans, June 30, 1999.
(j) The definition of Revolving Loan Maturity Date is amended by
deleting the date "September 27, 1997" and inserting in lieu thereof the
date "June 30, 1999";
(k) The definition of Term Loan Maturity Date is amended by deleting
the date "September 27, 1996" and inserting in lieu thereof the date "June
30, 1999";
(l) The following new definitions are inserted in alphabetical
order:
"Cumulative Consolidated Net Income" shall mean, on any date,
Consolidated Net Income on a cumulative basis for all fiscal quarters
of the Company ending after December 25, 1994 (for which Consolidated
Net Income was a positive number), all determined on the basis of
generally accepted accounting principles as in effect on December 25,
1994.
"Ninth Amendment Effective Date" shall mean the date on which all
conditions precedent described in paragraph 26 of the Ninth Amendment
to this Agreement have been satisfied.
"Senior Notes" shall mean the Senior Notes due 2001 of the Company
issued on the Ninth Amendment Effective Date pursuant to the
Indenture, dated as of such date, between the Company and Bank One,
Columbus, N.A. as Trustee.
"Total Exposure" shall mean, at any time, (i) the aggregate principal
amount of Loans (excluding ESOP Loans) outstanding at such time, plus
(ii) the Letter of Credit Outstandings at such time, plus (iii) the
Total Unutilized Revolving A Commitment then in effect, plus (iv) the
Delayed Draw Commitment then in effect.
19. On the Ninth Amendment Effective Date, Section 13.04(b) of the
Credit Agreement is hereby amended by (i) deleting clause "(iii)" thereof in
its entirety, (ii) redesignating clauses "(iv)" and "(v)" as clauses "(iii)"
and "(iv)", respectively, and (iii) inserting the following language at the end
of clause (ii) in the seventeenth line of such Section 13.04(b):
"or such lesser amount representing the entire remaining Commitment
of such Assigning Bank, and"
20. On the Ninth Amendment Effective Date, Section 13.11(i) is
hereby amended by inserting at the end thereof the following:
"or create any scheduled amortization for any Tranche of Loans
(including by changing the definition of Scheduled Repayment Date),"
21. On the Ninth Amendment Effective Date, Section 13.20 shall be
deleted in its entirety and the following shall be inserted in lieu thereof:
"13.20 [Intentionally Omitted]."
22. In order to induce the Banks to enter into this Amendment, each
of the Credit Parties (other than the ESOP Trustee) hereby (a) certifies that
no Default or Event of Default exists and that each of the representations,
warranties and agreements contained in Section 6 of the Credit Agreement on the
Ninth Amendment Effective Date, both before and after giving effect to this
Amendment, is true and correct in all material respects, and (b) confirms that
it has and will continue to comply with all of its obligations contained in the
Credit Agreement and the other Credit Documents including with respect to each
of the Borrowers, but not limited to, all of its obligations contained in
Section 7.10(b) of the Credit Agreement.
23. This Amendment is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
24. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Administrative Agent.
25. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
26. This Amendment shall become effective on the date (the "Ninth
Amendment Effective Date") when each of the following conditions shall have
been satisfied:
(a) On or prior to the Ninth Amendment Effective Date, the Company,
the Subsidiary Borrowers, the ESOP Trustee, the Administrative Agent, the
Co-Agents and the Banks shall have signed a copy hereof (whether the same
or different copies) and shall have delivered (including by way of
telecopier) such copies to the Administrative Agent;
(b) The Company shall have received, on or prior to August 31, 1995,
at least $95 million of net cash proceeds from the issuance of the Senior
Notes pursuant to documents satisfactory to the Administrative Agent or
the Banks, and shall have applied such proceeds as required pursuant to
Section 4.02(h) (as amended hereby);
(c) The Company shall have paid all fees and expenses (including
legal fees and expenses) then due and owing to the Administrative Agent;
and
(d) The Administrative Agent shall have received an opinion of
counsel to the Company and its Subsidiaries covering the matters herein
and such other matters as the Administrative Agent shall have reasonably
requested.
27. From and after the Ninth Amendment Effective Date, all
references in the Credit Agreement and each of the Credit Documents or any
other agreement to the Credit Agreement shall be deemed to be references to
such Credit Agreement as amended hereby.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
THE INTERLAKE CORPORATION
By________________________
Title:
SUBSIDIARY BORROWERS
ACME STRAPPING INC.
By________________________
Title:
DEXION (AUSTRALIA) PTY. LTD.
A.C.N. 000 083 956
By________________________
Title:
S.A. DEXION-REDIRACK N.V.
By________________________
Title:
DEXION INTERNATIONAL LIMITED
By________________________
Title:
PRECIS (935) LTD.
By________________________
Title:
DEXION GmbH
By________________________
Title:
TWICEBONUS LIMITED
By________________________
Title:
THE INTERLAKE CORPORATION
EMPLOYEE STOCK OWNERSHIP
TRUST, acting by and through
the LASALLE NATIONAL TRUST,
N.A. (successor to LaSalle
National Bank), not in its
individual or corporate capa-
city (except for the repre-
sentations and warranties
contained in Section
6.01(b)(y) of the Credit
Agreement) but solely in its
capacity as ESOP Trustee
By_________________________
Title:
BANKS
CHEMICAL BANK
Individually, and as
Administrative Agent
By________________________
Title:
THE FIRST NATIONAL BANK
OF CHICAGO
Individually, and as Co-Agent
By_________________________
Title:
MITSUI TRUST & BANKING CO.,
LTD.
By_________________________
Title:
NATIONAL BANK OF CANADA
By_________________________
Title:
By_________________________
Title:
NATIONAL WESTMINSTER BANK PLC
By_________________________
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, successor by
merger to Security Pacific
National Bank
By________________________
Title:
BANK OF AMERICA, ILLINOIS
By________________________
Title:
THE FUJI BANK LIMITED
By_______________________
Title:
MELLON BANK N.A.
By_______________________
Title:
THE NIPPON CREDIT BANK, LTD.
By_______________________
Title:
THE BANK OF NOVA SCOTIA
By_______________________
Title:
UNION BANK OF FINLAND/
CAYMAN ISLAND BRANCH
By_______________________
Title:
By_______________________
Title:
BANK OF YOKOHAMA
By_______________________
Title:
GIROCREDIT BANK AG
DER SPARKASSEN,
GRAND CAYMAN ISLAND BRANCH
By_______________________
Title:
By_______________________
Title:
EATON VANCE PRIME RATE
RESERVES
By______________________
Title:
LEHMAN COMMERCIAL PAPER INC.
By_______________________
Title:
RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS, B.V.
By_______________________
Title:
Chancellor Senior Secured
Management, Inc. as Portfolio
Advisor
STICHTING RESTRUCTURED
OBLIGATIONS BACKED BY SENIOR
ASSETS 2, (ROSA 2)
By_________________________
Title:
Chancellor Senior Secured
Management, Inc. as Portfolio
Advisor
MERRILL LYNCH
PRIME RATE PORTFOLIO
By MERRILL LYNCH ASSET
MANAGEMENT, L.P., as
Investment Advisor
By_______________________
Title:
MFS HIGH INCOME FUND
By_______________________
Title:
ACCEPTED AND CONSENTED TO:
INTERLAKE DRC LIMITED
By________________________
Title:
DEXION GROUP PLC
By________________________
Title:
THE INTERLAKE CORPORATION EXHIBIT 10.1
1996 Senior Executive Incentive Program
Section 1. Purpose
l.l Purpose The purpose of the Senior Executive Incentive Program
("the Program") is to promote improved performance both in 1996, through an
Annual Plan, and over the three-year period running through 1998, through a
Long Term Plan, in each case through the provision of meaningful incentives for
the achievement of specified financial and individual goals.
Section 2. Eligibility and Participation
2.l Eligibility Eligibility for participation in this Program is
limited to those Employees deemed to be, by virtue of the nature and scope of
their positions, most able to promote the achievement by the Company of its
financial objectives and its overall success.
2.2 Participation Participation in the Program will be determined
by the Board, based upon the recommendation of the Chief Executive Officer and
the Compensation Committee.
2.3 Award Opportunities. For each Participant, and for each of
the Annual Plan and the Long Term Plan, the Board will designate, upon the
recommendations of the Chief Executive Officer and the Compensation Committee,
the Threshold, Plan, Target and Stretch goals for each relevant Performance
Measure, and the amount of Award payable to such Participant upon achievement
of such goals ("Award Opportunities").
2.4 Organizational Units. For each Participant the Board will
designate, upon the recommendations of the Chief Executive Officer and the
Compensation Committee, the Organizational Unit upon the performance of which
such Participant s Awards will be based (e.g., Corporate, Hoeganaes
Corporation, Chem-tronics, Inc., Material Handling-Worldwide, etc.).
2.5 Changes In Participation During Year Contemporaneously with
the demotion or reassignment of a Participant, the Board or the Chief Executive
Officer may terminate a Participant s participation in this Program without
otherwise affecting the employment status of such Employee. The Employee will
be notified of such termination as soon as practicable following such action.
In the case of such a termination, any Annual Award to which the terminated
Participant s would have been entitled will be pro rated based upon that
portion of the Year during which he was a Participant, adjusted for personal
performance; and any LTP Award to which such Participant would have been
entitled will be pro rated based upon the ratio of the number of complete
fiscal years the Participant was employed during the LTP Period to three (3).
2.6 No Right to Participate No Participant or other Employee at
any time shall have a right to be selected for participation in this Program,
despite having been approved for participation in some other year, nor any
right to be selected for participation in any plan or program for any other
year, despite having been selected for participation in this Program.
Section 3. Annual Plan -- Award Determination
3.1 Performance Measures. Annual Awards will be based on the
following Performance Measures in the percentages indicated:
Corporate Participants Weighting Factor
Corporate EBIT 50 %
Corporate ACWC/S 30 %
Corporate Revenue Growth 10 %
Individual Competencies 10 %
Participants in Organizational
Units Other Than Corporate Weighting Factor
Organizational Unit EBIT 40 %
Organizational Unit ACWC/S 24 %
Organizational Unit Revenue Growth
8 %
Individual Competencies 8 %
Total Organizational Portion 80%
Corporate EBIT 10 %
Corporate ACWC/S 5 %
Corporate Revenue Growth 5 % 20 %
100 %
3.2 Annual Award Calculation. Each Participant's Annual Award will
equal the sum of the amounts earned based on the Award Opportunities set for
such Participant in accordance with Section 2.3 for the relevant Annual
Performance Measures set by the Board in accordance with Sections 2.3 and 3.1,
with interpolation between the Threshold, Plan, Target and Stretch goals in
determining the amount earned with respect to each Annual Performance Measure.
All determinations of Annual Awards by the Board will be conclusive, absent
manifest error.
3.3 Annual EBIT Threshold. Notwithstanding any other provision of
this Section 3, a Participant may not, in the case of a Corporate Participant,
earn any Annual Award, and in the case of any other Participant, earn any
Annual Award based on the 80% Award Opportunity related to his or her
Organizational Unit, unless his or her Organizational Unit meets its EBIT
Threshold. A Participant in an Organizational Unit other than Corporate may
not earn any Annual Award based on the 20% Award Opportunity related to
Corporate performance unless Corporate meets its EBIT Threshold.
3.4 Corporate Participants - No Default on Indebtedness. No
Corporate Participant may earn any Annual Award if the Company shall, during
the course of the Year, default in the payment of principal or interest when
due under any note, debenture or other instrument evidencing borrowed money,
which default is not cured within the applicable cure period.
Section 4. Long Term Plan -- Award Determination
4.1 LTP Performance Measure. Each Participant s LTP Award will be
based on the EBIT Margin achieved by the Company on a consolidated basis over
the LTP Period (the "LTP Performance Measure").
4.2 LTP Awards Calculation. Each Participant s LTP Award will
equal the amount earned based on the Award Opportunity set for such Participant
in accordance with Section 2.3 based on achievement against the LTP Performance
Measure, with interpolation between the Threshold, Plan, Target and Stretch
goals in determining the amount earned with respect to such LTP Performance
Measure. All determinations of LTP Awards by the Board will be conclusive,
absent manifest error.
Section 5. Payment of Awards
5.1 Timing. Awards under the Annual Plan will be paid as soon as
practicable following the end of the Year as the Board may determine. Awards
under the Long Term Plan will be paid as soon as practicable following the end
of the LTP Period as the Board may determine.
5.2 Form of Payment. All awards will be paid:
(a) Cash portion. Seventy percent (70%)
in cash; and
(b) Stock portion. In the discretion of
the Compensation Committee of the Board of Directors, the
remaining 30% either:
(i) by the issuance of a number of shares of Stock which has
an aggregate market value equal to such 30%, based on the
average closing price during December, 1995, of $2.275; or
(ii) by the payment of an amount of cash equal to the market
value of the number of shares of Stock which would have been
issuable pursuant to clause 5.2 (b)(i) immediately above,
such market value to be based on the closing price of the
Stock on the date three business days prior to the date of
payment.
Shares of stock issued pursuant to Section 5.2 (b) (i) may be issued either as
fully registered shares or as restricted stock, in the sole discretion of the
Compensation Committee.
5.3 Payment in the Event of Death. In the event of death, Awards
will be paid to the Participant's estate.
5.4 Payment in the Event of Change in Control. If any Participant
becomes entitled to payments under this Program by virtue of the operation of
Section 6.3 hereof, such payments will be made at the same time any payments
under Section 4 (a) of the Severance Pay Agreements would be payable regardless
of whether any payments are actually due to the Participant in question under
Section 4 (a) of the Severance Pay Agreements.
Section 6. Termination of Employment
6.l Voluntary Termination; Termination for Cause. In the event a
Participant voluntarily terminates employment, or is terminated for Cause, all
rights to Awards under this Program will be forfeited.
6.2 Other Terminations. In the event a Participant's employment
is terminated for any reason not covered by Section 6.1, including without
limitation by reason of death, total and permanent disability (as determined by
the Board of Directors) or retirement, or termination by the Company other than
for Cause, such Participant will be entitled to:
(a) a pro rata portion of any Annual Award to which the
Participant would have been entitled based upon that portion of the Year during
which he or she was a Participant; and
(b) a pro rata portion of any LTP Award to which such
Participant would have been entitled based upon the ratio of the number of
complete fiscal years the Participant was employed during the LTP Period to
three (3).
6.3 Termination following a Change in Control. In the event that
following a Change in Control a Participant's employment is terminated, or the
Participant terminates his or her own employment, under circumstances which
would entitle an Executive under the Severance Pay Agreements to receive the
severance compensation set forth under Section 4(a) of such Severance Pay
Agreements, then in addition to any other amounts due to such Participant under
this Section 6, such Participant will be entitled to receive an amount under
the Long Term Plan equal to the greater of (i) his or her Target Award
Opportunity under the Long Term Plan, or (ii) the amount which would be payable
to such Participant under the Long Term Plan were the rate of improvement in
performance of such Participant's Organizational Unit against the relevant LTP
Performance Measure since December 31, 1995, projected to continue at the same
rate to the end of the LTP Period.
Section 7. Rights of Participants
7.l Employment Nothing in this Program will interfere with or
limit in any way the right of the Company to terminate any Participant's
employment at any time, nor confer upon any Participant any right to continue
in the employ of the Company.
7.2 Nontransferability No right or interest of any Participant in
this Program is assignable or transferable, nor may be made subject to any
lien, directly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge, and bankruptcy.
7.3 Board Member Participants No member of the Board who also is
a Participant will vote as to any action taken by the Board with respect to
awards to be made to him under the Program or with respect to his designation
as a Participant.
Section 8. Administration
8.l Administration This Program will be administered by the Vice
President-Human Resources of The Interlake Corporation in accordance with its
terms and such rules, if any, as may be established from time to time by the
Board for the administration of this Program.
8.2 Disputes The determination of the Board as to any disputed
question arising under this Program, including questions of construction and
interpretation, will be final, binding, and conclusive upon all persons.
Section 9. Amendments
9.l Amendments The Board, in its absolute discretion, without
notice, at any time and from time to time, may modify or amend, in whole or in
part, any or all of the provisions of this Program; provided, that no such
modification or amendment may, without the consent of a Participant, reduce the
right of a Participant (or his successor as the case may be) to a payment or
distribution hereunder to which he would have otherwise become entitled under
this Program, nor may any amendment modify the provisions of Section 5.4 and
6.3 hereof.
Section l0. General
l0.l Governing Law The Program will be construed in accordance
with and governed by the laws of the State of Illinois.
l0.2 Withholding Taxes The Company has the right to deduct from
all payments under this Program any Federal, state or local taxes required by
the law to be withheld with respect to such payments.
10.3 Supersession of Prior Plan This Program supersedes in its
entirety the 1995 Executive Incentive Compensation Plan of The Interlake
Corporation, as heretofore restated, except as to Executive Incentive
Compensation Awards and related matters in respect of periods prior to 1996.
Section 11. Definitions
11.l Definitions When capitalized and used in this Program, the
following terms have the following meanings:
(a) "Annual Award" means the amount of incentive compensation earned
by a Participant under the Annual Plan.
(b) "Annual Plan" means the annual plan for the Year set forth as
part of this Program.
(c) "Annual Performance Measures" means for each Participant the
relevant performance measures under the Annual Plan as set by
the Board in accordance with Sections 2.3 and 3.1.
(d) "Average Controllable Working Capital to Sales Ratio"
("ACWC/S") means the ratio of the twelve-month average of
Controllable Working Capital (FIFO based) to the total annual
net sales of the Organizational Unit, except that Corporate
Average Controllable Working Capital to Sales Ratio is the ratio
of the twelve-month average Controllable Working Capital (FIFO
based) of all Organizational Units (other than Corporate) to the
total annual net sales of all such Organizational Units.
(e) "Awards" means Annual Awards and LTP Awards.
(f) "Award Opportunities" has the meaning ascribed to it by Section
2.3.
(g) "Board" means the Board of Directors of The Interlake
Corporation.
(h) "Cause" means "Cause" as defined in the Severance Pay
Agreements.
(i) "Change in Control" has the meaning ascribed to it in the
Severance Pay Agreements.
(j) "Company" means The Interlake Corporation.
(k) "Compensation Committee" means the Compensation Committee of the
Board of Directors of The Interlake Corporation.
(l) "Controllable Working Capital (FIFO based)" shall be the net of
each Organizational Unit's current assets and current
liabilities (other than cash, interest-bearing and intercompany
items and income tax related accounts) invested in each such
Organizational Unit, at the end of each four or five-week period
in each Year. It includes accounts receivable, inventories
(before any reserves for LIFO), prepayments and other current
assets, minus accounts payable, accrued liabilities, accrued
salaries and wages, and taxes other than income. Each of such
current assets and current liabilities is subject to adjustment
to eliminate items which, in the opinion of the Board, are
unusual in nature, amount or both. Corporate Controllable
Working Capital is the sum of the Controllable Working Capital
of all Organizational Units other than Corporate.
(m) "Earnings Before Interest and Taxes" or "EBIT" means net sales
of continuing operations of each Organizational Unit less cost
of products sold, less selling and administrative expenses
(which shall not include any items of expenses classified by the
Corporation's Chief Financial Officer as Corporate expenses,
including any revenue or expense from intercompany transactions)
adjusted so as to exclude items of revenue and expenses which,
in the opinion of the Board, are unusual in nature, amount or
both.
(n) "EBIT Margin" means the ratio of the Company's EBIT over the LTP
Period to its aggregate Net Sales for the LTP Period.
(o) "Employee" means a regular, active, full-time salaried employee
of the Company who is in a position meeting the defined
eligibility criteria for participation set forth in Section 3.1.
(p) "Long-Term Plan" or "LTP" means the long term plan for the LTP
Period set forth as part of this Program.
(q) "LTP Award" means the amount of incentive compensation earned by
a Participant under the Long Term Plan.
(r) "LTP Performance Measure" means for each Participant the
relevant performance measure under the Long Term Plan as set
forth by the Board in accordance with Sections 2.3 and 4.1.
(s) "LTP Period" means the three-year period comprised of the
Company's 1996, 1997 and 1998 fiscal years.
(t) "Net Sales" for any Organizational Unit means such unit's net
sales for the period in question.
(u) "Organizational Unit" means a Participant's Organizational Unit
as designated by the Board as contemplated by Section 2.4.
(v) "Participant" means an Employee who is approved by the Board to
participate in the Plan.
(w) "Performance Measures" means the performance measures adopted by
the Board as provided in Section 2.3, consistent with Sections
3.1 and 4.1.
(x) "Revenue Growth" for any Organizational Unit means the %
increase in Net Sales for the Year as compared to fiscal year
1995.
(y) "Severance Pay Agreements" means those Severance Pay Agreements
dated as of March 1, 1994, between the Company and certain
executives as in effect on January 1, 1996, regardless of
whether any such agreements remain in effect at any time during
this Program.
(z) "Stock" means common stock of the Company.
(aa) "Year" means the 1996 fiscal year of the Company.
THE INTERLAKE CORPORATION EXHIBIT 10.5
FIRST AMENDMENT TO KEY EXECUTIVE RETENTION PROGRAM
December 1, 1995
The Key Executive Retention Program (the "Program"), approved and adopted
by the Board of Directors of The Interlake Corporation on February 23, 1995, is
amended as of the date stated above, as follows. All capitalized terms are
used as defined in the Program.
1. The Program be and it hereby is amended to provide that, with respect
to the participants in the Program who have not received stock awards under the
Program prior to the date hereof (the "all-cash participants"), the
Compensation Committee may, in its sole discretion, with respect to the 1996
portion of any vested awards, authorize the payment of a portion of such awards
in shares of capital stock of the Corporation, such shares being valued for
such purpose at $1.00 or more per share as determined by the Compensation
Committee in its sole discretion.
2. The Program be further amended to provide that, with respect to the
all-cash participants, the Compensation Committee may, in its discretion, with
respect to the 1996 portion of any vested awards, in addition to or in lieu of
any authorization of payment of a portion of any award in stock, authorize that
the cash amount of such awards be adjusted to reflect the total value of such
award had a portion of such award been issued in shares of capital stock at a
valuation set by the Compensation Committee.
3. The officers of the Corporation be, and they hereby are, authorized
to take all steps necessary to effect such amendments to the Program.
CERTIFICATE OF ADOPTION
The undersigned officer of The Interlake Corporation certifies that the
above First Amendment to Key Executive Retention Program was adopted by the
Board of Directors of The Interlake Corporation on December 1, 1995.
THE INTERLAKE CORPORATION
By: _____________________________
Stephen R. Smith
Vice President, Secretary and General
Counsel
THE INTERLAKE CORPORATION EXHIBIT 10.6
AWARD OF RESTRICTED STOCK
Dated as of January 30, 1996
To:
Pursuant to, and in accordance with all the terms and conditions of The
Interlake Corporation Key Executive Retention Program adopted in February 1995
(the "KERP"), you were granted by the Compensation Committee of the Board of
Directors (the "Committee") of The Interlake Corporation (hereinafter sometimes
referred to as the "Corporation") an award of restricted stock, effective the
above date, of shares of the $1.00 par value common stock of The
Interlake Corporation. This stock award is issued in lieu of of
the cash award to which you may have become entitled under the KERP based on
1996 performance, and as a result your maximum possible cash award for 1996
performance under the KERP has been reduced by that amount. The stock award is
also subject to the following terms and conditions:
1. Grant of Stock Award
(a) As soon as practicable after you have executed this stock award and
the stock powers described in Paragraph 1(b) below, the Corporation will cause
to be issued in your name a certificate or certificates representing the total
number of shares covered by this stock award, and will physically deliver such
certificates to you as promptly as possible after they become earned out and
deliverable under Paragraph 3 below. Such certificates will bear the following
legend:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933,
and may not be sold or otherwise transferred absent an
exemption from such registration."
(b) After you sign and return a copy of this stock award you will also,
upon the request of the Secretary, sign and return irrevocable stock powers for
the shares granted hereunder and will deliver the same to the Secretary of the
Corporation to facilitate the transfer of any or all of the stock covered by
this stock award to the Corporation (or its assignee or nominee), if
appropriate or required under the terms of this stock award, the KERP, or
applicable laws or regulations.
2. Issue of Stock Award - Limits on Transfer
Physical custody of the stock certificates representing the shares covered
by this stock award will be in the Corporation's possession subject to the
removal or release of restrictions on transfer thereof, as provided in
Paragraph 3 hereof. You expressly agree that you will not sell, assign,
transfer, pledge, or otherwise make any disposition of the shares subject to
this stock award, or make any attempt to do so, except as to such shares, if
any, which are represented by stock certificates duly delivered to you, and
with respect to which the transfer thereof is permitted under the federal
securities laws.
3. Non-Forfeitability of Stock Award
Restrictions on the disposition of shares covered by this stock award
(except those imposed by law) shall lapse and such shares shall become
deliverable to you on the dates for non-forfeitability set by the Committee
under Paragraph 7(b) of the KERP following performance vesting under Section 6
thereof, or such earlier delivery date arising under Section 10 of the KERP
(change-in-control), Section 11 of the KERP (acceleration of awards) or Section
12 of the KERP (death, disability or termination). (A copy of the KERP was
delivered to you in February 1995; the only amendment since then was to permit
conversion of part of your 1996 cash award opportunity to stock.) On such
delivery dates, restrictions on the disposition of the non-forfeitable portion
of the shares covered by this stock award (except those imposed by law) will
lapse and a certificate for such shares will become deliverable to you (still
bearing the legend set forth in Section 1(a) above). As promptly as reasonably
possible thereafter, the Corporation will physically deliver to you a stock
certificate or certificates representing the number of shares then earned out.
None of the stock subject to this award shall be deliverable to you, however,
unless and until (i) all necessary requirements of state and federal securities
laws and regulations have been met, (ii) you have executed and delivered any
requested additional stock powers relating to shares covered hereby which have
yet to be earned out, and (iii) the Corporation or a subsidiary has been
reimbursed for applicable withholding taxes which are payable to federal, state
and local governments.
4. Payment of Taxes
(a) You or any other person receiving stock under this stock award shall
be required to pay to the Corporation or a subsidiary the amount of any
federal, state or local taxes which the Corporation or a subsidiary is required
to withhold with respect to shares covered by this stock award at the time the
restrictions on such shares lapse or at such time as the Corporation or a
subsidiary in its judgment becomes liable to withhold any such tax.
(b) You may elect, subject to Compensation Committee approval, to have
the fair market value of a number of shares of each installment of this award
delivered to you applied to the payment of federal, state and local taxes
arising out of your right to receive such installment. "Fair market value"
means as to each share the average of the high and low price on the applicable
date of the Corporation's common stock on The New York Stock Exchange Composite
Transactions as reported in The Wall Street Journal, corrected for reporting
errors. Such fair market value shall be determined, in the case of each
installment, on the applicable earnout date for such installment under the
KERP. If there are no sales of the Corporation's common stock on the
applicable date, fair market value will be determined as of the last preceding
date on which there was a sale. The fair market value of such shares will be
applied first to state and local taxes at the statutory withholding rates in
effect when the applicable installment is valued, second to federal income and
payroll taxes at the statutory withholding rates in effect when the applicable
installment is valued, and any balance will be treated as federal income taxes
withheld in excess of the statutory minimum. The Corporation shall pay to the
applicable taxing authorities such amounts for your account. If you make such
an election you will be deemed to have sold and re-transferred to the
Corporation the number of whole shares covered by your election.
5. Rights As a Shareholder
Subject to the limitations, conditions, and restrictions on transfer
imposed by this stock award and by the Program, it is recognized that you will
be treated as the owner of the stock covered by this grant of stock award as
follows:
(a) You shall be entitled to receive all dividends, whether in cash,
stock or in any other form, payable with respect to such unearned
shares; if payable in stock, any such dividend shall be subject to
all restrictions applicable to the stock with respect to which such
dividend is paid.
(b) You shall be entitled to vote all such unearned shares in respect to
any question with respect to which a vote of stockholders is required
or solicited.
Such rights shall immediately lapse in the event any shares are forfeited
or lapsed as provided in Paragraphs 4, 6, 7 or 8 hereof.
6. Amendment, Cancellation and Termination of Grant
Reference is specifically made to the provisions regarding amendment,
cancellation and termination of this stock award contained in the provisions of
the KERP, and such provisions are herein expressly incorporated by reference.
7. Additional Restrictions On This Grant
As to any shares of stock granted hereunder with respect to which it is
finally determined that they will not be earned out under the KERP, any and all
of your rights shall cease and terminate, and the Corporation shall be fully
entitled, legally and beneficially, to any of such shares not then delivered or
deliverable. In such event, the stock certificates representing any unearned
or undelivered shares so forfeited shall be transferred to the Corporation or
its nominee, by it or its agents, pursuant to your authorization granted the
Corporation under Paragraph 1(b) hereof.
8. Miscellaneous Provisions
(a) Your rights and interests under this stock award may not be assigned
or transferred except, in the case of your death, to your beneficiary or, in
the absence of such designation, by will or the laws of descent and
distribution.
(b) No employee or other person shall have any claim or right to be
granted a stock award under the KERP. Neither the KERP, nor any action taken
under the KERP, including the grant of this stock award, shall be construed as
giving any employee any rights to be retained in the employ of the Corporation
or a subsidiary.
(c) Express reference is made to all of the terms and conditions of the
KERP, and you, by your acceptance of this grant of stock award acknowledge that
you have received a copy of the KERP, that you have read the same and are
sufficiently familiar therewith to understand both your rights and your
obligations thereunder, and you agree to accept and to be bound by all of the
terms and conditions of this stock award and the KERP, including without
limitation the right of the Committee to amend, cancel, suspend or terminate
this grant of stock award in whole or in part, on behalf of yourself and your
heirs and assigns.
Stock Award Granted by
THE INTERLAKE CORPORATION
By:___________________________
W. R. Reum
Chairman of the Board, President
and Chief Executive Officer
AGREED AND ACCEPTED, including all terms and conditions of the Key
Executive Retention Program adopted by the Board in February 1995. I
acknowledge that the shares awarded hereunder have not been registered under
the Securities Act of 1933 and may not be sold or otherwise transferred absent
an exemption from such registration. I also acknowledge that this stock award
is issued in lieu of the cash award to which I may have become entitled under
the KERP based on 1996 performance, and as a result my maximum possible cash
award for 1996 under the KERP has been reduced by .
Date:______________________________
Signed:____________________________
NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.9
Option Granted January 25, 1996
Under the 1986 Stock Incentive Program
of
The Interlake Corporation
WHEREAS, (hereinafter called the "Optionee"), is
an employee of The Interlake Corporation (hereinafter called the "Corporation")
or a subsidiary thereof;
WHEREAS, the 1986 Stock Incentive Program of the Corporation ("Program")
authorizing the granting to officers and to other key employees of the
Corporation and its subsidiaries of options to buy from the Corporation shares
of common stock, par value $1 a share, has been duly adopted by the
Corporation; and
WHEREAS, the execution of a stock option agreement in the form hereof has
been authorized by a resolution of the Compensation Committee of the Board of
Directors of the Corporation duly adopted on January 25, 1996;
NOW, THEREFORE, the Corporation hereby grants to the Optionee an option to
purchase shares of common stock, par value $1 per share, of the
Corporation (or any security into which such shares may be changed by reason of
any transaction or event described in Paragraph 16(a) of the Program) at the
price of Four Dollars ($4.00) per share, upon the terms and conditions
hereinafter set forth.
1. Until terminated, as hereinafter provided, this option may be
exercised in whole or in part from time-to-time as follows:
(a) In full, upon a "change in control," as hereinafter defined,
while the Optionee is employed by the Corporation and/or any
subsidiary;
(b) Unless exercisable in full by reason of a change in control, to
the extent of 30 percent of the number of shares specified above
immediately, and to the extent of the following aggregate
percentages of the number of shares specified above after each of
the periods ending on the dates set forth below during which the
Optionee shall have been in the continuous employ of the
Corporation or one or more of its subsidiaries:
January 25, 1997 60 percent
January 25, 1998 100 percent
(c) If an Optionee's employment terminates by reason of retirement
on or after the Optionee's 60th birthday or "disability," as
hereinafter defined, or by reason of death, and if an installment
would have become exercisable within one year subsequent to such
event had the Optionee remained in the continuous employ of the
Corporation and/or any subsidiary, this option may be exercised
to the extent of the sum of the number of shares purchasable
pursuant to the preceding sub-paragraph and such additional
installment.
Upon the exercise of this option when fewer than all installments set forth
in sub-paragraph (b) and (c) are exercisable, any fractional share shall be
rounded down to the nearest whole share.
2. The option price may, at the election of the Optionee, be paid (i)
in cash or by check acceptable to the Corporation or (ii) by transfer to the
Corporation of shares of common stock of the Corporation having a value (such
shares to be valued, for purposes of this paragraph, at the average of the high
and low prices quoted on the New York Stock Exchange Composite Transactions for
the date upon which the Optionee's exercise of stock option is received) equal
to the total option price, or (iii) any combination of whole shares and funds
equal to the total option price. Upon receipt of the payments referred to in
the preceding sentence, the Corporation agrees to cause certificates for any
shares purchased hereunder to be delivered to the Optionee.
3. This option shall terminate on the earliest of the following dates:
(a) On the date upon which the Optionee ceases to be an employee
of the Corporation or a subsidiary by reason of termination of
employment for cause;
(b) Three months after the Optionee ceases to be an employee of
the Corporation or a subsidiary, unless he ceases to be an
employee by reason of death, retirement on or after the
Optionee's 60th birthday, disability, or as described in (a)
above;
(c) Two years after the death of the Optionee if the Optionee
dies while an employee of the Corporation or a subsidiary;
(d) Two years after the termination of the Optionee's employment
by reason of retirement on or after the Optionee's 60th birthday
or "disability" as hereinafter defined; or
(e) January 25, 2006.
In the event the Optionee shall intentionally commit an act materially
inimical to the interests of the Corporation or a subsidiary, this option shall
terminate upon a finding by the Compensation Committee of the Board of
Directors of the Corporation to that effect, notwithstanding any other
provision of this agreement. Nothing contained in this option shall limit
whatever right the Corporation or a subsidiary might otherwise have to
terminate the employment of the Optionee.
4. This option is not transferrable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
lifetime of the Optionee, only by him or by his legal guardian or legal
representative.
5. This option shall not be exercisable if such exercise would
involve a violation of any applicable federal or state securities laws. The
Corporation hereby agrees to make reasonable efforts to comply with any
applicable securities laws.
6. The Compensation Committee of the Board of Directors of the
Corporation shall make or provide for such adjustments in the number of shares
of common stock covered by outstanding stock options granted hereunder, in the
option price applicable to such stock options, and in the kind of securities
covered thereby, as the Committee in its sole discretion, exercised in good
faith, determines is equitably required to prevent dilution or enlargement of
the rights of Optionees that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Corporation, or (b) any merger, consolidation,
spin-off, reorganization, partial or complete liquidation, repurchase or
exchange of shares, issuance of rights or warrants to purchase securities, or
(c) any other corporate transaction or event having an effect similar to any of
the foregoing. The Committee shall also make or provide for such adjustments
in the number of shares reserved for issuance as specified in Paragraph 16 of
the Program as the Committee in its sole discretion, exercised in good faith,
determines is appropriate to reflect any transaction or event described in the
preceding sentence. No adjustment provided in this Paragraph 6 shall require
the Corporation to sell any fractional shares.
7. The term "subsidiary," as used in this agreement, means any
corporation of which the securities having a majority of the ordinary voting
power needed to elect its board of directors are, at the time as of which any
determination is being made, owned by the Corporation either directly or
through one or more subsidiaries. For purposes of this agreement, the
continuous employ of the Optionee with the Corporation or a subsidiary shall
not be deemed interrupted, and the Optionee shall not be deemed to have ceased
to be an employee of the Corporation or any subsidiary, by reason of the
transfer of his employment among the Corporation and its subsidiaries.
8. The term "disability," as used in this agreement, means the
termination of an Optionee's employment under such circumstances as entitle him
to Long Term Disability Benefits under the Corporation's Salaried Employees
Group Insurance Plan, or a long term disability plan of the subsidiary by which
he is employed, and in which he participates at the time the disability occurs.
If an Optionee does not participate in a long term disability plan,
"disability" means the termination of an Optionee's employment under such
circumstances as would entitle him to long term disability benefits if he were
a participant in the Corporation's Salaried Employees Group Insurance Plan.
9. The term "change in control," as used in this agreement, means the
occurrence of any of the following events while the Optionee is employed by the
Corporation or a subsidiary:
(a) The Corporation is merged or consolidated or reorganized into
or with another corporation or other legal person and as a result
of such merger, consolidation or reorganization less than 75% of
the outstanding voting securities or other capital interests of
the surviving, resulting or acquiring corporation or other legal
person are owned in the aggregate by the stockholders of the
Corporation immediately prior to such merger, consolidation or
reorganization;
(b) The Corporation sells all or substantially all of its
business and/or assets to any other corporation or other legal
person, less than 75% of the outstanding voting securities or
other capital interests of which are owned in the aggregate by
the stockholders of the Corporation, directly or indirectly,
immediately prior to or after such sale;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report) each as promulgated
pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act") disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of 25% or more of the issued
and outstanding shares of voting securities of the Corporation;or
(d) During any period of two consecutive years, individuals who
at the beginning of any such period constitute the directors of
the Corporation cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for
election by the Corporation's stockholders, of each new director
of the Corporation was approved by a vote of at least two-thirds
of such directors of the Corporation then still in office who
were directors of the Corporation at the beginning of any such
period.
10. This option is intended to be a non-qualified stock option and
shall not be treated as an incentive stock option within the meaning of the
Internal Revenue Code of 1986, as the same has been heretofore or may hereafter
be amended.
Executed at Lisle, Illinois, as of January 25, 1996.
THE INTERLAKE CORPORATION
By____________________________
Stephen R. Smith
Vice President, Secretary
and General Counsel
Receipt Acknowledged and Non-Qualified Stock Option Agreement Accepted this
day of ________________, 1996.
Signed:
Name:
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(dollars in millions except per share data)
(references to Notes are references to Notes to Consolidated Financial
Statements)
Results of Operations
Net sales were $831.1, $752.6 and $681.3, respectively, in 1995, 1994 and 1993.
Net sales in the Engineered Materials segment were up $32.0 in 1995, as
shipments of metal powders by the Special Materials business reached record
levels for a second successive year, as a result of the continuing penetration
by powder metallurgy into automotive and nonautomotive applications and strong
North American auto and light truck production. Sales of the Aerospace
Components business increased as several newer engine programs reached the
production stage. Handling/Packaging Systems' sales were up $46.5 in 1995, as
North American and Asia Pacific Handling sales reached record levels, and most
of the Packaging businesses reported higher sales. The weakening of the U.S.
dollar against most foreign currencies added $15.6 to net sales compared with
1994, as discussed in "Foreign Operations." In 1994, in the Engineered
Materials segment, strong North American auto and light truck production led to
a $22.4 increase in sales of metal powders. Handling/Packaging Systems' sales
were up $47.4 in 1994, primarily as a result of a strong market for material
handling equipment in the U.S. and Asia Pacific markets, coupled with higher
sales of strapping products in the U.S. and Canada.
Operating income was $71.6, $24.2 and $38.2, respectively, in 1995, 1994 and
1993. In 1994, a charge of $34.2 was taken to write down goodwill, as
discussed in "Long-Lived Assets" and in Note 2. Excluding the effect of this
charge, operating income in 1995 was $13.2 higher than in 1994, reflecting
increased volumes at nearly all business units and improved selling prices in
the North American Handling business. In 1994, operating income was $14.0
lower than in 1993, reflecting the $34.2 charge to write down goodwill. Strong
metal powder volume at Special Materials, higher Handling volumes in the U.S.
and Asia Pacific, and improved sales of packaging products, primarily in the
U.S. and Canada, had a favorable effect on 1994 operating results. A
restructuring charge of $5.6 reduced operating income in 1993, as discussed in
"Restructuring Charges" and Note 3. Excluding the goodwill charge in 1994 and
the restructuring charge in 1993, operating income was $71.6, $58.4 and $43.8
in 1995, 1994 and 1993, respectively.
From 1993 to 1995, Special Materials' shipments of metal powders grew by 24%,
due to increased usage of metal powders in automotive and nonautomotive
applications and growth in North American auto and light truck production. At
Aerospace Components, military fabrication sales in 1995 increased over 1994,
and were at essentially the same level as in 1993, while commercial and space
fabrication sales grew by $15.0 from 1993 to 1995. Repair sales were down $3.5
in 1995 compared with 1993, reflecting weaker demand from the airline industry.
In Handling/Packaging Systems, 1995 sales volume exceeded that of 1994 and 1993
in North American and Asia Pacific markets, but European demand for capital
goods remained soft.
Cost of sales as a percentage of sales was 76%, 77% and 76%, respectively, in
1995, 1994 and 1993. As a percentage of sales, selling and administrative
expenses were 15% in 1995, 16% in 1994 and 17% in 1993.
The following business segment commentary reflects the 1994 goodwill write-down
and the 1993 restructuring charge for each segment. However, the discussion of
individual business unit results is presented before these charges and
allocation of general corporate expenses. See Note 6 for further information
on business segments.
Net Sales and Operating Profit by Business Segment
(in millions)
Net Sales Operating Profit
1995 1994 1993 1995 1994 1993
Engineered Materials
Special Materials $175.7 $153.9 $131.5
Aerospace Components 72.7 62.5 61.0
248.4 216.4 192.5 $ 39.4 $ 32.3 $ 26.3
Goodwill Write-Down -- (13.2) --
Restructuring Charge -- -- (1.8)
248.4 216.4 192.5 39.4 19.1 24.5
Handling/Packaging Systems
Handling 441.5 406.0 366.7
Packaging 141.2 130.2 122.1
582.7 536.2 488.8 34.2 28.1 19.1
Goodwill Write-Down -- (21.0) --
Restructuring Charge -- -- (3.8)
582.7 536.2 488.8 34.2 7.1 15.3
Corporate Items (2.0) (2.0) (1.6)
Total Net Sales $831.1 $752.6 $681.3
Total Operating Profit $ 71.6 $ 24.2 $ 38.2
Engineered Materials
Engineered Materials includes Special Materials (metal powders for
manufacturing precision parts) and Aerospace Components (precision machined
structures, complex fabrications and jet engine component repairs).
Sales increased 15% in 1995 in the Engineered Materials segment, reflecting a
second successive year of record shipments of metal powders. Special
Materials' shipments were up 8% from 1994, driven by increased penetration by
powder metallurgy in automotive and nonautomotive applications and strong North
American auto and light truck production. Aerospace Components' sales were up
16%, with increased fabrication shipments on several newer commercial and
military programs and higher sales on several repair programs.
Aerospace Components' defense-related business represented approximately 32%,
33% and 39% of its sales in 1995, 1994 and 1993, respectively. Defense-related
sales as a percentage of the Company's consolidated sales were approximately 3%
in each of the last three years. In the face of the slowdown in military
procurement throughout the 1990s to date, the fabrication business of Aerospace
Components has executed a strategy of increasing its penetration of the
commercial and space sectors, while continuing to secure new military business.
The business has developed expertise in fabrication of the very large
components used on new high-thrust commercial jet engines and on space
applications. Sales to the commercial and space sectors have more than doubled
from 1990 to 1995. Repair sales increased 7% in 1995 after a 22% drop in 1994,
reflecting higher prices and additional quantities of jet engine blades
repaired.
Operating profit for the Engineered Materials segment increased 22% in 1995
over 1994, excluding the impact of a special charge in 1994. Including the
effect of the 1994 goodwill write-down, as discussed in "Long-Lived Assets" and
in Note 2, operating profit increased by $20.3 in 1995. Special Materials'
operating profit was up 16%, reflecting the record volume. Higher selling
prices were largely offset by a 4% increase in scrap steel costs and higher
costs of other materials such as molybdenum and nickel, along with several one-
time operating expenses. At Aerospace Components, operating profit was up 10%
in 1995, despite a one-time gain in 1994 from settlement of a real estate
matter (see "Nonoperating Items"). Higher volume and improved manufacturing
efficiency on several newer fabrication programs, along with selected price
increases and improved operating procedures in the repair business, all
contributed to the earnings improvement.
In 1994, sales in the Engineered Materials segment increased 12% over 1993.
Metal powder shipments were up 17% in 1994, to then-record levels, on higher
North American automobile and truck production and increased penetration of
powdered metals into automotive and nonautomotive applications. Aerospace
Components' sales were up slightly, as higher commercial fabrication shipments
were substantially offset by lower repair and defense business. Operating
profit for the segment fell 22% in 1994 as a result of the goodwill write-down,
as discussed in "Long-Lived Assets" and in Note 2. Excluding the effect of the
goodwill charge and the $1.8 restructuring charge in 1993, operating profit in
1994 increased 23% over 1993. Special Materials' operating profit was up 20%,
primarily reflecting the then-record volume. Scrap steel costs increased 18%
above 1993, about half of which was recovered with higher selling prices.
Operating profit was up 27% in 1994 at Aerospace Components, due to a one-time
gain from settlement of a real estate matter (see "Nonoperating Items") and
slightly improved margins in the aviation repair business.
The Engineered Materials segment's order backlog at year-end 1995 was $142.7,
down from $148.4 at the end of 1994. Special Materials' backlog, which is
generally short-term in nature, remained at a high level, up 7% from 1994,
although order rates and backlog during the last half of 1995 were down from
the levels experienced during the first half of the year. Aerospace
Components' backlog was 8% lower at year-end 1995 than 1994, reflecting
deliveries against multi-year fabrication orders received during the latter
part of 1994 for commercial, military and space applications.
Handling/Packaging Systems
Total segment sales in 1995 were up 9% from 1994. In 1995, Handling sales
increased 9% from the prior year, with both North American and Asia Pacific
businesses achieving record sales for a second successive year. Demand for
material handling products in the U.S. continued to be strong, resulting in
record volumes, higher pricing and a 6% increase in sales in 1995. Strong
Australian and Pacific Rim demand led to a 14% increase in 1995 sales in Asia
Pacific. A 10% increase in European Handling sales reflected favorable
exchange rates and increased sales of conveyors and interiors products.
Packaging sales were up 8%, with higher sales in all businesses except the U.S.
stitching operation. With a full year of production on the new polyester
strapping line, U.S. sales of plastic strap increased. Higher prices accounted
for most of the increase in U.K. plastic strap sales, while increased volume
was the primary factor leading to sales growth in the U.K. steel strap
business. Strong sales of machines to lumber, textile, fiber and other
industries offset the impact of lower equipment sales to the newspaper
industry. Lower Canadian steel strap sales reflected weakness in the lumber
industry and the Canadian economy in general.
Segment operating profit increased $27.1 in 1995, to $34.2, after accounting
for the 1994 write-down of $21.0 for goodwill related to the Packaging unit, as
discussed in "Long-Lived Assets" and in Note 2. Excluding the effects of the
goodwill write-down, operating profit was up 22% from 1994. North American
Handling profits were up 37%, reflecting the record volume and stronger
pricing, partially offset by a 5% increase in steel costs. The record volume
at Handling Asia Pacific contributed to a 28% increase in operating profit in
that business. Operating profit for the European Handling business was down
17%, as higher selling prices did not cover increased steel costs, and a one-
time cost of $2.6 was incurred to rationalize the sales and distribution
operations to reduce fixed costs in the U.K. and Germany. Packaging operating
profit was up 4%, as high raw material costs, particularly for plastic resins,
absorbed much of the benefit of increased selling prices.
Total Handling/Packaging Systems' sales in 1994 were 10% higher than in 1993.
Handling sales increased 11% from the prior year. Strong demand for material
handling products in the U.S. led to then-record volumes and higher pricing,
and generated a 14% increase in sales. Strong Australian and Pacific Rim
demand, together with sales from the Hong Kong distributor acquired in April
1994, led to a 52% increase in Asia Pacific sales. European Handling sales
were up slightly as improvements in the U.K. were offset by the effects of a
slow economy in Continental Europe. Packaging sales were up 7% with higher
sales in all locations, especially in Canada.
In 1994, Handling/Packaging Systems' operating profit fell 54% to $7.1, due to
the $21.0 goodwill write-down related to the Packaging unit, as discussed in
"Long-Lived Assets" and in Note 2. Excluding the effects of the goodwill
write-down and the $3.8 restructuring charge in 1993, operating profit was up
47% in 1994. North American Handling profits were up 43%, reflecting then-
record volumes and better pricing, partially offset by an 11% increase in steel
costs. The improved volume at Handling Asia Pacific was a significant
contributor to the increase in segment income. Operating profit for the
European Handling business was up 18%, as higher volume in the U.K. and cost
savings throughout Europe were only partially offset by lower volume and
pricing in Continental Europe and higher steel costs in the U.K. Despite a
decline in operating profit in the newspaper-related business, Packaging
operating profit was up 25%, due primarily to higher strapping volume and
selling prices and LIFO inventory liquidation benefits in Canada and the U.K.
Handling/Packaging Systems ended 1995 with an order backlog of $88.4, down from
$94.5 at the end of 1994 (at the same exchange rates), due mainly to lower
order rates at the North American Handling operation. Order intake at Handling
Asia Pacific reached a record level in 1995.
Restructuring Charges
In 1993, the Company provided $5.6 for restructuring costs related to: the exit
from certain lines of business that were part of Handling North America; the
reorganization and downsizing of portions of the European Handling operation;
and, in the Aerospace Components business, the abandonment of certain product
lines that resulted in idled equipment and the provision for severance costs
related to a downsizing of the aviation repair workforce. The $5.6 consisted
of $1.7 in severance costs, $1.5 of idled equipment written down to fair market
value, $1.4 of inventory related to the exited businesses and $1.0 of other
costs. Quantification of the effects of the restructuring on subsequent
operating results is not practical because some of the actions were taken to
avoid future costs while other actions were strategic in nature and implemented
to limit exposure to changing market dynamics. These restructuring activities
are complete.
Long-Lived Assets
In 1994, the Company concluded that, in the light of its highly leveraged
capital structure, a preferable accounting policy for analyzing the valuation
of long-lived assets would be to reflect its cost of capital in computing the
present value of the expected cash flows of its businesses. Applying this
policy to all of its long-lived assets, the Company determined that with
respect to its Aerospace Components and newspaper-related Packaging businesses,
in the light of the significant deterioration in business climates in the
aerospace and newspaper industries over the preceding years, the values of the
discounted cash flows were insufficient to recover the carrying value of the
long-lived assets. Therefore, the goodwill component of those assets was
deemed to be impaired. As a result, a charge of $34.2 was taken for the write-
down of goodwill established in connection with the acquisitions of the
Aerospace Components and newspaper-related Packaging businesses. As of
December 31, 1995, the remaining net investment in these businesses was
approximately equal to the value of the discounted projected cash flows
attributable to them, and consisted primarily of tangible assets. The Company
intends to periodically assess the carrying values of its long-lived assets.
(See Note 2.)
Interest Expense
The Company has a highly leveraged capital structure with substantial net
interest expense of $52.5, $50.2 and $49.1 in 1995, 1994 and 1993,
respectively. The increase in 1995 reflected the effect of replacement of a
portion of the Company's bank debt with senior notes bearing higher interest
rates, as well as higher rates on the remaining bank debt. In 1994, the
increase in net interest expense was caused primarily by higher rates on bank
debt. The Company has interest rate agreements that effectively provided fixed
rates of interest on 79% of its bank obligations at the end of 1995, all of
which bore interest at floating rates. (See Note 13.)
Nonoperating Items
The Company has certain income and expenses that are not related to its ongoing
operations. In 1994, these items included a $1.1 one-time gain for settlement
of a real estate matter with a local transportation authority at Aerospace
Components. In 1993, a charge of $4.8 was recorded for anticipated costs for
environmental matters, as discussed below and in Notes 15 and 16. Ongoing
postretirement expenses attributable to disposed or discontinued operations are
also shown as nonoperating items.
The Company has been identified as a potentially responsible party in
connection with the investigation and remediation of a site in Duluth,
Minnesota. Based on the Company's current estimates of its potential
liabilities related to the site, the Company believes that this matter is
unlikely to have a material adverse effect on the Company's liquidity or
consolidated financial condition. However, the Company's current estimate of
its potential environmental liabilities is subject to considerable uncertainty
related to the possible remediation of certain underwater sediments at the
site. (See Note 15.)
The Company is a defendant in an action in federal district court in Toledo,
Ohio, in which it has been judged liable for response costs incurred or to be
incurred in the future by the City of Toledo in connection with the alleged
contamination of a 1.7 acre parcel of land owned by the City that formerly was
the site of a coke plant and related by-products facilities. However, the
Court has ruled that the Company is entitled to indemnification by one of the
other defendants in the matter, Beazer East, Inc., under the terms of a 1978
sale agreement. The Company expects Beazer East to appeal the indemnification
ruling. (See Note 16.)
The Company's Hoeganaes Corporation subsidiary is one of approximately 100
defendants in an action in federal district court in Trenton, New Jersey,
brought by SC Holdings, Inc., a subsidiary of Waste Management International
Plc. The plaintiff seeks to recover amounts expended or to be expended in
investigation and remediation of the Cinnaminson Groundwater Contamination Site
in Burlington County, New Jersey, which encompasses a landfill formerly
operated by the plaintiff and may also include the groundwater under a
Hoeganaes facility. SC Holdings alleges that Hoeganaes has liability both as
an owner/operator and as a generator. The matter is in its preliminary stages,
but the Company believes that Hoeganaes has meritorious defenses against both
alleged bases of liability. (See Note 16.)
In May 1994, the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers in connection with environmental claims
under policies covering nearly 30 years. The parties are in discovery and
trial is tentatively set for March 1997.
Provision for Income Taxes
In 1995, 1994 and 1993, high levels of interest expense and differences in
income and expense recognition resulted in losses for U.S. federal income tax
purposes. Since most of the interest expense is borne in the United States at
the parent company level, throughout each period the Company had taxable income
in foreign and state jurisdictions despite the high levels of consolidated
interest expense. For each period presented, the Company also provided for
additional amounts related to open federal tax return years 1982 through 1990.
In 1994, the write-down of goodwill did not result in a deduction allowable for
tax purposes.
The Company's U.S. federal income tax returns for the years 1988 through 1990
are in the process of examination. Resolution of tax years 1982-1984 is
pending at the U.S. Tax Court following receipt of a statutory notice of
deficiency for $17.0 plus interest and penalties. Resolution of tax years
1985-1987 is pending at the Appeals Division of the Internal Revenue Service.
The Company believes that adequate provision has been made for possible
assessments of additional taxes.
Extraordinary Loss
During the second quarter of 1995, the Company issued $100.0 of 12% Senior
Notes due 2001 and completed a substantial amendment to the Company's senior
bank credit agreement. The proceeds were used to retire a portion of the
Company's bank debt. Debt issuance costs of $3.4 associated with the retired
debt were written off, without any currently usable tax benefit in 1995, and
shown as an extraordinary item. (See Notes 5 and 13.)
Cumulative Effect of Accounting Change
In 1994, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards ("FAS") No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions" for its foreign
locations. The one-time cumulative effect of this adoption on income was a net
charge of $.2. (See Note 4.)
Liquidity and Capital Resources
Interlake's total debt at year-end 1995 was $443.6, up $1.2 from year-end 1994.
Cash totaled $41.6 at the end of the year, up $1.9 from year-end 1994. During
1996, the Company will have debt amortization requirements of $3.8. Based on
current levels of performance, which, if maintained throughout the year will
provide the Company with leeway under its bank credit agreement covenants, and
based on the availability of additional revolver borrowings under the Company's
bank credit agreement, the Company believes that it will have adequate
liquidity to meet its debt service and operating requirements in 1996. Under
the bank credit agreement, the Company is able to borrow under its revolving
facility up to an additional $40.8 over the year-end 1995 revolving
indebtedness. In addition, the Company will have up to $5.8 of delayed draw
term loan availability for amounts that may be incurred in connection with
certain environmental matters. (See Note 13.)
In 1999, the Company has debt amortization requirements of $98.3, which it does
not expect to be able to meet from operating cash flow. The Company continues
to evaluate alternative actions to repay or refinance some or all of its long-
term debt obligations.
Cash Flow (see Consolidated Statement of Cash Flows)
Cash inflows provided by operating activities were $23.9, $23.2 and $8.0 in
1995, 1994 and 1993, respectively. Cash provided by operating activities was
up in 1995 and 1994 from 1993 primarily as a result of higher operating
earnings. The $34.2 goodwill charge in 1994 did not affect cash flow. Working
capital needs were $3.6 in 1995 compared with $6.5 in 1994. In 1993, a decline
in sales led to a $5.8 cash inflow from working capital. In 1994, other
operating adjustments reflected the movement of certain expected tax
liabilities from current to long-term.
Cash outflows used by investing activities were $20.2, $14.6 and $13.1,
respectively, in 1995, 1994 and 1993. Capital expenditures for expansion
projects totaled $2.9, $4.1 and $6.1, respectively, in 1995, 1994 and 1993.
Expansion spending in 1995 included milling and machining equipment to
accommodate fabrication of new engine programs at the Aerospace Components
operation. Expansion spending in 1994 and 1993 included the addition of two
annealing furnaces to expand capacity at the Special Materials operation and,
in 1993, a new production line for polyester strapping at Packaging.
Management believes that capital expenditures have been adequate to properly
maintain the Company's businesses and provide for anticipated growth
opportunities. At the end of 1995, the unexpended balance on approved capital
expenditure projects was $10.8. The Company anticipates that 1996 capital
spending will be approximately $27.0.
Cash outflows for financing activities were $1.2, $.6 and $1.3 in 1995, 1994
and 1993, respectively.
Foreign Operations
The Company does business in a number of foreign countries, mainly through its
Handling/Packaging Systems segment. The results of these operations are
initially measured in local currencies, principally in British pounds, German
marks, Canadian dollars and Australian dollars, and then translated into U.S.
dollars at applicable exchange rates. The reported results of these operations
are sensitive to changes in applicable foreign exchange rates that could have a
material effect on the Company's results of operations. In both 1995 and 1994,
the dollar became weaker against most currencies, which had a favorable impact
on sales of $15.6 and $5.2, respectively, but an insignificant impact on
operating income. (For additional information about the Company's operations by
geographic area, see Note 6.)
Effects of Inflation
The impact of inflation on the Company in recent years has not been material,
and it is not expected to have a significant effect in the foreseeable future.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Interlake Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders'
equity (deficit) present fairly, in all material respects, the financial
position of The Interlake Corporation and its subsidiaries at December 31, 1995
and December 25, 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of The Interlake Corporation's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of evaluating the recoverability of goodwill and other long-
lived assets in 1994.
/s/ Price Waterhouse LLP
Chicago, Illinois
January 24, 1996
The Interlake Corporation
Consolidated Statement of Operations
For the Years Ended December 31, 1995,
December 25, 1994 and December 26, 1993
(in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
(53 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C>
Net Sales $831,103 $752,592 $ 681,330
Cost of Products Sold 634,386 576,929 520,508
Selling and Administrative Expense 125,139 117,264 117,025
Goodwill Write-down (See Note 2) -- 34,174 --
Restructuring Charge (See Note 3) -- -- 5,611
Operating Profit 71,578 24,225 38,186
Interest Expense 54,320 51,609 50,906
Interest Income (1,780) (1,369) (1,855)
Nonoperating (Income) Expense (See Note 15) (1,064) (481) 5,359
Income (Loss) Before Taxes, Minority Interest,
Extraordinary Loss and Accounting Change 20,102 (25,534) (16,224)
Provision for Income Taxes (See Note 7) 11,356 10,888 6,542
Income (Loss) Before Minority Interest, Extraordinary Loss
and Accounting Change 8,746 (36,422) (22,766)
Minority Interest in Net Income of Subsidiaries 4,533 4,135 3,196
Income (Loss) Before Extraordinary Loss
and Accounting Change 4,213 (40,557) (25,962)
Extraordinary Loss on Early Extinguishment of Debt, Net of
Applicable Income Taxes (See Note 5) (3,448) -- --
Cumulative Effect of Change in Accounting Principle (See Note 4) -- (194) --
Net Income (Loss) $ 765 $(40,751) $ (25,962)
Income (Loss) Per Share of Common Stock:
Primary Income (Loss) Before Extraordinary Loss
and Accounting Change $ .18 $ (1.84) $ (1.18)
Extraordinary Loss (.15) -- --
Accounting Change -- (.01) --
Primary Net Income (Loss) $ .03 $ (1.85) $ (1.18)
Fully Diluted Income Before Extraordinary Loss
and Accounting Change $ .14
Extraordinary Loss (.11)
Fully Diluted Net Income $ .03
Average Shares Outstanding
Primary 22,691 22,027 22,027
Fully Diluted 30,520
(See notes to consolidated financial statements)
</TABLE
The Interlake Corporation
Consolidated Balance Sheet
December 31, 1995 and December 25, 1994
(Dollars in thousands)
</TABLE>
<TABLE>
1995 1994
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 41,562 $ 39,708
Receivables less allowances of $3,425 in 1995
and $2,977 in 1994 132,331 129,089
Inventories 78,730 73,853
Other current assets 15,100 6,340
Total Current Assets 267,723 248,990
Other Assets 43,269 50,229
Property, Plant and Equipment, net 148,810 145,734
Total Assets $459,802 $444,953
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 75,266 $ 71,957
Accrued liabilities 47,464 42,563
Interest payable 11,150 13,910
Accrued salaries and wages 15,648 18,060
Income taxes payable 14,665 10,328
Debt due within one year (See Note 13) 3,759 24,553
Total Current Liabilities 167,952 181,371
Long-Term Debt (See Note 13) 439,856 417,898
Other Long-Term Liabilities 87,362 75,753
Deferred Tax Liabilities (See Note 7) 9,307 6,038
Commitments and Contingencies (See Note 16) -- --
Minority Interest 7,847 21,173
Preferred Stock--2,000,000 shares authorized
Convertible Exchangeable Preferred Stock--Redeemable,
par value $1 per share, issued 40,000 shares (liquidation value
$54,602 at December 31,1995 and $47,847 at
December 25, 1994) (See Note 10) 39,155 39,155
Shareholders' Equity (Deficit): (See Note 11)
Common stock, par value $1 per share, authorized
100,000,000 shares, issued 23,228,695 in 1995 and 1994 23,229 23,229
Additional paid-in capital 13,504 30,248
Cost of common stock held in treasury (412,500 shares in
1995 and 1,202,000 shares in 1994) (9,625) (28,047)
Retained earnings (Accumulated deficit) (293,201) (293,966)
Unearned compensation (8,950) (10,058)
Accumulated foreign currency translation adjustments (16,634) (17,841)
Total Shareholders' Equity (Deficit) (291,677) (296,435)
Total Liabilities and Shareholders' Equity (Deficit) $459,802 $444,953
(See notes to consolidated financial statements)
</TABLE>
The Interlake Corporation
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1995,
December 25, 1994 and December 26, 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
(53 weeks) (52 weeks) (52 weeks)
<S>
Cash Flows from (for) Operating Activities: <C> <C> <C>
Net income (loss) $ 765 $(40,751) $(25,962)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Restructuring charge -- -- 5,611
Goodwill write-down -- 34,174 --
Depreciation and amortization 20,298 23,102 25,040
Extraordinary item 3,448 -- --
Nonoperating environmental matters -- -- 4,750
Other operating adjustments 2,982 13,172 (7,231)
(Increase) Decrease in working capital:
Accounts receivable (993) (18,754) 16,233
Inventories (3,837) 5,880 (4,190)
Other current assets (1,762) 3,249 (1,642)
Accounts payable 2,040 9,897 519
Other accrued liabilities (3,717) 758 (2,708)
Income taxes payable 4,660 (7,560) (2,432)
Total Working Capital Change (3,609) (6,530) 5,780
Net Cash Provided (Used) by Operating Activities 23,884 23,167 7,988
Cash Flows from (for) Investing Activities:
Capital expenditures (21,299) (15,485) (14,540)
Proceeds from disposal of PP&E 329 477 284
Acquisitions -- (746) --
Other investment flows 762 1,137 1,122
Net Cash Provided (Used) by Investing Activities (20,208) (14,617) (13,134)
Cash Flows from (for) Financing Activities:
Proceeds from issuance of long-term debt 110,127 10,656 104
Retirements of long-term debt (108,624) (11,970) (7,582)
Debt issuance costs (4,773) (1,264) --
Other financing flows 2,111 1,982 6,158
Net Cash Provided (Used) by Financing Activities (1,159) (596) (1,320)
Effect of Exchange Rate Changes on Cash (663) (180) (240)
Increase (Decrease) in Cash and Cash Equivalents 1,854 7,774 (6,706)
Cash and Cash Equivalents, Beginning of Year 39,708 31,934 38,640
Cash and Cash Equivalents, End of Year $ 41,562 $ 39,708 $ 31,934
(See notes to consolidated financial statements)
</TABLE>
The Interlake Corporation
Consolidated Statement of Shareholders' Equity (Deficit)
For the Years Ended December 31, 1995,
December 25, 1994 and December 26, 1993
(in thousands)
<TABLE>
<CAPTION>
Common Stock Common Stock Retained Unearned Foreign
and Paid-In Capital Held in Treasury Earnings Compen- Currency
Shares Amount Shares Amount (Deficit) sation Translation Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 27, 1992 23,229 $53,500 (1,202) $(28,060) $(227,252) $(12,934) $(17,972) $(232,718)
Net income (loss) (25,962) (25,962)
Stock incentive plans (See Note 12) (23) 13 (1) 46 35
ESOP transactions (See Note 11) 1,609 1,609
Translation loss (2,731) (2,731)
Balance December 26, 1993 23,229 53,477 (1,202) (28,047) (253,215) (11,279) (20,703) (259,767)
Net income (loss) (40,751) (40,751)
Stock incentive plans (See Note 12) 15 15
ESOP transactions (See Note 11) 1,206 1,206
Translation gain 2,862 2,862
Balance December 25, 1994 23,229 53,477 (1,202) (28,047) (293,966) (10,058) (17,841) (296,435)
Net income (loss) 765 765
Stock incentive plans (See Note 12) (16,744) 789 18,422 (1,004) 674
ESOP transactions (See Note 11) 2,112 2,112
Translation gain 1,207 1,207
Balance December 31, 1995 23,229 $36,733 (413) $ (9,625) $(293,201) $ (8,950) $(16,634) $(291,677)
(See notes to consolidated financial statements)
</TABLE>
The Interlake Corporation
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1995, December 25, 1994 and December 26, 1993
(All dollar amounts in thousands except where indicated)
NOTE 1--Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include the
accounts of all majority-owned domestic and foreign subsidiaries. All
significant intercompany transactions are eliminated.
Cash Equivalents--The Company considers all highly liquid financial instruments
with original maturities of three months or less to be cash equivalents and
reports the earnings from these instruments as interest income.
Revenue Recognition--Revenue from sales is generally recognized when product is
shipped, except on long-term contracts in the Handling/Packaging Systems
segment, where revenue is accounted for principally by the percentage-of-
completion method.
Deferred Charges--The Aerospace Components unit periodically enters into long-
term agreements with customers on major programs where tooling and other
development costs are capitalized as Other Assets. These assets are then
amortized during the production stage by the units-of-production method.
Inventories--Inventories are stated at the lower of cost or market value.
Inventories valued on the LIFO method represent approximately 32% and 41% of
consolidated inventories and 55% and 50% of domestic inventories at December
31, 1995 and December 25, 1994, respectively. The current cost of these
inventories exceeded their valuation determined on a LIFO basis by $14,381 at
December 31, 1995 and by $15,513 at December 25, 1994.
During 1995, 1994, and 1993, inventory quantities valued on the LIFO method
were reduced, resulting in the liquidation of LIFO inventory quantities carried
at lower costs that prevailed in prior years as compared with the costs of
production for 1995, 1994, and 1993. As a result, pretax income in 1995, 1994,
and 1993 was increased by $805, $951, and $1,201, respectively.
Inventories by category at December 31, 1995 and December 25, 1994 were:
1995 1994
Raw materials $ 16,247 $ 14,703
Semi-finished and finished products 55,140 50,978
Supplies 7,343 8,172
$ 78,730 $ 73,853
Leases--The Company frequently enters into operating leases in the normal
course of business. Amounts due under noncancellable operating leases in the
next five fiscal years are as follows:
1996 1997 1998 1999 2000
$5,539 $5,043 $3,572 $3,411 $3,048
Rent expense charged to operating income was $11,969, $11,853, and $11,271 in
1995, 1994, and 1993, respectively.
Property, Plant and Equipment and Depreciation--For financial reporting
purposes, plant and equipment are depreciated principally on a straight-line
method over the estimated useful lives of the assets. Depreciation for income
tax purposes is computed by use of accelerated methods.
Expenditures for renewals and betterments which extend the originally estimated
useful life of an asset or materially increase its productivity are
capitalized. Expenditures for maintenance and repairs are charged to expense
as incurred. Upon sale or disposal of property, plant and equipment, the asset
cost and related accumulated depreciation are removed from the accounts, and
any gain or loss on the disposal is generally credited or charged to
nonoperating income.
Property, plant and equipment by category at December 31, 1995 and December 25,
1994 were:
1995 1994
At Cost:
Land $ 7,122 $ 6,946
Buildings 77,878 75,788
Equipment 308,282 294,239
Construction in progress 8,843 5,867
402,125 382,840
Depreciation (253,315) (237,106)
$ 148,810 $ 145,734
Goodwill--Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired companies and is amortized on a straight-
line method over periods not exceeding thirty years. The Company carries its
goodwill assets at their purchase prices, less amortized amounts, but subject
to periodic review for impairment. In 1994, the Company changed its accounting
policy for valuation of its long-lived assets, primarily goodwill, to reflect
its cost of capital in calculating the present value of the projected future
cash flows expected to be generated over the lives of those assets. Under this
policy, projections of cash flows for individual business units are discounted
at the approximate incremental cost of borrowing for the Company. This
discounted amount is then compared to the carrying value of the long-lived
assets to determine if their value is impaired (see Note 2). The Company will
adopt the Financial Accounting Standards Board's Statement of Financial
Accounting Standards (FAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" in 1996. This change
in accounting policy is not expected to have a material effect on the financial
statements.
Foreign Currency Translation--The financial position and results of operations
of the Company's foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of these subsidiaries are
translated at the exchange rate in effect at each fiscal year end. Results of
operations are translated at the average rates of exchange prevailing during
the year. Translation adjustments arising from differences in exchange rates
from period to period are included in the accumulated foreign currency
translation adjustments account in shareholders' equity (deficit).
Foreign Exchange Contracts--The Company periodically enters into foreign
exchange contracts to hedge specific inventory purchases and other transactions
denominated in foreign currencies. Premiums received and fees paid on foreign
exchange contracts are deferred and amortized over the period of the contracts.
At December 31, 1995, the Company had outstanding currency contracts to
exchange 264.6 million yen for $.9 million and 1.1 million pounds sterling, and
.6 million pounds sterling for 1.4 million deutsche marks. The Company's
exposure to loss in the event of nonperformance by the other parties to these
contracts is limited to the effect of the currency fluctuations related to the
amounts to be exchanged; however, the Company does not anticipate
nonperformance by the counterparties.
Interest Rate Hedges--The Company utilizes swap agreements to hedge a portion
of its interest rate exposure on floating rate obligations (see Notes 13 and
14). Interest expense increases or decreases are accrued as they occur and are
settled on a quarterly basis. At current interest rates the Company has no
exposure to credit loss.
Research and Development Expenses--Research and development expenditures for
Company sponsored projects are generally expensed as incurred. Research and
development expenses included in selling and administrative expenses were
$2,151, $2,107, and $2,153 for the Engineered Materials segment in 1995, 1994,
and 1993, respectively, and $1,178, $1,303, and $1,092 for the
Handling/Packaging Systems segment in 1995, 1994, and 1993, respectively.
Computation of Common Share Data--The weighted average number of common shares
outstanding used to compute income (loss) per common share for the 1995 period
was 22,691,000 and for the 1994 period was 22,027,000 for primary shares, and
for fully diluted shares was 30,520,000 in the 1995 period. (The weighted
average shares outstanding excludes 7,692,000 contingent shares in the 1994
period related to the convertible preferred stock because the conversion of the
preferred stock into such shares would have an anti-dilutive effect.)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such
estimates may affect amounts reported in future periods.
Accounting for Stock Based Compensation--In October of 1995, the Financial
Accounting Standards Board issued FAS 123, "Accounting for Stock Based
Compensation". The statement, effective for fiscal year 1996, establishes a
fair value based method of accounting for employee stock based compensation
plans and encourages adoption of that method. Companies may, however, continue
to apply the method currently prescribed under existing accounting rules,
provided certain pro forma disclosures are made. The Company plans to retain
the accounting prescribed under the existing rules and will provide the
necessary disclosures in the notes to the consolidated financial statements in
1996.
NOTE 2--Goodwill Write-down
In 1994, the Company concluded that, in the light of its highly leveraged
capital structure and significant losses, a preferable accounting policy for
analyzing the potential impairment of long-lived assets would be to reflect the
cost of capital in computing the present value of the expected cash flows of
its businesses. In particular, the aerospace industry was suffering the
combined impacts of a significant decrease in U.S. military spending in the
post-Reagan years and competitive pricing due to overcapacity in the airline
industry, while the newspaper industry was continuing to go through an
industry-wide consolidation.
Applying this new policy to all of its long-lived assets the Company
determined, with respect to its Aerospace Components and newspaper-related
Packaging businesses, that in the light of the significant deterioration in
business climates in the aerospace and newspaper industries over recent years,
the values of the discounted cash flows were insufficient to recover the
carrying value of the long-lived assets. Therefore, the goodwill included
among those assets was deemed to be impaired. As a result, a charge of $34,174
was recorded for the write-down of goodwill established in connection with the
acquisitions of the Aerospace Components and newspaper-related Packaging
businesses. As of December 31, 1995, the remaining net investment in these
businesses was approximately equal to the value of the discounted projected
cash flows attributable to them, and consisted primarily of tangible assets.
The discounted projected cash flows of the Company's other businesses all
exceeded their carrying values.
NOTE 3--Restructuring Charges
In 1993, the Company provided $5,611 for restructuring costs related to: the
exit from certain lines of business that were part of Handling North America;
the reorganization and downsizing of portions of the European Handling
operation; and, in the Aerospace Components business, the abandonment of
certain product lines which resulted in idled equipment and severance costs
related to a downsizing of the aviation repair workforce. The $5,611 consisted
of $1,676 in severance costs, $1,515 of idled equipment written down to fair
market value, $1,367 of inventory related to the exited businesses and $1,053
of other costs. Quantification of the anticipated effects of the restructuring
on subsequent operating results is not practical because some of the actions
were taken to avoid future costs while other actions were strategic in nature
and implemented to limit exposure to changing market dynamics. These
restructuring activities are complete.
NOTE 4--Cumulative Effect of Change in Accounting Principle
In 1994, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards (FAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" for its foreign
locations. The one-time cumulative effect of this adoption on income was a net
charge of $194 ($.01 per share).
NOTE 5--Extraordinary Loss
In 1995, the Company completed the sale of $100,000 of 12% Senior Notes in a
public offering and entered into a substantial amendment and restatement of its
senior bank credit agreement. Proceeds of the Senior Notes were used to repay
a portion of its outstanding bank debt. This necessitated the write-off of
issuance costs related to the previously outstanding indebtedness which were
originally deferred to be amortized over the original life of the indebtedness.
This resulted in an extraordinary loss of $3,448 (equivalent to $.15 per share)
without any currently usable tax benefit in 1995.
The cash flow impact of the early extinguishment of debt was immaterial.
However, debt issuance and related costs in 1995 had a negative cash flow
consequence of $4,773 which was deducted in determining cash flows from
financing activities in the Consolidated Statement of Cash Flows.
NOTE 6--Business Segment Information
The Company operates in two segments:
Engineered Materials--includes Special Materials, which produces
ferrous metal powder used to manufacture precision parts, and
Aerospace Components, which manufactures precision jet engine
components and repairs jet engine fan blades.
Handling/Packaging Systems--comprised of the Company's Handling
operations, which design, manufacture and sell storage rack, shelving
and related equipment primarily for use in warehouses, distribution
centers and for other storage applications; and the Company's
Packaging operations, which design and sell machinery for applying
strapping and stitching wire, and also supply strapping and stitching
wire for use in such machines.
The accompanying tables present financial information by business segment for
the years 1995, 1994, and 1993. Operating profit consists of net sales of the
segment less all costs and expenses related to the segment. "Corporate Items"
includes items which are not related to either of the two business segments.
Total assets by business segment consist of those assets used directly in the
operations of each segment. Corporate net assets consist principally of cash,
nonoperating investments and prepaid pension cost.
Information About The Company's Business Segments
<TABLE>
Net Sales Operating Profit (Loss) Identifiable Assets
1995 1994 1993 1995 1994 1993 1995 1994 1993
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Engineered Materials
Special Materials $175.7 $153.9 $131.5
Aerospace Components 72.7 62.5 61.0
248.4 216.4 192.5 $ 39.4 $ 32.3 $ 26.3
Goodwill Write-down -- (13.2) --
Restructuring Charge -- -- (1.8)
248.4 216.4 192.5 39.4 19.1 24.5 $172.6 $166.6 $178.3
Handling/Packaging Systems
Handling 441.5 406.0 366.7
Packaging 141.2 130.2 122.1
582.7 536.2 488.8 34.2 28.1 19.1
Goodwill Write-down -- (21.0) --
Restructuring Charge -- -- (3.8)
582.7 536.2 488.8 34.2 7.1 15.3 229.5 221.6 235.1
Corporate Items (2.0) (2.0) (1.6) 57.7 56.8 50.8
Operating Profit 71.6 24.2 38.2
Net Interest Expense (52.5) (50.2) (49.1)
Nonoperating Income (Expense) 1.0 0.5 (5.3)
Consolidated Totals $831.1 $752.6 $681.3 $ 20.1 $(25.5) $(16.2) $459.8 $445.0 $464.2
Depreciation and Amortization
Engineered Materials $ 10.5 $ 11.7 $ 12.2
Handling/Packaging Systems 9.7 11.2 12.6
Corporate Items 0.1 0.2 0.2
Consolidated Total $ 20.3 $ 23.1 $ 25.0
Capital Expenditures
Engineered Materials $ 13.0 $ 8.3 $ 9.0
Handling/Packaging Systems 8.3 7.2 5.5
Consolidated Total $ 21.3 $ 15.5 $ 14.5
Liquidation of LIFO Inventory Quantities
Engineered Materials $ -- $ -- $ --
Handling/Packaging Systems 0.8 1.0 1.2
</TABLE>
Information About The Company's Operations by Geographic Region
The following table presents information about the Company's operations by
geographic area. Transfers between geographic areas, which are all in the
Handling/Packaging Systems segment, are made at prices which approximate the
prices of similar items sold to distributors. Operating profit by geographic
area is the difference between net sales attributable to the area and all costs
and expenses related to that area. Export sales to unaffiliated customers
included in the United States' sales are not material. Sales to domestic and
foreign government agencies are not material.
<TABLE>
<CAPTION>
Net Sales Operating Profit (Loss) Identifiable Assets
1995 1994 1993 1995 1994 1993 1995 1994 1993
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Customer Sales $484.8 $439.1 $390.0
Inter-geographic 2.9 3.5 2.8
Subtotal 487.7 442.6 392.8 $ 54.6 $ 43.1 $ 32.1
Goodwill Write-down -- (34.2) --
Restructuring Charge -- -- (3.8)
487.7 442.6 392.8 54.6 8.9 28.3 $240.3 $240.1 $275.1
United Kingdom
Customer Sales 146.9 135.0 126.9
Inter-geographic 6.2 7.3 4.2
Subtotal 153.1 142.3 131.1 8.9 10.0 6.5
Restructuring Charge -- -- (0.6)
153.1 142.3 131.1 8.9 10.0 5.9 64.7 60.7 56.9
Continental Europe
Customer Sales 89.1 75.1 79.6
Inter-geographic 0.5 0.5 0.2
Subtotal 89.6 75.6 79.8 1.6 1.4 3.1
Restructuring Charge -- -- (0.5)
89.6 75.6 79.8 1.6 1.4 2.6 44.8 40.1 37.8
Canada and Asia Pacific
Customer Sales 110.3 103.4 84.8
Inter-geographic 2.6 2.9 1.2
Subtotal 112.9 106.3 86.0 8.5 5.9 3.7
Restructuring Charge -- -- (0.7)
112.9 106.3 86.0 8.5 5.9 3.0 52.3 47.3 43.6
Corporate Items/Eliminations (12.2) (14.2) (8.4) (2.0) (2.0) (1.6) 57.7 56.8 50.8
Operating Profit 71.6 24.2 38.2
Net Interest Expense (52.5) (50.2) (49.1)
Nonoperating Income (Expense) 1.0 0.5 (5.3)
Consolidated Totals $831.1 $752.6 $681.3 $ 20.1 $(25.5) $(16.2) $459.8 $445.0 $464.2
Liquidation of LIFO Inventory Quantities
United States $ -- $ 0.1 $ --
United Kingdom -- 0.5 1.1
Continental Europe -- 0.1 --
Canada and Asia Pacific 0.8 0.3 0.1
</TABLE>
NOTE 7--Income Taxes
Income (Loss) before taxes, minority interest,
extraordinary loss and accounting changes consisted of:
1995 1994 1993
Domestic $ 4,529 $(39,188) $(25,482)
Foreign 15,573 13,654 9,258
$ 20,102 $(25,534) $(16,224)
The provisions for taxes on income consisted of:
1995 1994 1993
Current:
U.S. Federal $ 2,342 $ 2,688 $ 602
State 3,379 2,892 2,343
Foreign 4,630 3,001 3,697
Total 10,351 8,581 6,642
Deferred:
U.S. Federal 321 (3,493) --
State -- -- --
Foreign 300 1,676 (100)
Total 621 (1,817) (100)
Change in Net Operating Loss Carryforwards:
U. S. Federal -- 3,172 --
Foreign 384 952 --
Total 384 4,124 --
Tax Provision $ 11,356 $ 10,888 $ 6,542
The company reported consolidated income tax expense for all years presented
consisting primarily of current taxes and deferred taxes on income earned in
foreign and state jurisdictions.
In 1995, 1994 and 1993, high levels of interest expense and differences in
income and expense recognition resulted in losses for U.S. federal income tax
purposes.
Since most of the interest expense is borne in the United States at the parent
company level, throughout each period the Company had taxable income in foreign
and state jurisdictions despite the high levels of consolidated interest
expense. For each period presented, the Company also provided for additional
amounts related to open federal tax return years 1982 through 1990. In 1994,
the goodwill write-down did not result in a deduction allowable for tax
purposes. The Company's effective tax rate was 56.5% in 1995. Items
increasing the effective tax rate above the U.S. statutory rate of 35% included
state income taxes (net of federal income tax benefit) of 11.5%, and
adjustments to prior year accruals of 15.0% partially offset by other
insignificant items. In 1994 and 1993, the effective tax rate analysis would
not be meaningful.
The U.S. federal tax net operating loss carry-forward, which was $32,159 at the
end of 1995, will expire in varying amounts starting in 2006 through 2010. The
tax effects of this benefit as well as the net deferred domestic temporary
differences were fully reserved in the valuation allowance principally because
of uncertainties regarding the availability of such benefits in the future and
the company's recent history of tax losses.
Actual cash disbursements for income taxes and other tax assessments were
$6,896, $4,844, and $8,586 in 1995, 1994, and 1993, respectively.
Deferred tax liabilities and assets are comprised of the following:
1995 1994
Deferred tax liabilities
Depreciation $ 21,208 $ 20,123
Other 3,548 3,034
$ 24,756 $ 23,157
Deferred tax assets
Deferred employee benefits $ 17,448 $ 16,905
Net operating loss carryforward 12,151 8,557
AMT credit carryforwards 2,016 2,168
Inventory 2,854 3,407
Recapitalization costs 1,635 2,049
Environmental reserves 2,155 2,189
Other 4,472 3,795
42,731 39,070
Valuation allowances (21,232) (18,165)
$ 21,499 $ 20,905
As of December 31, 1995, U.S. federal income tax returns for the years 1988
through 1990 were in the process of examination. Resolution of tax years 1982-
1984 is pending with the U.S. Tax Court following receipt of a statutory notice
for $17,000 plus penalties and interest. Resolution of tax years 1985-1987 is
pending with the Appeals Division of the Internal Revenue Service. The Company
believes that adequate provision has been made for possible assessments of
additional taxes.
No provision has been made for U.S. income taxes on approximately $38,085 of
undistributed earnings of foreign subsidiaries, some of which are subject to
statutory restrictions on distribution.
NOTE 8--Pensions
The Company has various defined benefit and defined contribution pension plans
which between them cover substantially all employees.
The provision for defined benefit pension costs includes current costs,
interest costs, actual return on plan assets, amortization of the unrecognized
net asset existing at the date of transition and net unrealized gains and
losses. Benefits are computed based mainly on years of service and
compensation during the latter years of employment. Company contributions are
determined according to the funding requirements set forth by ERISA, and in the
case of foreign plans, local statutory requirements.
Certain of the Company's defined benefit plans relate to foreign locations and
are denominated in currencies other than U.S. dollars. All plans use similar
economic assumptions. The following table sets forth the funded status of
domestic and foreign defined benefit plans and the amounts included in the
year-end balance sheet.
1995 1994
Plan assets at fair value $146,787 $131,387
Actuarial present value of
accumulated benefit obligation:
Vested benefits 133,880 108,143
Non-vested benefits 1,103 1,243
134,983 109,386
Effect of assumed future compensation increases 14,955 13,452
Projected benefit obligation for service to date 149,938 122,838
Plan assets in excess of projected benefit obligation (3,151) 8,549
Items not yet recognized in earnings:
Unrecognized net asset at December 28, 1986
(being recognized over 15 years) 11,994 13,881
Unrecognized net actuarial gain (loss) (15,558) (6,231)
Unrecognized prior service cost (7,236) (6,456)
(10,800) 1,194
Prepaid (Accrued) pension liability $ 7,649 $ 7,355
In aggregate, the plans are underfunded by $3,151 at December 31, 1995 compared
with an overfunded balance of $8,549 at December 25, 1994. This change was
caused, in large part, by a reduction in the discount rate used in the various
pension plans.
Net pension cost (income) included in operating profit for these plans consists
of the following components:
1995 1994 1993
Service cost $ 3,470 $ 3,679 $ 3,068
Interest cost 10,361 9,747 9,298
Actual return on plan assets
[(income) loss] (15,952) (6,795) (12,107)
Net amortization and deferred items 2,105 (7,657) (434)
Net pension cost (income) $ (16) $ (1,026) $ (175)
Assumptions used in the computations:
Assumed discount rate 7.5-9% 7.5-9% 7-9%
Expected long-term rate of return
on plan assets 8.5-9% 8.5-9% 7-9%
Rate of increase in future
compensation levels 4-6% 4-7% 4-6%
Pension plan assets are primarily invested in common and preferred stock, short
and intermediate term cash investments, and corporate bonds.
The expense for the Company's defined contribution pension plans covering
certain domestic employees was $2,526, $1,835, and $2,267 in 1995, 1994, and
1993, respectively. Annual contributions to defined contribution plans are
equal to the amounts accrued during the year.
In 1989, the Company established a non-contributory, defined contribution
employee stock ownership plan (ESOP) covering all domestic employees not
covered by collective bargaining agreements. Company contributions are
allocated to participants based on the ratio each participant's compensation
bears to the total compensation of all eligible participants. The Company
makes contributions to the plan in the amount necessary to enable the plan to
make its regularly scheduled payments of principal and interest on its term
loan under the bank credit agreement (see Note 13). Amounts charged to
employee benefits and interest during the year totalled $1,709 and $824,
respectively, in 1995, $1,307 and $741, respectively, in 1994, and $1,508 and
$703, respectively, in 1993.
NOTE 9--Postretirement Benefits Other Than Pensions
In 1994, the Company adopted FAS No. 106, "Employers' Accounting for Post
Retirement Benefits Other Than Pensions" for its foreign locations. The one-
time cumulative effect of this adoption on income was a net charge of $194.
The following table sets forth the status of the plans, reconciled to the
accrued cost for postretirement medical and life benefits recognized in the
Company's year-end balance sheet.
1995 1994
Accumulated postretirement benefit obligation:
Retirees $23,017 $22,751
Fully eligible active plan participants 2,403 2,203
Other active plan participants 2,082 1,975
Total accumulated postretirement benefit
obligation 27,502 26,929
Unrecognized prior service cost 2,013 2,177
Unrecognized gain (loss) 4,996 5,595
Accrued postretirement benefit cost $34,511 $34,701
Net periodic postretirement benefit cost included the following components:
1995 1994 1993
Service cost on benefits earned $ 172 $ 205 $ 242
Interest cost on accumulated postretirement
benefit obligation 2,082 2,062 2,389
Unrecognized prior service cost (164) (164) (123)
Unrecognized gain (loss) (307) (118) (57)
Net periodic postretirement benefit cost
charged to results from operations $ 1,783 $ 1,985 $ 2,451
For measuring the expected postretirement benefit obligation, a 13% annual rate
of increase in the per capita claims cost was assumed for 1995. This rate was
assumed to decrease 1% per year to 6% in 2002 and remain at that level
thereafter. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% at December 31, 1995 and
8.5% at December 31, 1994. The rate of compensation increase used to measure
the accumulated postretirement benefit obligation for the death benefit plans
was 4% in both 1995 and 1994.
If the health care cost trend rate were increased 1%, the accumulated
postretirement benefit obligation as of December 31, 1995 would have increased
by 5%. The effect of this change on the aggregate of service and interest cost
for 1995 would be an increase of 6%.
The provision for postretirement benefits other than pensions included in
operating profit was $1,045, $1,107, and $167 in 1995, 1994, and 1993,
respectively. In 1993, costs were lower because of benefit changes made by the
Company which resulted in a curtailment gain of $1,141. The provision for such
costs included in nonoperating income was $738, $878, and $1,143 in 1995, 1994,
and 1993, respectively.
NOTE 10--Convertible Exchangeable Preferred Stock
In 1992, the Company issued 40,000 shares of Series A Preferred Stock. The
preferred stock is convertible into common stock and bears a 9% per annum
dividend payable semi-annually beginning December 31, 1992. The preferred
stock initially was convertible at $6.50 per share. However, to the extent
dividends are not paid in cash on the semi-annual dividend payment date, an
adjustment is made which reduces the per share conversion price. Upon such an
adjustment, all accrued and unpaid dividends on the shares of preferred stock
through the date of adjustment cease to be accrued and unpaid. Dividends have
not been paid on the preferred shares since their issuance, and due to
restrictions in the bank credit agreement and the indentures relating to the
Company's Senior Subordinated Debentures and the Senior Notes, it is not
expected that cash dividends will be paid on the preferred stock for the
foreseeable future. Accordingly, it is expected that the conversion price of
the preferred stock will continue to decline approximately 4.5% on each semi-
annual dividend payment date, resulting in an increase in the aggregate number
of shares of common stock issuable upon conversion of the preferred stock. As
a result of the operation of these provisions, the conversion price of the
preferred stock was reduced to $4.77 per share as of December 31, 1995. In
addition, to the extent dividends are not paid on the preferred stock in cash,
the liquidation preference on the preferred stock increases at a rate of 9% per
year, compounded semi-annually, and as of December 31, 1995 was $54,602. Upon
certain events defined as "changes in control" or fundamental changes, the
holders of the preferred stock have the right to require the Company to
purchase the shares at the liquidation preference value, subject to certain
limitations. The Company believes that the probability of these events
occurring is remote and, therefore, the preferred stock is not stated at the
liquidation preference value.
NOTE 11--Shareholders' Equity (Deficit)
In 1992, the Company sold 11,488,000 shares of common stock, par value $1 per
share, in an underwritten public offering at a public offering price of $4.00
per share. The net proceeds of this sale of $41,759 were added to common stock
and additional paid-in capital in the amounts of $11,488 and $30,271,
respectively. Each share of common stock has the right to one vote per share
on all matters submitted to a vote of the shareholders of the Company.
In 1992, a new class of non-voting common stock with a par value of $1 per
share was created, of which 15,000,000 shares were authorized. None has been
issued. Shares of non-voting common stock have no voting rights except as
otherwise provided or as required by law.
No dividend payments were made in 1995, 1994, and 1993 and, due to restrictions
in the bank credit agreement and the indentures relating to the Senior
Subordinated Debentures and the Senior Notes, it is not expected that cash
dividends will be paid in the foreseeable future.
The Company established an ESOP in 1989 with an initial contribution of 10,000
shares, followed by the sale of 1,100,000 shares to the ESOP. Under a related
stock purchase program, the Company's Board of Directors authorized the
purchase of the lesser of 1,100,000 shares or the number of shares purchasable
for $16,088 in the open market or in privately negotiated transactions. As of
December 31, 1995, a total of 893,739 shares had been acquired at a cost of
$11,083, unchanged from the prior year end. Further repurchases under the
stock purchase program are prohibited by the Company's bank credit agreement
and the indentures related to its Senior Subordinated Notes and Senior Notes.
Unearned compensation represents estimated future charges to income by reason
of the ESOP and stock awards previously granted. Principal and interest
payments on the ESOP borrowings are charged against earnings as employee
compensation and interest expense, respectively.
In 1989, the Board of Directors declared a stock right dividend distribution.
The purpose of these rights is to protect the Company against certain unfair
and abusive takeover tactics. In certain circumstances, shareholders, other
than certain holders of 15% or more of Interlake's stock, have the right to
purchase Interlake stock from Interlake for less than its market price. In
certain circumstances, Interlake shareholders can purchase, for less than
market value, shares of a company which acquires The Interlake Corporation.
NOTE 12--Stock Incentive Plans
The Company has in place two stock incentive programs adopted by its Board of
Directors and approved by the shareholders--the 1986 Stock Incentive Program
(the "1986 Program") and the 1989 Stock Incentive Program (the "1989 Program"
and, together with the 1986 Program, the "Stock Incentive Programs"). The
Stock Incentive Programs provide for the grant of awards and options for shares
of the Company's common stock to officers, key employees and outside directors
of the Company and its subsidiaries. The 1989 Program also provides for the
grant of shares of common stock in lieu of cash bonuses and the 1986 Program
also provides for the grant of stock appreciation rights.
A summary of stock option activity under the Stock Incentive Programs follows:
1995 1994
Average Average
Shares Price Shares Price
Stock Options:
Outstanding-beginning of year 1,076,288 $6.15 1,188,162 $6.15
Granted 50,000 4.00 -- --
Exercised -- -- -- --
Canceled or expired (139,808) 7.10 (111,874) 6.13
Outstanding-end of year 986,480 5.91 1,076,288 6.15
Exercisable-end of year 682,380 6.76 535,663 8.31
Available shares 309,337 908,529
NOTE 13--Long-Term Debt and Credit Arrangements
Long-term debt of the Company consists of the following:
December 31, Interest December 25, Interest
1995 Rates 1994 Rates
Senior Subordinated Debentures $220,000 12.13% $220,000 12.13%
Senior Notes 100,000 12.00 -- --
Term Loans 56,478 8.44-9.31 94,383 8.00-8.63
Delayed Draw Term Loan -- -- 11,125 8.00
Deferred Term Loans -- -- 7,500 8.00
Revolving Loans 37,742 8.44-9.31 76,314 8.00-8.63
ESOP Note 7,943 8.44 10,055 8.00
Obligations under long-term
lease agreements 7,470 6.13-7.88 8,930 6.13-7.88
Pollution control and industrial
development loan agreements 12,150 6.25-7.13 12,150 6.25-7.13
Other 1,832 -- 1,994 --
443,615 442,451
Less-current maturities 3,759 24,553
$439,856 $ 417,898
Weighted average interest rate 11.80% 11.16%
During 1995, the Company completed the sale of $100,000 of 12% Senior Notes due
2001 in a public offering. The proceeds from the offering were used to repay a
portion of the indebtedness outstanding under the Company's senior bank credit
facilities. Concurrent with the closing of the sale of the Senior Notes and
the repayment of a portion of its outstanding bank debt, the Company and its
bank group completed a substantial amendment to the Company's senior bank
credit agreement to defer the amortization of substantially all of the
remaining bank indebtedness until 1999 and to revise certain terms and
financial covenants of the bank credit agreement.
At the end of 1995, the bank credit agreement provided facilities for term
loans of $62,262, revolving loans of up to $102,337 (subject to limitations
described below), and ESOP loans of $7,943. Principal repayments for term and
revolving loans are due in 1999. Principal amounts for ESOP loans are due in
varying amounts through 1999.
Under the terms of the bank credit agreement, the Company pays a commitment fee
of 1/2 percent on unused credit facilities and, in 1995, had the option to
borrow funds under the revolving and term facilities at the prime rate plus 1
3/4 percent, or various London Interbank Offered Rates (LIBOR) plus 2 3/4
percent, with such rates adjusted periodically. The bank credit agreement
borrowing rates at December 31, 1995 ranged from 8.44% to 9.31%. At the end of
1995, the Company had interest rate hedging arrangements with members of the
bank group fixing interest rates on $80,250 of debt under the bank credit
agreement at 8.59% plus the applicable spread. These agreements mature on a
quarterly basis through 1997. Without the swap agreements, the weighted
average cost of borrowing would have been .5 percentage points lower in 1995,
1.2 percentage points lower in 1994 and 1.6 percentage points lower in 1993.
The Senior Subordinated Debentures were sold in 1992 and bear interest at 12
1/8%. Principal repayment is due in 2002, with sinking fund payment of $50,000
in 2001.
The long-term lease obligations relate principally to capitalized pollution
control facilities. The interest rates on these obligations vary from 6.125%
to 7.875%. Principal repayments are due in varying amounts through 2002.
The Company has borrowed funds under several loan agreements with state and
county pollution control and industrial development authorities to finance
certain environmental and facility expansion and improvement projects.
Interest rates on these obligations vary from 6.25% to 7.125%. Principal
repayments are to be made in varying amounts from 1998 to 2009. At the time of
the spin-off of Acme Steel Company from the Company in 1986, Acme entered into
a parallel loan agreement in favor of the Company with respect to pollution
control bonds related to its facilities, which are currently outstanding for
$6,000.
The schedule of debt repayment requirements for the five years following 1995
is as follows:
1996 $3,759
1997 4,203
1998 4,072
1999 98,343
2000 339
Based on current levels of performance, which, if maintained throughout the
year will provide the Company with leeway under its bank credit agreement
covenants, and based on the availability of additional revolver borrowings
under the Company's bank credit agreement, the Company believes that it will
have adequate liquidity to meet its debt service and operating requirements in
1996. Under the bank credit agreement, the Company is able to borrow under its
revolving facility up to an additional $40,832 over the 1995 year-end revolving
indebtedness. In addition, the Company has available up to $5,784 of delayed
draw term loan for amounts that may be incurred in connection with certain
environmental matters.
Under the bank credit agreement the Company is limited in its ability to pay
cash dividends and repurchase its common stock. There are no plans to pay
dividends in the immediate future. In addition to scheduled repayments of
debt, the bank credit agreement requires certain mandatory prepayments in
connection with asset dispositions, issuances of stock, incurrence of
indebtedness and generation of annual excess cash flows. The bank credit
agreement contains covenants relating to earnings before interest, taxes and
depreciation and amortization; capital expenditures; and net worth. Amounts
available under the revolving facility are limited based upon percentages of
qualified receivables and inventories. Substantially all of the Company's
assets are pledged under the bank credit agreement.
In 1999, the Company has debt amortization requirements of $98,343, which it
does not expect to be able to meet from operating cash flow. The Company
continues to evaluate alternative actions to repay or refinance some or all of
its long-term debt obligations.
Actual cash disbursements for interest were $55,028, $49,413, and $48,326 in
1995, 1994, and 1993, respectively.
At December 31, 1995, the Company had unamortized deferred debt issuance costs
of $8,319 included in other assets which are being amortized as part of
interest expense over the lives of the related debt issues. Amortization
included in interest expense was $2,053, $2,199, and $1,786, in 1995, 1994, and
1993, respectively.
NOTE 14--Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents--The carrying amount approximates fair value
because of the short maturities of such instruments.
Other assets--The fair values for financial instruments included in other
assets were estimated based on quoted market prices for the same or similar
issues.
Long-term debt (See Note 13)--The interest rate on the Company's bank debt
is reset every quarter to reflect current market rates. Consequently, the
carrying value of the bank debt approximates fair value. The fair values of
the long-term debt other than bank debt were estimated based on quoted
market prices for the same or similar issues.
Convertible exchangeable preferred stock (See Note 10)--The fair value of
the preferred stock, which was issued in a private placement, is included
in the following table at carrying value as such stock is not traded in the
open market and a market price is not readily available.
Foreign exchange contracts (See Note 1)--The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of
the contracts using applicable spot rates and thirty day forward rates as of
the end of the fiscal year.
Interest rate swap agreements (See Note 13)--The fair value of interest rate
swaps (used for hedging purposes) is the estimated amount that the Company
would pay to terminate the swap agreements at the reporting date, taking
into account current interest rates and the present creditworthiness of the
swap counterparties. The Company does not expect to cancel these
agreements, and expects them to expire as originally contracted.
The estimated fair values of the Company's financial instruments are as
follows:
December 31, December 25,
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 41,562 $41,562 $ 39,708 $ 39,708
Other assets 6,000 5,490 6,000 5,220
Long-term debt* 436,145 425,898 433,521 418,440
Convertible exchangeable
preferred stock 39,155 39,155 39,155 39,155
Foreign currency contract
assets -- (64) -- (43)
Interest rate swap liabilities -- 3,561 932 1,838
* Includes current maturities and excludes capitalized long-term leases
NOTE 15--Environmental Matters
In connection with the reorganization of the old Interlake, Inc. (now Acme
Steel Company ("Acme")) in 1986, the Company, then newly-formed, indemnified
Acme against certain environmental liabilities relating to properties which had
been shut down or disposed of by Acme's iron and steel division prior to the
1986 reorganization. The Company recorded a charge of $6,000 in 1991 and a
charge of $4,750 in 1993 for anticipated liabilities for environmental matters
relating to nonoperating sites. As of December 31, 1995, the Company's
reserves for environmental liabilities totalled $4,700.
Based on its current estimate of its potential environmental liabilities,
including all contingent liabilities, individually and in the aggregate,
asserted and unasserted, the Company believes that the costs of environmental
matters have been fully provided for or are unlikely to have a material adverse
effect on the Company's business, future results of operations, liquidity or
consolidated financial condition. In arriving at its current estimate of its
potential environmental liabilities, the Company has relied upon the estimates
and analysis of its environmental consultants and legal advisors, as well as
its own evaluation, and has considered: the probable scope and cost of
investigations and remediations for which the Company expects to have
liability; the likelihood of the Company being found liable for the claims
asserted or threatened against it; and the risk of other responsible parties
not being able to meet their obligations with respect to clean-ups. In
estimating its potential environmental liabilities, the Company has not taken
into consideration any potential recoveries from insurance companies, although
in May 1994 the Company instituted an action seeking a declaratory judgment
against and recoveries from insurers under policies covering nearly 30 years.
The parties are in discovery and trial is tentatively set for March 1997. The
Company's estimate has not been discounted to reflect the time-value of money,
although a significant delay in implementation of certain of the remedies
thought to be probable could result in cost estimates increasing due to
inflation.
The Company's current estimates of its potential environmental liabilities are
subject to considerable uncertainty due to the continuing uncertainty
surrounding one of the sites for which the Company is responsible pursuant to
its indemnity of Acme -- namely, the Superfund site on the St. Louis River in
Duluth, Minnesota (the "Duluth Site"). These uncertainties relate to both the
clean-up of certain contaminated soils at the site, as well as the remediation
of certain underwater sediments. In the light of these uncertainties, the
Company's estimates could be subject to change in the future.
With respect to the contaminated soils, the Minnesota Pollution Control Agency
("MPCA") on September 27, 1995, issued a Record of Decision selecting a remedy
consistent with the anticipated industrial development of the site. The
Company's consultants have estimated the cost of implementing the portions of
the selected remedy for which the Company is responsible to be between $3,000
and $5,000. The Company expects the soils remediation to be substantially
completed by the end of 1996.
With respect to the underwater sediments, the MPCA has requested the Company to
undertake an investigation and to evaluate remedial alternatives. The MPCA and
the Company have substantially agreed on the initial scope of the sediments
investigation, and the Company's consultants commenced the investigation in
February 1996. The Company believes that any estimate of the potential costs
of remediating the underwater sediments will not be meaningful until the
investigation is completed and possible remedial alternatives are reviewed by
the Company and the MPCA. The Company also believes that the range of
reasonable remedial alternatives for the underwater sediments includes that of
taking no action, thereby avoiding the disruption of the natural remediation of
the underwater sediments which has been under way for over 30 years. Thus, the
Company believes the minimum of the range of costs of remedial alternatives to
be zero, and to date has made provision for only the investigation, and not for
the clean-up, of underwater sediments. Were a clean-up determined to be
appropriate after investigation, the range of costs would likely be dependent
in part upon whether the remedy selected called for treating contamination in
place, which might cost several millions of dollars, or provided for removal
and treatment of contaminated sediments, which could cost tens of millions of
dollars.
In March 1994, the citizens' board of the MPCA, contrary to the recommendation
of the MPCA professional staff, named only the Company as a responsible party
with respect to the underwater sediments at the Duluth Site. The MPCA staff
had recommended that the successors to certain coal tar processors at the site
(the "tar companies") also be named as responsible parties. The Company
believes that the tar companies are the cause of a significant portion of the
underwater contamination of the site. In November 1995, the MPCA staff again
recommended the naming of the tar companies as responsible parties for the
underwater sediments. The matter is scheduled for rehearing by the citizens'
board in March 1996.
The Company's current expectation is that cash outlays related to its
outstanding reserves for environmental matters will be made over the period of
1996 and 1997. If the Company ultimately determines that additional charges
beyond its present reserves are necessary in connection with the Duluth Site,
the Company believes it is likely that cash outlays would occur near the end of
the decade, or later.
NOTE 16--Commitments and Contingencies
The Company is engaged in certain routine litigation arising in the ordinary
course of business. Based upon its evaluation of available information,
management does not believe that any such matters are likely, individually or
in the aggregate, to have a material adverse effect upon the Company's business
future, results of operations, liquidity or consolidated financial condition.
On July 9, 1990, the City of Toledo, Ohio (the "City"), brought an action in
federal district court (the "Court") in Toledo against the Company, Acme Steel
Company ("Acme" or the "old Interlake" and, together with the Company, the
"Interlake defendants"), Beazer Materials and Services, Inc. succeeded by
Beazer East, 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 widening a road. The City
alleged various claims under the Resource Conservation Recovery Act ("RCRA")
and the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), and under common law. 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 agreed to
indemnify the Interlake defendants against environmental liabilities. Koppers,
in turn, sold the facility to Toledo Coke. The Interlake defendants cross-
claimed against Beazer under its indemnity. In June 1995, the Court denied the
City's motion for an injunction under RCRA compelling the defendants to clean
up the Toledo Coke site. The City is appealing the Court's ruling. In January
1996, the Court ruled that the Interlake defendants were liable under CERCLA
for costs of investigation incurred by the City, and for future costs of
remediation to the extent they are consistent with the National Contingency
Plan under Superfund. The City represents its costs of investigation to have
been approximately $400 and the costs of future remediation to be between
$4,000 and $10,000. In between the RCRA and the CERCLA rulings, the Court, in
November 1995 granted the Interlake defendants' motion for summary judgment
seeking indemnification by Beazer for the liabilities alleged by the City. The
Company expects Beazer to appeal the indemnification ruling.
On March 10, 1995, SC Holdings, Inc., a subsidiary of Waste Management
International Plc ("SC Holdings"), filed a complaint in federal district court
in Trenton, New Jersey, against Hoeganaes Corporation, an Interlake subsidiary,
and numerous other defendants, seeking to recover amounts expended or to be
expended in the remediation of the Cinnaminson Groundwater Contamination Site
in Burlington County, New Jersey. SC Holdings claims to have spent
approximately $10,000 in investigation and remediation, and purportedly
estimates the total costs of investigation and remediation to be approximately
$60,000. The site is a broadly-defined Superfund site which encompasses a
landfill formerly operated by SC Holdings and may also include the groundwater
under Hoeganaes' Riverton, New Jersey, facility. Hoeganaes may have shipped
certain materials to the landfill. SC Holdings alleges that Hoeganaes has
liability as both an owner/operator and a generator. In November 1995, the
named defendants filed a complaint against numerous third-party defendants,
bringing the total number of defendants in the matter to approximately 100.
The matter is in the preliminary stage of discovery. The Company believes it
has meritorious defenses to both of the alleged bases of liability.
NOTE 17--Quarterly Results (Unaudited)
Quarterly results of operations for 1995 and 1994 were as follows:
(in millions except per share data)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1995
<S> <C> <C> <C> <C>
Net sales
Engineered Materials $ 64.8 $ 62.5 $ 60.5 $ 60.6
Handling/Packaging Systems 142.1 143.9 149.7 147.0
206.9 206.4 210.2 207.6
Gross Profit 50.9 49.3 47.6 48.9
Operating profit
Engineered Materials 10.8 10.4 9.8 8.4
Handling/Packaging Systems 8.2 7.6 6.9 11.5
Corporate Items (.3) (.7) (.5) (.5)
Operating profit 18.7 17.3 16.2 19.4
Income before accounting change and
extraordinary item .4 .7 .3 2.8
Net income (loss) .4 (2.7) .3 2.8
Income before accounting change and
extraordinary item per common share .02 .03 .01 .12
Net income (loss) per common share .02 (.12) .01 .12
1994
Net sales
Engineered Materials $ 48.2 $ 54.4 $ 54.2 $ 59.6
Handling/Packaging Systems 121.1 127.7 139.5 147.9
169.3 182.1 193.7 207.5
Gross Profit 39.5 43.4 42.9 49.9
Operating profit
Engineered Materials 7.8 8.1 6.8 9.6
Handling/Packaging Systems 5.5 5.8 7.9 8.9
Corporate Items (1.3) (.3) (.3) (.1)
Operating profit before goodwill write-down 12.0 13.6 14.4 18.4
Goodwill write-down -- -- -- (34.2)
Operating profit 12.0 13.6 14.4 (15.8)
Income (loss) before accounting change (2.4) (2.4) (1.9) (33.9)
Net income (loss) (2.6) (2.4) (1.9) (33.9)
Income (loss) before accounting change
per common share (.11) (.11) (.08) (1.54)
Net income (loss) per common share (.12) (.11) (.08) (1.54)
</TABLE>
In the second quarter of 1995, an extraordinary loss of $3.4 (net of tax) was
recorded to reflect the write-off of deferred debt issuance costs (see Note 5).
In the fourth quarter 1994, the Company revised its accounting policy for
valuing its long-lived assets to include the cost of capital in estimating the
total projected future cash flows from its business units. The Company
determined that in the case of certain businesses, the projected cash flows on
a discounted basis were insufficient to recover the carrying value of the
assets. As a result, certain goodwill assets totalling $34.2 were written off
(see Note 2).
Nonoperating (income) and expense consists of items which are not related to
activities that constitute the Company's ongoing operations. Nonoperating
income was recorded in the first quarter of 1994 in the amount of $1.1 related
to a one-time gain from settlement of a real-estate matter with a local
transportation authority.
Benefits to pretax income due to reductions in LIFO inventories were $.8 and
$.6 in the first quarter of 1995 and 1994, respectively, and $.4 in the fourth
quarter of 1994.
Selected Financial Data
(in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
For the Year
<S> <C> <C> <C> <C> <C>
Net sales $831,103 $752,592 $681,330 $708,199 $714,742
Income (loss) before extraordinary
loss and accounting change $ 4,213 $(40,557)<F1>$(25,962)<F2><F3>$(13,990)<F2> $(13,744)<F2><F3>
Net income (loss) $ 765<F4>$(40,751)<F1>$(25,962)<F2><F3>$(27,698)<F2><F4>$(13,744)<F2><F3>
Income (loss) before extraordinary
loss and accounting change
per common share $ .18 $ (1.84)<F1>$ (1.18)<F2><F3>$ (.84)<F2> $ (1.31)<F2><F3>
Net income (loss) per common share $ .03 $ (1.85)<F1>$ (1.18)<F2><F3>$ (1.67)<F2><F4>$ (1.31)<F2><F3>
Average number of shares outstanding:
Primary 22,691 22,027 22,027 16,574 10,484
Fully Diluted 30,520 N/A N/A N/A N/A
At Year End
Working capital
--cash and cash equivalents $41,562 $ 39,708 $ 31,934 $ 38,640 $ 10,541
--other working capital 58,209 27,911 41,935 54,149 50,806
--total working capital 99,771 67,619 73,869 92,789 61,347
--current ratio 1.6 to 1 1.4 to 1 1.5 to 1 1.6 to 1 1.4 to 1
Total assets $459,802 $444,953 $464,160 $511,292 $478,067
Long-term debt, including current maturities 443,615 442,451 443,135 450,801 471,441
Convertible Exchangeable Preferred Stock 39,155 39,155 39,155 39,155 --
Common shareholders' equity (deficit) (291,677) (296,435) (259,767) (232,718) (239,465)
<FN>
<F1>includes a charge for goodwill write-down of $34,174 (see Note 2)
<F2>includes restructuring charges of $5,611, $2,523, and $3,344, in 1993,
1992, and 1991 (see Note 3 )
<F3>includes nonoperating charges for environmental matters of $4,750 in 1993
and $6,000 in 1991 (see Note 15)
<F4>includes extraordinary loss on early extinguishment of debt of $3,448 in
1995 (see Note 5) and $7,567 in 1992 and cumulative effect of changes in
accounting principles of $6,141 in 1992
</TABLE>
1995 was a 53-week year while all other periods were 52-week years
Market for Interlake's Common Equity and Related Stockholder Matters
The principal market for Interlake's common stock is the New York Stock
Exchange (ticker symbol IK). The common stock is also listed on the Chicago
Stock Exchange and is admitted to unlisted trading on the Pacific Stock
Exchange and the Boston Stock Exchange.
Interlake has not paid a dividend or made a distribution with respect to its
common stock since the third quarter of 1989. Restrictions under Interlake's
bank credit agreement and the indentures relating to its Senior Subordinated
Debentures and Senior Notes (see Note 13) will prevent it from paying any cash
dividends in 1996 or in the foreseeable future.
On December 31, 1995, there were approximately 6,987 holders of record of
Interlake's common stock.
High and low prices of Interlake's common stock as reported on the NYSE
composite ticker tape during each of the eight calendar quarters during the
period ending on December 31, 1995 were:
1995 1994
Price Price
High Low High Low
Calendar Quarter Ended
March 31 $2 3/8 $1 3/4 $3 7/8 $2 5/8
June 30 3 1/4 2 1/4 3 1/4 2 1/8
September 30 3 1/4 2 1/8 2 5/8 1 7/8
December 31 2 1/2 1 5/8 2 3/8 1 1/2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,703
<SECURITIES> 31,859
<RECEIVABLES> 135,756
<ALLOWANCES> 3,425
<INVENTORY> 78,730
<CURRENT-ASSETS> 267,723
<PP&E> 402,125
<DEPRECIATION> 253,315
<TOTAL-ASSETS> 459,802
<CURRENT-LIABILITIES> 167,952
<BONDS> 0
<COMMON> 23,229
39,155
0
<OTHER-SE> (314,906)
<TOTAL-LIABILITY-AND-EQUITY> 459,802
<SALES> 831,103
<TOTAL-REVENUES> 831,103
<CGS> 634,386
<TOTAL-COSTS> 634,386
<OTHER-EXPENSES> 125,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,320
<INCOME-PRETAX> 20,102
<INCOME-TAX> 11,356
<INCOME-CONTINUING> 4,213
<DISCONTINUED> 0
<EXTRAORDINARY> (3,448)
<CHANGES> 0
<NET-INCOME> 765
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
LIST OF SUBSIDIARIES EXHIBIT 21
THE INTERLAKE CORPORATION
State or Country
Corporate Name Parent Company of Incorporation
Acme Gerrard Limited Precis (935) Limited England
Acme Strapping Inc. Interlake Packaging Corporation Canada
The Interlake Companies, Inc.
Apton GmbH Dexion GmbH Germany
Arwood International, Inc. Interlake ARD Corporation New Jersey
Chem-tronics, Inc. The Interlake Companies, Inc. California
Ciceri & Company Limited Dexion Group plc England
Conco-Tellus Inc. The Interlake Companies, Inc. Delaware
Construction & Industrial
Supplies Limited Dexion International Limited England
Dexion-Aura GmbH Dexion GmbH Germany
Dexion (Australia) Pty. Ltd. Interlake DRC Limited New South Wales,
Australia
Dexion Control Systems
Limited Dexion International Limited England
Dexion GmbH Dexion Holding GmbH Germany
Dexion Group plc Interlake DRC Limited England
Dexion Holding GmbH Dexion Group plc Germany
Dexion Holdings Limited Dexion Group plc England
Dexion Incorporated The Interlake Companies, Inc. Delaware
Dexion International Limited Dexion Group plc England
Dexion Limited Dexion International Limited England
Dexion (North Asia) Ltd.(1) The Interlake Companies, Inc. Hong Kong
Dexion Produktions GmbH Dexion Holding GmbH Germany
Dexion S.A. Dexion Holding GmbH France
Dexion sro Dexion Holding GmbH Czech
Gary Steel Supply Company The Interlake Companies, Inc. Illinois
Hoeganaes Corporation The Interlake Companies, Inc.(2) Delaware
Hoeganaes Development, Inc. Hoeganaes Corporation Delaware
Interlake ARD Corporation The Interlake Companies, Inc. Delaware
Interlake Australian Mining
Ventures, Inc. The Interlake Companies, Inc. Ohio
Interlake DRC Limited The Interlake Companies, Inc. Delaware
Interlake Foreign Sales The Interlake Companies, Inc.(70%) Barbados, W.I.
Corporation Hoeganaes Corporation (30%)
Interlake de Mexico, S.A. de C.V. The Interlake Companies, Inc. (99%) Mexico
Interlake Steel Corporation (1%)
Interlake Newco Corporation The Interlake Corporation Delaware
Interlake Packaging
Corporation The Interlake Companies, Inc. Delaware
Interlake Steel Corporation The Interlake Companies, Inc. Arizona
Pakseal Power Industries Ltd. England
Pakseal Industries Limited Power Industries Limited England
Pakseal S.A.R.L. Power Industries Limited France
Pakseal S.R.L. Power Industries Limited Italy
Power Industries Limited Twicebonus Limited England
Power Strap Limited Pakseal Industries Limited (50%) England
Power Industries Limited (50%)
Precis (935) Limited Interlake DRC Limited England
Redirack GmbH Dexion GmbH Germany
Redirack Limited Dexion International Limited England
S.A. Dexion-Redirack N.V. Dexion Group plc Belgium
Seal-less Strapping Industries
Limited Acme Strapping Inc. Canada
Southern Counties Storage
Equipment Limited Dexion International Limited England
The Interlake Companies, Inc. The Interlake Corporation Delaware
TIC Assurance Ltd. The Interlake Companies, Inc. Cayman Islands
Twicebonus Limited Interlake DRC Limited England
Westore Limited Dexion Group plc England
Witty & Wyatt Equipment Dexion International Limited England
Limited
1 20% owned by Peter Kedge
2 20% of capital stock, all of which is voting common stock, is owned by
Hoganas Aktiebolag
