SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
As of April 15, 1996, 23,112,999 shares of the Registrant's common stock were
outstanding.
THE INTERLAKE CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements as of and for the periods ended
March 31, 1996 and April 2, 1995 are unaudited, but include all adjustments
which the Registrant considers necessary for a fair presentation of results of
operations and financial position for the applicable periods. Except as noted,
all adjustments are of a normal recurring nature.
Consolidated Statement of Operations
For the Periods Ended
March 31, 1996 and April 2, 1995
(In thousands except per share statistics)
1996 1995
(13Wks) (14 Wks)
Net Sales $200,001 $206,898
Cost of Products Sold 152,795 155,979
Selling and Administrative Expense 30,747 32,212
Operating Profit 16,459 18,707
Non-operating (Income) Expense (216) (71)
Earnings Before Interest and Taxes 16,675 18,778
Interest Expense 13,514 13,950
Interest Income (490) (471)
Income Before Taxes and Minority Interest 3,651 5,299
Provision for Income Taxes 2,510 3,489
Income Before Minority Interest 1,141 1,810
Minority Interest in Net Income of Subsidiaries 963 1,416
Net Income $ 178 $ 394
Net Income Per Share:
Primary Net Income Per Share $ .01 $ .02
Fully Diluted Net Income Per Share $ .01 $ .01
Average Shares Outstanding:
Primary 23,035 22,341
Fully Diluted 31,413 29,921
THE INTERLAKE CORPORATION
Consolidated Balance Sheet
March 31, 1996 and December 31, 1995
(Dollars in thousands)
Assets 1996 1995
Current Assets:
Cash and cash equivalents $ 20,692 $ 41,562
Receivables, less allowances for doubtful accounts of
$3,240 at March 31, 1996 and $3,425 at December 31, 1995 131,430 132,331
Inventories - Raw materials and supplies 24,203 23,590
- Semi-finished and finished products 61,832 55,140
Other current assets 16,904 15,100
Total Current Assets 255,061 267,723
Other Assets 42,691 43,269
Property, Plant and Equipment, at cost 403,479 402,125
Less - Depreciation and amortization (256,306) (253,315)
147,173 148,810
Total Assets $444,925 $459,802
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 73,322 $ 75,266
Accrued liabilities 39,117 47,464
Interest payable 7,545 11,150
Accrued salaries and wages 17,300 15,648
Income taxes payable 14,173 14,665
Debt due within one year 4,071 3,759
Total Current Liabilities 155,528 167,952
Long-Term Debt 438,529 439,856
Other Long-Term Liabilities and Deferred Credits 102,888 104,516
Preferred Stock - 2,000,000 shares authorized
Convertible Exchangeable Preferred Stock - Redeemable,
par value $1 per share, issued 40,000 shares
(liquidation value $55,824 at March 31, 1996 and
$54,602 at December 31, 1995) 39,155 39,155
Shareholders' Equity (Deficit):
Common stock, par value $1 per share, authorized
100,000,000 shares, issued 23,228,695 shares 23,229 23,229
Additional paid-in capital 7,247 13,504
Cost of common stock held in treasury (115,696 shares at
March 31, 1996 and 412,500 shares at December 31,
1995) (2,700) (9,625)
Accumulated deficit (293,023) (293,201)
Unearned compensation (8,864) (8,950)
Accumulated foreign currency translation adjustments (17,064) (16,634)
(291,175) (291,677)
Total Liabilities and Shareholders' Equity(Deficit) $444,925 $459,802
THE INTERLAKE CORPORATION
Consolidated Statement of Cash Flows
For the Periods Ended March 31,1996 and April 2, 1995
(In thousands)
1996 1995
(13 Wks) (14 Wks)
Cash flows from (for) operating activities:
Net income $ 178 $ 394
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,093 5,322
Other operating adjustments 654 (81)
(Increase) decrease in working capital:
Accounts receivable (75) 6,188
Inventories (7,848) (6,590)
Other current assets (1,755) (1,759)
Accounts payable (129) (4,219)
Other accrued liabilities (12,760) (19,352)
Income taxes payable (479) 953
Total working capital change (23,046) (24,779)
Net cash provided (used) by operating activities (17,121) (19,144)
Cash flows from (for) investing activities:
Capital expenditures (3,674) (3,051)
Proceeds from disposal of PP&E 64 23
Other investment flows 121 42
Net cash provided (used) by investing activities (3,489) (2,986)
Cash flows from (for) financing activities:
Proceeds from issuance of long-term debt - 10,000
Retirements of long-term debt (707) (5,210)
Other financing flows 503 804
Net cash provided (used) by financing activities (204) 5,594
Effect of exchange rate changes (56) (699)
Increase (Decrease) in cash and cash equivalents (20,870) (17,235)
Cash and cash equivalents, beginning of period 41,562 39,708
Cash and cash equivalents, end of period $ 20,692 $ 22,473
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Financial Statements
The information furnished in these financial statements is unaudited.
The Registrant and its subsidiaries are referred to herein on a consolidated
basis as the Company.
Note 2 - Computation of Common Share Data
The weighted average number of common shares outstanding used to compute
primary net income per share was 23,035,000 for 1996 and 22,341,000 for 1995,
and for fully diluted net income per share was 31,413,000 for 1996 and
29,921,000 for 1995.
Note 3 - LIFO Inventories
The liquidation of LIFO inventories benefited income before taxes in the first
quarter of 1995 by $.8 million.
Note 4 - Income Taxes
The effective tax rate was 68.7% and 65.8% for the 1996 and 1995 quarters,
respectively. Because most of the interest expense is borne in the United
States at the parent company level, the Company had substantial taxable income
in foreign and state jurisdictions. Taxes due to foreign authorities were not
offset by U.S. federal income tax benefits.
Note 5 - 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. As of March 31, 1996, the Company's reserves for
environmental liabilities totaled $4.3 million, most of which relates to the
Acme indemnification.
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 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
million and $5 million. 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
Company's consultants commenced this 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 underway 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 1996, the citizens' board of the MPCA named the successors to certain
coal tar processors at the Duluth Site (the "tar companies") as additional
responsible parties for a portion of the underwater sediments operable unit.
The Company believes that the tar companies are the cause of a significant
portion of the underwater contamination of the site, while the tar companies to
date have maintained that their contributions were minimal.
The Company's current expectation is that cash outlays related to its
outstanding reserves for environmental matters largely will be made over the
period of 1996 and 1997. If the Company ultimately determines that additional
charges 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 6 - 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 $.4 million and the costs of future remediation to be
between $4 million and $10 million. 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 million in investigation and remediation, and purportedly
estimates the total costs of investigation and remediation to be approximately
$60 million. 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 stages of discovery. The Company believes it
has meritorious defenses to both of the alleged bases of liability.
Note 7 - Subsequent Event
Subsequent to the end of the fiscal quarter, the Company signed a letter of
intent with A. J. Gerrard & Company to sell all of the Company's packaging
businesses. The sale is subject to a number of conditions, including the
signing of definitive purchase agreements, the obtaining by Gerrard of firm
financing commitments, the completion of governmental approval processes,
approval by Gerrard shareholders, and the approval of certain other third
parties, including Interlake's bank group. If consumated, the transaction is
expected to close by July.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
First Quarter 1996 Compared with First Quarter 1995
First quarter net sales of $200.0 million compared with net sales of $206.9
million in the prior year period. The first quarter of 1996 was a 13-week
period, whereas the first quarter of 1995 was a 14-week period, which accounted
for the lower sales. Changes in exchange rates generated a sales decrease of
$1.0 million compared with 1995. Operating profit declined 12% to $16.5
million compared with $18.7 million in the 1995 period, largely the result of
the shorter fiscal quarter. Net income of $.2 million, or $.01 per share, for
the quarter ended March 31, 1996, compared with net income of $.4 million, or
$.01 per share, for the first quarter of 1995.
Segment Results
The Company's businesses are organized into two segments: Engineered Materials
and Handling/Packaging Systems. Businesses in Engineered Materials are Special
Materials (ferrous metal powders) and Aerospace Components (precision aerospace
component fabrication and aviation repair). Businesses in Handling/Packaging
Systems are Handling (U.S. and international material handling operations) and
Packaging (U.S. and international packaging operations).
First Quarter Segment Results
Net Sales Operating Profit
1996 1995 1996 1995
(in millions)
Engineered Materials
Special Materials $ 43.3 $ 48.1
Aerospace Components 18.4 16.7
61.7 64.8 $ 9.1 $ 10.8
Handling/Packaging Systems
Handling 103.5 105.9
Packaging 34.8 36.2
138.3 142.1 7.5 8.2
Corporate Items (.1) (.3)
Consolidated Totals $200.0 $206.9 $ 16.5 $ 18.7
Engineered Materials
Sales in the Engineered Materials segment declined 5% to $61.7 million, due to
the shorter fiscal quarter as well as lower sales at Special Materials
resulting from lower levels of automotive production, which were partially
offset by higher fabrication and repair sales at Aerospace Components.
For the first quarter, Special Materials' metal powder sales decreased 10%
compared with record sales in the same period last year, as shipments were
affected by lower production levels in the automotive industry, compounded by
the effect of the General Motors strike. Profit declined 25% for the quarter,
due mainly to the effects of lower volume.
Aerospace Components' first quarter sales increased 10% compared with the 1995
period, due to significantly higher aviation repair sales and higher sales of
fabricated components. Profit for the quarter increased 81%, due to the higher
volume, a favorable product mix in aviation repair and improved manufacturing
performance.
Order backlogs in this segment were $140.9 million at the end of the quarter,
down from $172.6 million at the end of the first quarter of 1995. Special
Materials' backlog was down 33%, as order rates declined from the record level
experienced in the year earlier period. Aerospace Components' backlog declined
9%, reflecting deliveries against multi-year fabrication orders.
Handling/Packaging Systems
Sales in the Handling/Packaging Systems segment declined 3% to $138.3 million,
due to the shorter fiscal quarter.
For the first quarter, Handling's sales (at comparable exchange rates) declined
1% compared with the 1995 period, which was more than accounted for by the
shorter fiscal quarter. Sales in the Asia Pacific region were up 16%, while
European sales decreased 2% and North American sales were down 4%. Handling's
profit was down 8% (at comparable exchange rates) compared with the first
quarter of 1995. Handling's European profit was down 47%, primarily due to
lower margins and a less favorable sales mix. North American profit increased
21%, due mainly to higher margins.
Packaging's first quarter 1996 sales (at comparable exchange rates) declined 4%
compared with 1995 due to the shorter fiscal quarter, partially offset by
higher sales at the plastics operations. Profit declined 11%, due to the
absence of LIFO income which benefited the 1995 quarter. Excluding the LIFO
benefit, profit increased 10%, as improved margins and lower costs at the U.S.
plastics unit and higher prices at the U.K. plastics unit offset lower volume
in the steel strapping and stitching units.
Order backlogs in this segment were $86.8 million at the end of the first
quarter, down from $91.4 million at the end of the first quarter of 1995 (at
comparable exchange rates), due mainly to lower order rates at the North
American Handling operation.
Financial Condition
The Company's total debt at the end of the first quarter was $442.6 million,
down $1.0 million from year-end 1995. Cash totaled $20.7 million at the end of
the quarter, compared with $41.6 million at the end of 1995, reflecting higher
working capital. Capital expenditures of $3.7 million during the quarter
compared with $3.1 million during the prior year period. The Company
anticipates that 1996 capital spending will be approximately $27.0 million.
Under its bank credit agreement, the Company has available revolving facilities
of up to an additional $40.0 million over the March 31, 1996 revolving
indebtedness. Based on current levels of performance, the Company believes
this provides adequate liquidity.
Subsequent Event
The Company announced on April 15,1996 that it had signed a letter of intent to
sell its packaging businesses to A. J. Gerrard & Company, a privately-held
manufacturer of steel strap based in Des Plaines, Illinois. The sale is
subject to a number of conditions, including the signing of definitive purchase
agreements, the obtaining by Gerrard of firm financing commitments, the
completion of governmental approval processes, approval by Gerrard
shareholders, and the approval of certain other third parties, including
Interlake's bank group. If consumated, the transaction is expected to close by
July.
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. 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.
The Company is a party in certain litigation and a proceeding before a
governmental agency which relate to the contamination of the environment.
These matters are described in Note 5 and Note 6 of Notes to Consolidated
Financial Statements included herein. Reference is also made to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, Part I,
Item 3--Legal Proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Current report on Form 8-K dated April 15, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE INTERLAKE CORPORATION
April 25, 1996 /s/STEPHEN GREGORY
Stephen Gregory
Vice President - Finance
and Chief Financial Officer
