<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12374
-------------
[ALUMAX INC. LOGO]
(Exact name of registrant as specified in its charter)
Delaware 13-2762395
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5655 Peachtree Parkway, Norcross, Georgia 30092
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 246-6600
- --------------------------------------------------------------------------------
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
----- -----
<TABLE>
<S> <C>
Number of shares of common stock of registrant outstanding at April 30, 1997: 54,931,159
- ----------------------------------------------------------------------------------------
</TABLE>
-1-
<PAGE> 2
Part I. Financial Information
Item 1. Financial Statements
ALUMAX INC.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1997 1996
---------- ---------
(In Millions,
Except Per Share Amounts)
<S> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 701.8 $ 802.6
----------- ----------
Cost and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . 545.6 630.7
Selling and general . . . . . . . . . . . . . . . . . . . . 60.9 63.8
Depreciation and amortization . . . . . . . . . . . . . . . 37.1 33.0
----------- ----------
643.6 727.5
----------- ----------
EARNINGS FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . 58.2 75.1
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . - 78.4
Other income (expense), net . . . . . . . . . . . . . . . . . . . (.3) 14.1
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . (13.4) (17.2)
----------- ----------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . 44.5 150.4
Income tax provision . . . . . . . . . . . . . . . . . . . . . . (17.8) (55.0)
----------- ----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 26.7 95.4
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . - (2.3)
----------- ----------
EARNINGS APPLICABLE TO COMMON SHARES . . . . . . . . . . . . . . $ 26.7 $ 93.1
=========== ==========
Primary earnings per common share . . . . . . . . . . . . . . . . $ 0.48 $ 2.04
=========== ==========
Fully diluted earnings per common share . . . . . . . . . . . . . $ 0.48 $ 1.73
=========== ==========
Weighted average primary shares outstanding . . . . . . . . . . . 55.8 45.5
=========== ==========
Weighted average fully diluted shares outstanding . . . . . . . . 55.8 55.2
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 3
ALUMAX INC.
CONDENSED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Millions of Dollars,
Except per Share Amounts)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.1 $ 34.6
Accounts receivable, less allowance for doubtful accounts
(1997-$17.4; 1996-$16.6) . . . . . . . . . . . . . . . . . . . . . 448.0 439.1
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535.8 519.9
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 101.3 92.2
--------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 1,097.2 1,085.8
--------- ----------
Noncurrent Assets:
Property, plant and equipment at cost, less accumulated
depreciation and amortization (1997-$1,049.1; 1996-$1,036.8) . . . 2,027.3 2,027.4
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182.9 185.5
--------- ----------
Total noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 2,210.2 2,212.9
--------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,307.4 $ 3,298.7
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 165.5 $ 162.6
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 229.1 224.2
Current maturities of long-term debt . . . . . . . . . . . . . . . . . 42.2 38.4
--------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 436.8 425.2
--------- ----------
Noncurrent Liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649.5 672.0
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 551.6 560.7
--------- ----------
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . . 1,201.1 1,232.7
--------- ----------
Commitments and Contingencies
Stockholders' Equity:
Common stock of $.01 par value . . . . . . . . . . . . . . . . . . . . .5 .5
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 926.3 920.2
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 751.0 724.3
Cumulative foreign currency translation adjustment . . . . . . . . . . (8.3) (4.2)
--------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 1,669.5 1,640.8
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . $ 3,307.4 $ 3,298.7
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
ALUMAX INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------------
1997 1996
--------- ---------
(Millions of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.7 $ 95.4
Reconciliation of net earnings to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 37.1 33.0
Provision for doubtful accounts . . . . . . . . . . . . . . . . .7 1.8
Gain on sales of assets . . . . . . . . . . . . . . . . . . . . (2.2) (78.4)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 6.3 17.7
Other noncash items . . . . . . . . . . . . . . . . . . . . . . 6.1 3.1
Changes in working capital, net of effects
of acquisition/disposition . . . . . . . . . . . . . . . . . (26.8) (55.8)
Net change in other noncurrent assets and liabilities . . . . . (17.1) 8.8
--------- --------
Net cash provided by operating activities . . . . . . . . . . 30.8 25.6
--------- --------
INVESTING ACTIVITIES:
Dispositions, net of cash sold . . . . . . . . . . . . . . . . . . 3.0 90.2
Acquisition, net of cash acquired . . . . . . . . . . . . . . . . - (436.5)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (37.6) (55.4)
--------- --------
Net cash used in investing activities . . . . . . . . . . . . . (34.6) (401.7)
--------- --------
FINANCING ACTIVITIES:
Repayments of long-term and short-term debt . . . . . . . . . . . (18.7) (166.7)
Proceeds from long-term and short-term debt . . . . . . . . . . . - 375.0
Dividends paid on preferred stock . . . . . . . . . . . . . . . . - (2.3)
--------- --------
Net cash provided by (used in) financing activities . . . . . (18.7) 206.0
--------- --------
Net decrease in cash and equivalents . . . . . . . . . . . . . . . . . (22.5) (170.1)
Cash and equivalents at beginning of year . . . . . . . . . . . . . . . 34.6 205.9
--------- --------
Cash and equivalents at end of period . . . . . . . . . . . . . . . . . $ 12.1 $ 35.8
========= ========
Supplemental Cash Flow Information:
Income tax payments . . . . . . . . . . . . . . . . . . . . . . . $ 5.3 $ .5
Interest paid, net of amounts capitalized . . . . . . . . . . . . $ 13.7 $ 15.2
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1. PRESENTATION
These unaudited interim condensed financial statements of Alumax Inc. ("Alumax"
or the "Company") should be read in conjunction with the audited financial
statements for the year ended December 31, 1996. In Management's opinion, all
adjustments necessary for a fair presentation are reflected in the interim
periods presented. Certain reclassifications have been made to the prior
year's financial statements to conform with the 1997 presentation.
NOTE 2. STRATEGIC TRANSACTIONS
On January 26, 1996, the Company sold a 23 percent undivided interest in its
Mt. Holly primary aluminum reduction facility for $89.3. The Company recorded
a gain of $78.4 ($48.6 after-tax) in connection with this transaction. This
transaction reduced the Company's ownership in the Mt. Holly facility to 50.33
percent.
On January 31, 1996, the Company purchased all of the common shares of
privately held Cressona Aluminum Company ("Cressona") for a cash cost,
including expenses, of $436.5, net of $3.1 of cash acquired. In conjunction
with the acquisition, liabilities of $87.4 were acquired. Cressona is a leading
manufacturer of extruded aluminum products.
The acquisition has been accounted for as a purchase and the results of
operations of Cressona have been included in the consolidated financial
statements since January 31, 1996. The acquisition was financed with cash on
hand and $375 of borrowings obtained under available credit facilities. All of
these borrowings were repaid in 1996.
On September 25, 1996, the Company sold certain Fabricated Products businesses
in Western Europe and in the United States for $246.6 in cash, net of cash sold
of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax
provision, in the third quarter of 1996 in connection with the sale.
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated net
sales, net earnings and primary earnings per common share for the three months
ended March 31, 1996, as if the acquisition of Cressona and the sale of the
Fabricated Products businesses each occurred on January 1, 1996. The pro forma
adjustments for the three months ended March 31, 1996, include the addition of
Cressona's operating results for the month of January 1996. Since the
acquisition occurred on January 31, 1996, the Company's actual results include
Cressona from February 1, 1996 through March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
------------------
<S> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 723.8
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 95.1
Primary earnings per common share . . . . . . . . . . . . . . . $ 2.04
</TABLE>
The pro forma results are based upon certain assumptions and estimates, which
the Company believes are reasonable. The pro forma results do not purport to
be indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 nor are they intended to be a
projection of future results.
-5-
<PAGE> 6
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVENTORIES
Components of inventories at March 31, 1997 and December 31, 1996 are:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . $ 304.2 $ 323.7
Work in process . . . . . . . . . . . . . . . . . . . . 118.7 87.3
Finished products . . . . . . . . . . . . . . . . . . . 112.9 108.9
------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 535.8 $ 519.9
======= ========
</TABLE>
Approximately 78 percent of inventory at March 31, 1997 and December 31, 1996
has been determined on the LIFO cost basis. The excess of replacement cost
over the LIFO basis of such inventory is approximately $94.0 and $74.0 at March
31, 1997 and December 31, 1996, respectively.
NOTE 4. INCOME TAX PROVISION
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
------ ------
<S> <C> <C>
Federal . . . . . . . . . . . . . . . . . . . . . . $ 14.5 $ 46.7
Foreign . . . . . . . . . . . . . . . . . . . . . . 1.5 5.3
State . . . . . . . . . . . . . . . . . . . . . . . 1.8 3.0
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . $ 17.8 $ 55.0
====== ======
</TABLE>
The effective tax rates for these periods differ from statutory rates due to
provisions for state and foreign taxes. In addition, the three months ended
March 31, 1996 include a provision for prior years and $6.2 of foreign tax
credits which substantially offset the federal tax related to the first quarter
1996 dividend from investments in mining operations.
NOTE 5. OTHER INCOME
The three months ended March 31, 1996, includes $18.6 of dividend income
received from investments in mining operations. These investments were sold
during the second quarter of 1996.
NOTE 6. EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128" or the
"Statement"). This Statement simplifies the standards for computing earnings
per share currently required by APB Opinion No. 15 ("Opinion 15") and replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share. Basic earnings per share is computed by dividing net
income available to common stockholders by the weighted-average number of
common shares outstanding during the period. This statement also requires
presentation of diluted earnings per share. Diluted earnings per share
reflects the potential dilution that could occur if options or warrants were
exercised or convertible securities were converted into common stock. Diluted
earnings per share is computed similarly to fully-diluted earnings per share
under Opinion 15. The following pro forma schedule illustrates the earnings
per share the Company would have reported under the provisions of FAS 128 for
the three months ended March 31, 1997 and 1996:
-6-
<PAGE> 7
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
------- --------
<S> <C> <C>
Pro forma basic earnings per share . . . . . . . . . $ 0.49 $ 2.08
Pro forma diluted earnings per share . . . . . . . . 0.48 1.73
Weighted average shares outstanding . . . . . . . . 54.8 44.8
Weighted average diluted shares outstanding . . . . 55.8 55.1
</TABLE>
As required by the Statement, the Company will adopt FAS 128 in the fourth
quarter of 1997.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Internal Revenue Service (the "IRS") has asserted that Alumax and certain
of its subsidiaries were improperly included in the 1984, 1985 and 1986
consolidated income tax returns of AMAX Inc. and on that basis has asserted a
federal income tax deficiency against Alumax of approximately $129. Interest
on the deficiency through March 31, 1997, would be approximately $287. In
response to the IRS' notice of deficiency, the Company filed a petition in the
United States Tax Court (the "Court") seeking a redetermination in respect of
the purported deficiency. The parties have waived their rights to a trial and
the matter has been submitted to the Court for decision based upon the
pleadings, stipulations, memoranda and other documents submitted, or to be
submitted, to the Court by the parties. A decision by the Court is expected in
late 1997. Payment by the Company of the deficiency with interest thereon
would provide certain tax benefits to the Company that would offset in part, in
the year of payment and within the carry-forward period, the cost of paying the
deficiency and interest. The Company believes that it has adequate reserves so
that any unprovided for net deficiency would not have a material adverse effect
on the Company's financial condition.
The Company and its affiliates have been named as defendants in lawsuits in
various matters relating to both current and former operations. In addition,
the Company and certain of its subsidiaries have been named as defendants in
lawsuits or as potentially responsible parties in state and federal
administrative and judicial proceedings seeking contribution for costs
associated with the investigation, analysis, correction and remediation of
environmental conditions at various hazardous waste disposal sites. The
Company continues to monitor these actions and proceedings and to vigorously
defend both its own interests as well as the interests of its affiliates. The
Company's ultimate liability in connection with present and future
environmental claims will depend on many factors, including its volumetric
share of the waste at a given site, the remedial action required, the total
cost of remediation, and the financial viability and participation of the other
entities which also sent waste to the site. Once it becomes probable that the
Company will incur costs in connection with remediation of a site and such
costs can be reasonably estimated, the Company establishes or adjusts its
reserve for its projected share of these costs. Based upon current law and
information known to the Company concerning the size of the sites known to it,
anticipated costs of remediation, their years of operation and the number of
other potentially responsible parties, Management believes that it has adequate
reserves for the Company's probable share of the estimated aggregate liability
for the costs of remedial actions and related costs and expenses. In addition,
the Company establishes reserves for remedial measures required from time to
time at its own facilities. The Company's environmental reserves totalled
$29.5 and $29.6 at March 31, 1997 and December 31, 1996, respectively.
Management believes that the reasonably probable outcomes of these matters will
not materially exceed
-7-
<PAGE> 8
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONCLUDED)
established reserves. Although the Company believes it has coverage for some
environmental claims under certain insurance policies, insurance recoveries are
not considered in estimating the Company's share of remediation costs at a site
unless an insurance carrier has agreed to pay a portion of such costs.
Insurance recoveries were not considered in establishing reserves for any of
these sites absent an agreement between the carriers and the Company.
For information regarding additional commitments and contingencies, see Note 9
to the Financial Statements in the Company's 1996 Annual Report on Form 10-K.
-8-
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited; millions of dollars, except per
share and per tonne and per pound amounts)
INTRODUCTION
Net earnings totalled $26.7, or $0.48 per common share for the quarter ended
March 31, 1997 compared to $95.4, or $2.04 per common share, in the first
quarter ended March 31, 1996. The 1996 results included an after-tax gain of
$48.6 on the sale of a 23 percent interest in the Mt. Holly primary aluminum
reduction facility and after-tax dividend income of $18.3 received from
investments in mining operations.
RESULTS OF OPERATIONS
Earnings from operations for the three months ended March 31, 1997 totalled
$58.2 compared to operating earnings of $75.1 for the three months ended March
31, 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
NET SALES
Primary aluminum products . . . . . . . . . . . . . . . $ 126.8 $ 197.2
Semi-fabricated products(1) . . . . . . . . . . . . . . . 449.7 380.3
Fabricated products(1)(2) . . . . . . . . . . . . . . . 125.3 225.1
---------- -----------
$ 701.8 $ 802.6
========== ===========
EARNINGS FROM OPERATIONS
Aluminum processing . . . . . . . . . . . . . . . . . . . $ 70.0 $ 84.7
Corporate . . . . . . . . . . . . . . . . . . . . . . . (11.8) (9.6)
---------- -----------
$ 58.2 $ 75.1
========== ===========
PRODUCTION AND SHIPMENTS (THOUSANDS OF TONNES)
Sources of metal
Primary aluminum production . . . . . . . . . . . . . . 173.8 173.4
Aluminum purchases . . . . . . . . . . . . . . . . . . . 95.4 108.3
---------- -----------
269.2 281.7
========== ===========
Metal shipments
Aluminum processing (including tolling)
Primary aluminum products . . . . . . . . . . . . . . . . 68.0 112.1
Semi-fabricated(1) . . . . . . . . . . . . . . . . . . 157.7 129.7
Fabricated products(1)(2) . . . . . . . . . . . . . . . . 25.8 32.5
---------- -----------
251.5 274.3
========== ===========
DERIVED PRICES(DOLLARS/LB.)
Primary aluminum products . . . . . . . . . . . . . . . . $ 0.85 $ 0.80
Semi-fabricated(1) . . . . . . . . . . . . . . . . . . . $ 1.29 $ 1.33
Fabricated products(1)(2) . . . . . . . . . . . . . . . . $ 2.20 $ 3.14
</TABLE>
- --------------------
(1) Net sales and shipments for the Company's Magnolia operation have been
reclassified from fabricated products to semi-fabricated products.
Magnolia manufactures shower and tub enclosures, stadium seating, and
other extruded products.
(2) Included in Fabricated products' metal shipments for the three months ended
March 31, 1997, are billet shipments of 10.2 thousand tonnes compared to
4.9 thousand tonnes in the same 1996 period.
-9-
<PAGE> 10
NET SALES AND SHIPMENTS
The Company generated quarterly sales of $701.8 on aluminum shipments of
251,500 tonnes in the first quarter of 1997 compared with sales of $802.6 on
aluminum shipments of 274,300 tonnes in the first quarter of 1996. As further
described below, decreases in net sales are principally a result of a decrease
in shipments.
The London Metals Exchange (the "LME") cash price averaged $1,596 and $1,598
per tonne during the three months ended March 31, 1997 and March 31, 1996,
respectively. The Company's net sales are sensitive to changes in the world
pricing of primary aluminum. This price sensitivity impacts substantially all
of the Company's products to varying degrees, with less impact on the more
specialized and value-added products.
Primary products' net sales for the three months ended March 31, 1997,
decreased 36 percent principally due to a 39 percent decline in external
shipments, resulting from higher internal consumption. Internal consumption of
primary products increased 40 percent in the first quarter of 1997 as compared
with the first quarter of 1996, substantially resulting from integration of the
Company's expanded extrusion operations. The January 31, 1996 acquisition of
Cressona more than doubled the capacity of the Company's extrusion operations.
Primary production in the first quarter of 1997 was consistent with production
in 1996.
Semi-fabricated products' net sales for the three months ended March 31, 1997,
increased 18 percent principally due to shipment increases of 22 percent. The
increase in shipments is primarily related to the expansion of the Company's
extrusions operations and increased shipments at the mill operations.
Fabricated Product's net sales for the three months ended March 31, 1997,
decreased 44 percent on declining shipments of 21 percent, principally due to
the sale of certain fabricated products operations in Western Europe and in the
United States ("Fab Products"). Increased sales in the Company's European
secondary aluminum operation were more than offset by the effects of the
September 1996 sale of Fab Products, which had first quarter 1996 sales of
$111.4.
COST AND EXPENSES
The Company's cost and expenses were $643.6 for the three months ended March
31, 1997, compared with cost and expenses of $727.5 for the three months ended
March 31, 1996. The decrease is largely attributable to lower volumes,
principally attributable to the sale of Fab Products.
Cost of goods sold decreased 13 percent due substantially to lower volumes as a
result of the sale of Fab Products, partially offset by higher mill and
extrusion volumes and European secondary aluminum shipments.
Selling and general expenses decreased five percent due primarily to the sale
of Fab Products offset somewhat by the growth in the Company's international
development and extrusion business. Depreciation and amortization increased 12
percent. The increase is commensurate with the Company's capital spending
program to enhance the productivity and competitiveness of its operations.
OTHER ITEMS AFFECTING NET EARNINGS
Other Income (Expense), Net
Other income (expense), net for the three months ended March 31, 1997, was
($.3) compared with $14.1 over the same period in 1996. The three months ended
March 31, 1996 include $18.6 of dividend income received from investments in
mining operations. This investment was sold during the second quarter of 1996.
-10-
<PAGE> 11
Interest Expense, Net
Gross interest expense of $14.9 for the three months ended March 31, 1997,
decreased from $20.7 in the same 1996 period as a result of lower average
borrowings. Interest income was $0.6 for the three months ended March 31,
1997, as compared to $1.6 in the same 1996 period. Capitalized interest was
$0.9 for the three months ended March 31, 1997, as compared to $1.9 in the same
1996 period.
Income Taxes
The income tax provision for the three months ended March 31, 1997, was $17.8
compared to $55.0 for the same 1996 period. The effective tax rates for these
periods differ from statutory rates because of provisions for state and foreign
taxes. In addition, the three months ended March 31, 1996 include a provision
for prior years and $6.2 of foreign tax credits which substantially offset the
federal tax related to the first quarter 1996 dividend from investments in
mining operations.
STRATEGIC TRANSACTIONS
On January 26, 1996, the Company sold a 23 percent undivided interest in its
Mt. Holly primary aluminum reduction facility for $89.3. The Company recorded
a gain of $78.4 ($48.6 after-tax) in connection with this transaction. This
transaction reduced the Company's ownership in the Mt. Holly facility to 50.33
percent.
On January 31, 1996, the Company purchased all of the common shares of
privately held Cressona for a cash cost, including expenses, of $436.5, net of
$3.1 of cash acquired. In conjunction with the acquisition, liabilities of
$87.4 were acquired. Cressona is a leading manufacturer of extruded aluminum
products.
The acquisition has been accounted for as a purchase and the results of
operations of Cressona have been included in the consolidated financial
statements since January 31, 1996. The acquisition was financed with cash on
hand and $375 of borrowings obtained under available credit facilities. All of
these borrowings have been repaid.
On September 25, 1996, the Company sold Fab Products for $246.6 in cash, net of
cash sold of $5.4. The Company recorded an after-tax gain of $36.7 net of a
$35.0 tax provision, in the third quarter of 1996 in connection with the sale.
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated net
sales, net earnings, and primary earnings per common share for the three months
ended March 31, 1996, as if the acquisition of Cressona and the sale of the
Fabricated Products businesses each occurred on January 1, 1996. The pro forma
adjustments for the three months ended March 31, 1996 include the addition of
Cressona's operating results for the month of January 1996. Since the
acquisition occurred on January 31, 1996, the Company's actual results include
Cressona from February 1, 1996 through March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
------------------
<S> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . $723.8
Net earnings . . . . . . . . . . . . . . . . . . . $ 95.1
Primary earnings per common share . . . . . . . . . $ 2.04
</TABLE>
The pro forma results are based upon certain assumptions and estimates, which
the Company believes are reasonable. The pro forma results do not purport to
be indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 nor are they intended to be a
projection of future results.
-11-
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Operations provided $30.8 and $25.6 of cash during the first three months of
1997 and 1996, respectively. Higher cash flows are directly related to lower
working capital increases during the 1997 period compared to the working
capital increases during the 1996 period, which were partially offset in 1996
by the receipt of dividends from mining interests of $18.6.
Investing Activities
Cash used by investing activities was $34.6 for the three months ended March
31, 1997, compared to $401.7 of cash used in the first three months of 1996,
which included the acquisition of Cressona for $436.5 (net of cash acquired)
and proceeds from the sale of a 23 percent interest in the Mt. Holly primary
aluminum reduction facility of $89.3. Capital expenditures were $37.6 during
the first three months of 1997 compared to $55.4 in the first three months of
1996.
In September 1996 the Company, through its subsidiary, Alumax Mill Products,
Inc. exercised its option to purchase its leased Texarkana rolling mill
facility in November 1997 for approximately $97 in cash. Additionally, during
1996, the Company entered into a joint venture with Yunnan Aluminum Processing
Factory in Kunming, China for the annual production of 8,000 to 10,000 tonnes
of light gauge aluminum foil for China's packaging market. Alumax will invest
$38 of cash in the joint venture to develop a continuous cast foil operation.
As of December 31, 1996, the Company had invested $13 of cash in the joint
venture. The Company intends to invest the remainder of the total obligation
during the second and third quarters of 1997. Management expects to finance
these commitments from working capital provided from operations and financing
from the Company's revolving credit facilities. Total capital spending in
1997, including the above mentioned projects, is expected to be $350.
Financing Activities
Cash used in financing activities was $18.7 in the first three months of 1997
compared to cash provided of $206.0 in the first three months of 1996. At
March 31, 1997, the Company's total debt to capital ratio was 29.3 percent,
down from 30.2 percent at December 31, 1996 and 42.3 percent at March 31, 1996,
which is attributable to debt repayments of $18.8 and a year-to-date increase
in stockholders' equity of $28.7 from December 31, 1996. In the first quarter
of 1996, the Company borrowed $375 under available credit facilities to finance
the acquisition of Cressona. All of these borrowings were subsequently repaid
during 1996. Debt repayments of $166.7 in the first three months of 1996
included early retirements of $39.3 of Cressona debt acquired and a $90.7
promissory note due in May 1996. (See Note 8 to the Financial Statements in
the Company's 1996 Annual Report on Form 10-K).
Additionally, $2.3 in dividends were paid to holders of Alumax $4.00 Series A
Convertible Preferred Stock in the first quarter months of 1996. In December
1996, the outstanding shares of Preferred Stock were converted into
approximately 9.6 million shares of Alumax Common Stock.
Income Taxes
The Internal Revenue Service (the "IRS") has asserted that Alumax and certain
of its subsidiaries were improperly included in the 1984, 1985 and 1986
consolidated income tax returns of AMAX Inc. and on that basis has asserted a
federal income tax deficiency against Alumax of approximately $129. Interest
on the deficiency through March 31, 1997, would be approximately $287. In
response to the IRS' notice of deficiency, the Company filed a petition in the
United States Tax Court (the "Court") seeking a redetermination in respect of
the purported deficiency. The parties have waived their rights to a trial and
the matter has been submitted to the Court for decision based upon the
pleadings, stipulations, memoranda and other documents submitted, or to be
submitted, to the Court by the parties. A decision by the Court is expected in
late 1997. Payment of the
-12-
<PAGE> 13
deficiency with interest thereon would provide certain tax benefits to the
Company that would offset in part, in the year of payment and within the
carryforward period, the cost of paying the deficiency and interest. The
Company believes that it has adequate reserves so that any unprovided for net
deficiency would not have a material adverse effect on the Company's financial
condition.
Risk Management
The Company utilizes certain financial instruments in connection with its risk
management. The risk of loss related to counterparty nonperformance under
financial instrument agreements at March 31, 1997, is not significant.
The Company enters into forward fixed price arrangements that are required by
certain customers and suppliers. The Company may utilize futures contracts
which effectively convert forward fixed price arrangements to market prices in
order to meet overall strategic objectives. Such contracts covered
approximately 133,325 tonnes at March 31, 1997, and mature at various dates
through 1999. Gains or losses with respect to these positions are reflected in
earnings concurrent with consummation of the underlying fixed price
transaction. Periodic value fluctuations of the futures contracts
approximately offset the value fluctuations of the underlying fixed price
transactions.
The Company also may, from time to time, establish a floor selling price for
varying quantities of future production, while preserving the opportunity to
participate in upward price movements. This may be accomplished by entering
into forward sales of primary aluminum and purchases of call options, which
together provide the same price protection as purchasing put options, or by
purchasing put options alone, in a manner which correlates with the Company's
production and sales of primary aluminum. The strategy may be modified from
time to time. At March 31, 1997, the Company's commitments with respect to
these financial instruments covered 232,500 tonnes of future production. The
book value and market value of these financial instruments were $14.0 and $1.0,
respectively, at March 31, 1997.
Certain of the Company's foreign operating expenditures are denominated in
currencies other than the operations' functional currencies, which expose the
Company to exchange rate risks. In order to mitigate its exposure to exchange
rate risk where these conditions exist, the Company may utilize forward foreign
currency contracts. At March 31, 1997, the Company had outstanding $91.4 in
forward foreign currency contracts which mature during the remainder of 1997.
The gains or losses related to these contracts are deferred and included in the
measurement of the related foreign currency denominated transactions. If these
contracts had been terminated at March 31, 1997, the Company would have paid
approximately $1.1.
The Company's debt instruments and related interest rate hedges are susceptible
to market fluctuations based on changes in the cost of borrowing. At March 31,
1997, the fair value of total debt approximated book value. The Lauralco
credit facility, which has a variable interest rate, required the Company to
establish facilities to effectively limit the interest rate exposure of the
commitment. To meet this requirement, the Company has obtained interest rate
swaps with a notional amount of $400 through October 26, 2000 and interest rate
caps having a notional amount of $150 expiring October 26, 1998. The Company
would have paid approximately $33.3 to terminate these agreements at March 31,
1997.
The Company also purchases natural gas for its operations and enters into
forward contracts to eliminate the volatility in prices. At March 31, 1997,
none of these contracts was material.
For further information regarding the Company's risk management, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 15 to the Financial Statements in the Company's 1996 Annual
Report on Form 10-K.
-13-
<PAGE> 14
Environmental Matters
The Company has been named as a defendant or identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws by governmental agencies
and private parties at 38 pending waste disposal sites which, in most
instances, were owned and operated by third parties. Management periodically
evaluates such matters and records or adjusts liability reserves for
remediation and other costs and potential damages when expenditures are
considered probable and can be reasonably estimated.
The Company's ultimate liability in connection with present and future
environmental claims will depend on many factors, including its volumetric
share of the waste at a given site, the remedial action required, the total
cost of remediation and the financial viability and participation of the other
entities which also sent waste to the site. Based upon current law and
information known to the Company concerning the size of the sites known to it,
anticipated costs of remediation, their years of operation, and the number of
other potentially responsible parties, Management believes that it has adequate
reserves for the Company's probable share of the estimated aggregate liability
for the costs of remedial actions and related costs and expenses and that such
liability and related costs and expenses should not have a material adverse
effect on the financial condition or results of operations of the Company. In
addition, the Company establishes reserves for remedial measures required from
time to time at its own facilities. Any expenditures for remediation programs
it may be required to undertake, either individually or in the aggregate, are
not expected to have a material adverse effect on the financial condition or
results of operations of the Company. The Company's environmental reserves
totaled $29.5 at March 31, 1997 and $29.6 at December 31, 1996.
Management does not anticipate that commitments, operating expenses or capital
expenditures for environmental compliance through and including the next fiscal
year will have a material adverse effect on the Company's financial condition
or results of operations. Based on historical trends toward stricter
environmental standards, however, it appears likely that the Company will incur
additional expenditures to remain in compliance with federal and state
environmental laws.
-14-
<PAGE> 15
Part II. Other Information
Item 1. Legal Proceedings
In August 1994, Alumax received a civil investigative demand from the Antitrust
Division of the Department of Justice requesting documents and information
principally relating to reductions in the production of primary aluminum during
the period from 1991 to the date of the demand. By letter dated May 9, 1997,
the Department of Justice advised the Company that the investigation relating
to the demand has been closed. See "Legal Proceedings-Other Legal Proceedings-
Justice Department Inquiry" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11.01 Calculation of Earnings per Common Share.
27.01 Financial Data Schedule. (for SEC use only)
</TABLE>
-15-
<PAGE> 16
(b) No Current Reports on Form 8-K were filed by the Company during
the quarter ended March 31, 1997.
-16-
<PAGE> 17
SIGNATURES
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.
Alumax Inc.
By /s/ Helen M. Feeney
----------------------------
Helen M. Feeney
Vice President and
Corporate Secretary
By /s/ Michael T. Vollkommer
-----------------------------
Michael T. Vollkommer
Vice President and Controller
Date: May 15, 1997
-17-
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11.01 Calculation of Earnings per Common Share.
27.01 Financial Data Schedule. (for SEC use only)
</TABLE>
-18-
<PAGE> 1
EXHIBIT 11.01
ALUMAX INC.
CALCULATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Primary earnings per common share
1. Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 26.7 $ 95.4
2. Deduct - Series A Convertible
Preferred dividends . . . . . . . . . . . . . . . . . . . - (2.3)
-------- ------
3. Earnings applicable to common shares . . . . . . . . . . . . $ 26.7 $ 93.1
======== ======
4. Average primary shares outstanding . . . . . . . . . . . . . 55.8 45.5
======== ======
5. Primary earnings per common share
(line 3 divided by line 4) . . . . . . . . . . . . . . . $ 0.48 $ 2.04
======== ======
Fully diluted earnings per common share
6. Earnings applicable to common shares . . . . . . . . . . . . $ 26.7 $ 93.1
7. Add - Series A Convertible Preferred dividends . . . . . . . - (2.3)
-------- -------
8. Earnings applicable to common shares . . . . . . . . . . . . $ 26.7 $ 95.4
======== ======
9. Average fully diluted shares outstanding . . . . . . . . . . 55.8 55.2
======== ======
10. Fully diluted earnings per common share
(line 8 divided by line 9) . . . . . . . . . . . . . . . $ 0.48 $ 1.73
======== ======
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q OF ALUMAX INC FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 465
<ALLOWANCES> 17
<INVENTORY> 536
<CURRENT-ASSETS> 1,097
<PP&E> 3,076
<DEPRECIATION> 1,049
<TOTAL-ASSETS> 3,307
<CURRENT-LIABILITIES> 437
<BONDS> 650
0
0
<COMMON> 1
<OTHER-SE> 1,669
<TOTAL-LIABILITY-AND-EQUITY> 3,307
<SALES> 702
<TOTAL-REVENUES> 702
<CGS> 546
<TOTAL-COSTS> 644
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 45
<INCOME-TAX> 18
<INCOME-CONTINUING> 27
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
