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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
For the Fiscal Year Ended on March 31, 1996
Commission file number 1-13076
CASTECH ALUMINUM GROUP INC.
Delaware 34-1569484
(State of Incorporation) (I.R.S. Employer Identification No.)
2630 El Presidio Street, Long Beach, CA 90810
(Address of principal executive offices) (Zip Code)
1-800-468-5052
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
------------------- ------------------------------------------
Common Stock, $.01 Par Value New York 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 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 this Form 10-K or any amendment to this
Form 10-K [X].
As of May 31, 1996:
A) The aggregate market value of the common stock held by
non-affiliates of the registrant was $226,492,753.
B) The registrant has 12,942,443 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders to
be held on July 18, 1996, are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
CasTech Aluminum Group Inc. and subsidiaries ("CasTech" or the
"Company") is the nation's leading manufacturer of continuous cast aluminum
sheet. The Company manufactures aluminum sheet from recycled aluminum utilizing
low cost, scrap-based mini-mill production technology. The Company is also a
leading manufacturer of electrical flexible conduit and prewired armored cable,
which are made principally from aluminum sheet manufactured by the Company.
CasTech was originally incorporated in Delaware in 1984. The Company has
two operating units, Barmet Aluminum Corporation ("Barmet"), which operates the
Mill Products Division, and Alflex Corporation ("Alflex"), which operates the
Electrical Products Division. Barmet was founded in 1948 and was acquired in
1987. Alflex was founded in 1968 and was acquired by the Company in 1986.
The Company's Mill Products Division manufactures continuous cast
aluminum sheet in a wide variety of aluminum sheet alloys used in numerous
industries, including the building products, transportation, electrical and
consumer durable end-use markets. Continuous casting eliminates several
manufacturing steps associated with conventional casting and reduces labor
costs, inventory and manufacturing time. The Company believes it is a leader in
aluminum mini-mill process technology based on its development of advanced scrap
preparation, metal treatment and manufacturing processes that enable it to make
continuous cast aluminum sheet alloys comparable in quality to higher cost
conventionally cast sheet in many applications. The production of these alloys,
which are used in such various applications as food containers, truck-trailer
sheet, automotive stampings, electronic panels, air conditioning units and
satellite dishes, has enabled the Company to expand its available markets. The
Company plans to continue to increase the utilization of its manufacturing
capacity for these higher quality alloys and products, which typically carry
higher margins than products historically produced by the Company.
Over the past several years, the Company has increased its mill
products capacity by over 40% from approximately 250 million pounds to 360
million pounds. The increased capacity combined with, among other things, the
closure of inefficient facilities and the Company's continuous improvement
program, has resulted in a significant reduction in sheet production costs. The
Company believes its Uhrichsville, Ohio rolling mill has the lowest conversion
costs per pound in the world. During fiscal 1996, the Company completed a major
upgrade of the cold mill at the Uhrichsville plant. This upgrade provides the
mill with world class flatness and gauge control to further improve product
quality, increase capacity and reduce costs. At the completion of an announced
$14.0 million capital spending program, the Company's annual mill products
capacity is expected to be 400 million pounds.
The Company's Electrical Products Division manufactures metallic
(aluminum and steel) and non-metallic (plastic) electrical flexible conduit and
prewired armored cable primarily for use in commercial and residential
construction, renovation and remodeling. The Electrical Products Division was
the first to receive an Underwriters Laboratories ("UL") listing for two of the
major innovations in its industry, aluminum flexible conduit in 1968 and
aluminum armored cable in 1988. The Company's introduction of preassembled and
prepackaged products for the commercial and Do-It-Yourself ("DIY") markets
reflects its continued commitment to new product innovation and market
development. In addition, the Company has developed and introduced commercial
pre-fabricated wiring systems which, like the Company's other products, are
expected to result in significant savings in labor and installation costs for
the end-user. The Electrical Products Division's ability to design and build
its own equipment has enabled it to significantly reduce its manufacturing
costs by lowering its capital requirements, increasing output and reducing
set-up times and scrap rates.
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INDUSTRY OVERVIEW
Aluminum Sheet. Overall demand for aluminum sheet products in the United
States has been increasing over the past several years. The Company estimates
that between 1990 and 1995, domestic consumption of aluminum sheet products in
end-use markets served by the Company increased from approximately 3.0 billion
pounds in 1990 to approximately 3.2 billion pounds in 1995. Among the factors
contributing to the growth in aluminum demand are aluminum's light weight, high
degree of formability, resistance to corrosion, recyclability and abundant
supply. These characteristics have resulted in the use of aluminum sheet in a
wide variety of forms in many industries including building products (siding,
gutters and trim), transportation (automobile, truck and aircraft panels,
filters and protective housings), containers (beer, soft drink and food cans),
electrical products (conduit, cables and satellite dishes) and consumer durables
(lawn furniture and appliances).
The two sources of aluminum are recycled aluminum scrap and primary
aluminum from ore. The Company employs a continuous cast manufacturing process
common to mini-mills that utilizes scrap aluminum as opposed to conventional
mills which utilize primary aluminum. The recycling of aluminum in the United
States has increased from 5.1 billion pounds in 1990 to 8.3 billion pounds in
1995, primarily as a result of economic, environmental and legislative factors.
The use of recycled aluminum scrap in the production of aluminum products
results in substantial energy savings over production of such products from
primary aluminum.
After a period of reduced demand and over capacity, aluminum rolling
mills rebounded in late 1994 due to the closure of inefficient mills, the
reduction of a world-wide oversupply of primary aluminum and a marked increase
in demand for aluminum sheet. Pricing improved and metal margins widened,
resulting in improved profitability throughout the industry for the first half
of 1995. The second half of the year was characterized by reduced demand and a
corresponding narrowing of metal margins due to customer inventory reductions.
Industry fundamentals remain greatly improved, however, and the Company does not
expect a return to the depressed market conditions of the early 1990's.
Electrical Conduit and Cable. The electrical flexible conduit and
armored cable products manufactured by the Company provide mechanical protection
for wires installed inside the walls of buildings, typically in accordance with
local building code requirements. Armored cable differs from electrical conduit
in that armored cable is prewired by the Company, whereas end-users pull wiring
through electrical conduit when such conduit is installed. Electrical flexible
conduit and armored cable are used primarily by electrical contractors in the
construction, renovation and remodeling of commercial and industrial facilities
and multi-family dwellings. Such products are also used in the heating,
ventilating and air-conditioning ("HVAC"), original equipment manufacturers
("OEM") and DIY markets.
Historically, electrical wires were housed in rigid pipes in the walls
of buildings. Rigid pipe remains the most widely used means for the protection
of wire in commercial and other non-residential construction. Electrical
flexible conduit made from steel was introduced in the 1920's. Flexible conduit
is significantly easier to install than rigid pipe, resulting in cost savings to
the installer. The Company believes that aluminum flexible conduit, which was
introduced to the market by the Company, has in recent years become a
significant factor in the market due to its ease of installation, lighter weight
and ease of cutting as compared to steel flexible conduit or rigid pipe. In wet,
harsh or corrosive environments, non-metallic or plastic jacketed steel flexible
conduit may be used. Armored cable (conduit with pre-installed wire) made of
steel or aluminum has recently captured an increasing share of the market from
rigid pipe due to its pre-assembly, ease of installation and overall cost
effectiveness. Pre-fabricated wiring systems consisting of armored cable cut to
specified lengths with pre-installed end connectors and junction boxes have
recently been introduced and the Company is optimistic that installations of
this product will increase in fiscal 1997 as contractors become more familiar
with the labor saving potential of these systems.
While demand for flexible conduit and armored cable remained strong
during fiscal 1996, margins were impacted by increased raw material costs,
particularly aluminum and copper. Price inelasticity within the market prevented
the Company from passing much of these increases along to customers. Near the
end of fiscal 1996 raw material costs began to decline and margins are expected
to improve in fiscal 1997.
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MANUFACTURING
Mill Products Division. Two different processes exist for manufacturing
aluminum sheet from molten aluminum. The conventional casting process, called
"direct chill" or "D. C." casting, starts with molten aluminum being poured into
large ingots that are later cooled and machined to ensure a smooth surface
before they are reheated and hot rolled by multiple passes through rolling mills
into aluminum sheet. By comparison, the continuous casting process, which is
employed by the Company, involves casting and hot rolling aluminum in a single
continuous manufacturing process. In continuous casting, molten aluminum is fed
directly into a caster which produces a continuous thin slab that is immediately
hot rolled into semi-finished aluminum sheet from molten metal in a single step.
As a result, the direct chill process requires several days to produce aluminum
sheet from molten metal as opposed to the continuous casting process which
requires several hours.
Continuous casting eliminates several manufacturing steps associated
with conventional casting, and reduces labor costs, inventory levels and
manufacturing time. This allows for lower production costs and more rapid
customer response. In addition, the continuous casting process is significantly
less capital and labor intensive than conventional casting methods. The Company
estimates that the energy cost of recycling aluminum scrap into molten metal is
approximately 95% less than the energy cost incurred in the production of
primary aluminum. Historically, continuous cast sheet has lagged in surface
appearance, formability, and corrosion resistance to conventionally cast sheet.
However, the Company's research and development has advanced its continuous
casting process to produce aluminum sheet alloys comparable in surface quality,
formability and corrosion resistance to conventionally cast aluminum in many
applications. The Company is now producing aluminum sheet alloys which
historically were produced almost exclusively by the higher cost conventional
process.
The Mill Products Division operates two casting and rolling mills
located in Uhrichsville, Ohio and Carson, California with a total annual
capacity of 360 million pounds. The Ohio facility receives molten aluminum from
the adjacent facility operated by IMCO Recycling, Inc. (see Business - Raw
Materials) while the California facility processes its own scrap to produce
molten metal utilizing current delacquering and melting technology. The
Company's mills employ twin belt thin-slab continuous casting, which the Company
believes is the most efficient and highest speed form of continuous casting. In
addition to casting, the Company's manufacturing processes include cold rolling,
annealing, leveling, slitting, painting, tube manufacturing and packaging.
Electrical Products Division. The Company fabricates its flexible
conduit and armored cable products at its Long Beach, California fabrication
facility. This facility purchases its aluminum sheet from the Mill Products
Division's nearby Carson, California rolling mill, making the Company the only
backward integrated manufacturer of electrical flexible conduit and cable. This
integration has allowed the Company to develop a lower cost aluminum alloy used
in the fabrication of its electrical products. The Electrical Products Division
designs and builds much of the equipment which is used to manufacture its
products. The Company believes that its ability to design and build its own
equipment has significantly reduced its manufacturing costs by lowering its cost
of capital, increasing output and reducing set-up times and scrap rates.
The Company fabricates its electrical products by slitting aluminum or steel
sheet on specialized narrow width slitting equipment, after which the sheet is
coiled. The coils are then fed through proprietary forming machines to produce
the flexible conduit. For its cable products, the Company draws copper into
wire, coats the wire with plastic insulation and, for certain products, wraps
the coated wire with paper or mylar. The protective armoring is then wrapped
around the cabled wire. To produce its non-metallic conduit, the Company uses a
specialized co-extrusion process involving both rigid and flexible plastics
(PVC). After production, the Company's conduit and cable products are cut to
length and packaged.
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PRODUCTS AND APPLICATIONS
The Mill Products Division manufactures a wide variety of aluminum sheet
alloys used in numerous industries, including the building products,
transportation, electrical and consumer durable end-use markets. The following
table lists physical properties and applications of the Mill Products Division's
primary products:
MILL PRODUCTS DIVISION PRODUCTS
<TABLE>
<CAPTION>
ALLOY PHYSICAL PROPERTIES APPLICATIONS
- ----- ------------------- ------------
<S> <C> <C>
5052 Moderate strength; moderate Truck steps, beverage truck
formability; corrosion frames and bodies, high
resistance strength signs, electronic
panels, fan blades
3003 Low to moderate strength; good Tread plate, trophy nameplates,
workability junction boxes
1100 High formability; high electrical Heat exchangers, satellite
and thermal conductivity antenna dishes, automotive
lighting fixtures and computer
housings
1350 Low to moderate strength; Electrical transformer
electrical conductivity conductors, cable wrap
8111 Excellent formability; high School lunch containers, entree
thermal conductivity packages, deli and meat trays,
pizza and pie pans
3xxx Low to moderate formability; Building products, highway
Family low to moderate strength signs, truck trailer side panels,
irrigation pipe, welded tube
and other general purpose
applications
</TABLE>
The Electrical Products Division manufactures a wide variety of
flexible conduit from aluminum, steel or plastic in diameters from 5/16 to 4
inches and prewired armored cable systems from aluminum and steel. The
Electrical Products Division's products are used primarily in the construction,
renovation and remodeling of commercial buildings such as industrial plants,
office buildings, multi-family dwellings, hotels, restaurants, theaters and
health-care facilities. The following table lists the Electrical Products
Division's primary products and their applications:
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ELECTRICAL PRODUCTS DIVISION PRODUCTS
<TABLE>
<CAPTION>
TRADE NAME MATERIAL DESCRIPTION APPLICATION
- ---------- -------- ----------- -----------
<S> <C> <C> <C>
Flexible Conduits:
Alflex(R) Aluminum Flexible conduit Dry locations
Galflex(R) Galvanized steel Flexible conduit Dry locations
Slinky-Flex Steel Extra flexible conduit Used in special
applications requiring
tight radius bends
Ultratite(R) Galvanized steel Various types of liquid- Wet, harsh and
core with an tight conduit such as corrosive
extruded Oil Resistant and environments
PVC jacket Computer Blue
Aluminum Liquid-tight, flexible Specialty markets
conduit
Non-metallic Liquid-tight, flexible Heating, ventilation,
(two different conduit and air conditioning
PVC materials) (HVAC), pool & spa
OEM, and industrial
applications
Armored Cable
Systems:
Armorlite(R) Aluminum Cost effective, flexible Restaurants, hotels,
prewired, metal-clad theaters, TV studios
(MC) grounded
assembly used for
circuit wiring
PVC jacket version Supplying power for
of above lighting to parking
lots and parking
garages
Aluminum Cost effective, flexible Rated for branch,
prewired, armored feeder and power
cable (AC) assembly circuits. Specialty
(not grounded) HCF version used in
health care facilities
Ultraneutral Aluminum Oversized neutral MC Supplying power to
cable assembly office equipment,
computers, and
other similar
electronic equipment
Pre-fabricated Wiring
Systems:
Power Snap(R) Aluminum Cost effective, made to Branch circuit wiring
specification system of lighting and
consisting of MC cable, convenience power
outlet and switch modules, in dry locations
and push-in connectors
</TABLE>
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RESEARCH AND DEVELOPMENT
The Mill Products Division engages in research and development
activities at each stage of the continuous casting manufacturing process with
the goal of improving product quality and reducing manufacturing costs. The
successful development of advanced scrap preparation, metal treatment and
manufacturing processes has enabled the Company to manufacture aluminum sheet
alloys which historically were produced almost exclusively by the higher cost
conventional process. The implementation of these efforts has allowed the
Company to increase the available market for its products and significantly
reduce its costs to manufacture aluminum sheet from molten metal. The Company
currently conducts research and development activities at both its Uhrichsville,
Ohio and Carson, California rolling mills. In addition, the Company utilizes
independent research and development consultants and funds research and
development activities in the metallurgical department of a major university.
The Electrical Products Division focuses its research and development
activities on the development of new products and on the improvement of its
conduit and cable manufacturing processes through the development of proprietary
manufacturing equipment and the reduction of scrap. The Company was the first to
receive a UL listing for two of the major innovations in its industry, aluminum
flexible conduit in 1968 and aluminum armored cable in 1988. The Company has
introduced certain preassembled and prepackaged products for the commercial and
DIY markets. The Company has also developed and introduced pre-fabricated wiring
systems that, like the Company's other products, are expected to result in
savings in labor and installation costs for end-users. The Electrical Products
Division designs and builds highly specialized equipment which is used to
manufacture its products. The Company believes its specialized manufacturing
equipment has significantly reduced its manufacturing costs. The Electrical
Products Division's research and development is conducted at its Long Beach,
California manufacturing facility.
The Company conducts research and development activities as part of its
ongoing operations at both the Mill Products Division and the Electrical
Products Division. For each of the years in the three year period ending March
31, 1996, the Company spent approximately $1.2 million, $0.7 million and $0.8
million on research and development activities.
CUSTOMERS AND DISTRIBUTION
The Mill Products Division serves customers primarily in the building
products, transportation, electrical products and consumer durables industries.
Approximately 66% of the Company's sales are made directly to manufacturers that
fabricate the Company's aluminum sheet into finished products. The remaining 34%
of the Company's sales are to distributors. The Company employs its own sales
force which is strategically located for national coverage of approximately 300
customers.
The Electrical Products Division's products are sold primarily through
independent sales representatives to electrical wholesalers, which represented
more than 92% of the Electrical Products Division's sales in Fiscal 1996. The
remaining 8% was sold to the DIY, OEM and HVAC markets. The independent sales
representatives do not exclusively market the Company's products, but they are
prohibited from selling products that are in direct competition with products
manufactured and sold by the Company. The Electrical Products Division serves
approximately 3,500 customers. The Company expects its sales to the DIY market
to continue to grow as part of its strategy to expand its distribution to
retailers nationwide.
Sales to the Company's top ten customers totaled approximately 42% of
net sales in Fiscal 1996. No single customer accounted for more than 10% of the
Company's net sales in Fiscal 1996.
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COMPETITION
The market for aluminum sheet products is highly competitive. The Mill
Products Division competes with approximately 30 conventional rolling mills and
other continuous cast sheet manufacturers, some of which are larger and have
greater financial resources than the Company. Approximately half of the
industry's conventional casting capacity is utilized for the production of stock
for aluminum cans, which the Company does not produce, although these
competitors do compete directly with the Company in certain other product
markets. Aluminum also competes with other materials such as steel, plastic and
glass for various applications. The Mill Products Division competes principally
on the basis of price, quality and ability to meet customer requirements.
The market for flexible conduit and armored cable products is also
highly competitive. The Electrical Products Division faces substantial
competition from a number of national and regional competitors, both in the
electrical flexible conduit and prewired armored cable industry and in the pipe
and wire industry. The Electrical Products Division competes principally on the
basis of product availability and features, price and customer service. The
Electrical Products Division offers a complete line of flexible conduit and
pre-wired armored cable systems to meet customers' needs.
RAW MATERIALS
The principal raw material used by the Company in the manufacture of its
products is aluminum scrap, which can be subject to significant cyclical price
fluctuations. The Electrical Products Division also utilizes significant amounts
of copper and steel as a raw material. While the selling prices of the Company's
products tend to increase or decrease over time with the cost of its raw
materials, such changes generally do not occur simultaneously or to the same
degree. The Company seeks to minimize exposure to margin pressure from such
changes through the use of contracts where the sales price is based on a
negotiated adder to the market price of certain raw materials. The Company also
enters into firm priced sales contracts which the Company hedges with purchases
of metal for forward delivery. The effect of the hedge is included in the
Company's results of operations in the period when the underlying transaction is
completed. In addition, the Company employs a computerized alloy blending system
to identify the most cost-efficient scrap mix for particular alloys.
The Company also uses futures contracts for anticipated metal
requirements to minimize the Company's aggregate exposure at any time to the
risk of changes in metal prices. The effect of such hedges is included in the
results of operations in the period the anticipated metal purchase was expected
to occur. No such contracts were outstanding at March 31, 1996. The Company does
not enter into futures contracts for trading or speculative purposes.
The Company and IMCO Recycling, Inc. ("IMCO"), the world's largest
aluminum recycler, are parties to an agreement (the "Supply Agreement") under
which IMCO serves as the exclusive source of recycled aluminum for the Company's
Ohio rolling mill. Under the Supply Agreement, the Company purchases aluminum
scrap which IMCO processes and converts into molten metal or ingot at IMCO's
recycling and processing facility located adjacent to the Company's rolling
mill. IMCO is permitted to perform similar services for other customers provided
that IMCO meets its supply obligations to the Company.
Under the terms of the Supply Agreement, the Company currently has the
option to purchase up to a 49% interest in IMCO's Ohio recycling and processing
facility. IMCO may sell its Ohio facility to a third party, provided that, (i)
prior to accepting any offer from a third party, the Company is given the
opportunity to purchase the facility on the same terms as offered by such third
party, and (ii) the third party purchaser assumes IMCO's obligations under the
Supply Agreement.
Pursuant to the Supply Agreement, the Company is responsible for the
treatment and disposal of substantially all of the waste generated as a result
of IMCO's processing services on behalf of the Company. The Company has agreed
to indemnify IMCO against damages and liabilities arising from the Company's
treatment and disposal of such waste. Nonpayment, uncured defaults and certain
events of bankruptcy relating to the Company would enable IMCO to terminate the
Supply Agreement.
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The Supply Agreement expires March 31, 2003, and the Company has the
option to renew the agreement for an additional ten year period upon expiration
of the initial term.
BACKLOG
At March 31, 1996, the Company estimates that the Mill Products Division
had a backlog of firm orders for approximately 71.0 million pounds with an
aggregate sales price of approximately $67.5 million, as compared to an
estimated backlog of firm orders for approximately 75.4 million pounds with an
aggregate sales price of approximately $90.1 million at March 31, 1995. The
Company believes that substantially all of its backlog of firm orders existing
on March 31, 1996 will be shipped prior to July 1996. Backlog is not a
significant factor for the Electrical Products Division.
TRADEMARKS AND LICENSES
The Company maintains registered trademarks on certain of its flexible
conduit and armored cable systems. Such registered trademarks are Ultratite,
Galflex, Alflex and its design, Electrician's Choice, Computer Blue, Duraclad,
Armorlite and PowerSnap. While the Company considers it important to its
business, the Company does not believe it is dependent on the trademarks for the
continuation of its business. Certain technology used by the Company in its
manufacturing processes is licensed from others under long-term license
agreements.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and certain other information concerning each are
listed below. Executive officers are appointed by the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position Years as Officer
---- --- -------- ----------------
<S> <C> <C> <C>
Norman E. Wells, Jr. 48 President and Chief Executive Officer 5
Terry D. Smith 42 Chief Financial Officer, Treasurer and Secretary 8
Robert D. Lloyd 62 Executive Vice President and President, Alflex Division 5
Stanley W. Platek 57 Vice President - Technology, Barmet Aluminum Corp. 8
Gerald L. Hadeen 54 Senior Vice President, Alflex Division 3
</TABLE>
EMPLOYEES
As of March 31, 1996, the Company employed 869 persons, of which 631
were full-time hourly employees. Of the full-time hourly employees, 182 are
represented by the Glass, Molders, Pottery, Plastic & Allied Workers
International, AFL-CIO, CLC union (the "GMP"). In 1994, the Company signed a
three-year multi-employer collective bargaining agreement with the GMP that
expires in December 1997. The Company believes its relationships with its union
and non-union employees are good.
The Mill Products Division provides a profit-sharing plan to all of its
non-union employees. The Electrical Products Division provides a non-qualified
defined contribution plan for eligible workers. Contributions to both plans are
at the discretion of the Company's Board of Directors. In accordance with its
collective bargaining agreement with the GMP, the Company contributes to a
union-sponsored multi-employer defined benefit pension plan.
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ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous laws and regulations
relating to the protection of human health and the environment, including, for
example, those relating to air and water pollution and solid waste disposal. The
Company believes its facilities are in substantial compliance with current laws
and regulations. The cost and administration of compliance with current laws and
regulations at the Company's present facilities are not expected to have a
material adverse effect on the Company's financial condition. The Company does
not have any material capital expenditures for environmental control facilities
planned for Fiscal 1997.
Owners and operators of sites containing hazardous wastes, as well as
generators and transporters of hazardous wastes, are subject to broad liability
under various federal, state and local environmental laws and regulations,
including liability for clean up costs and damages associated with past waste
disposal activity. The Company has been designated as a Potentially Responsible
Party ("PRP") by the EPA under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") at four federal superfund
sites and is conducting remedial investigations at two of the sites for past
waste disposal activity associated with closed recycling facilities. At the two
other federal superfund sites, the Company is a minor contributor and expects to
resolve its liability for a nominal amount. The Company is also under orders by
agencies in three states for environmental remediation at plants, one of which
is currently operating and two of which have been closed. The Company had $5.1
million of environmental accruals at March 31, 1996. The Company believes that
any differences in the total future expenditures for all environmental matters
of which the Company is aware when compared to the amounts accrued, will not
have a material adverse effect on the financial condition or results of
operations of the Company. It is not possible, however, to predict the amount or
timing of costs for future environmental matters which may subsequently be
determined. Although the outcome of any such matters, to the extent they exceed
any applicable reserves, could have a material adverse effect on the Company's
results of operations for the applicable period, the Company has no reason to
believe that such outcome will have a material adverse effect on the Company's
financial condition or results of operations.
Risks of environmental costs and liabilities are inherent in certain of
the Company's operations, as is the case with other companies involved in the
aluminum industry, and there can be no assurance that significant costs and
liabilities will not be incurred by the Company in the future. It is also
possible that other developments, such as increasingly strict environmental
laws, regulations and enforcement policies thereunder and claims for damages to
property or persons resulting from plant or waste emissions, could result in
substantial costs and liabilities to the Company in the future. However, the
Company does not believe that the ultimate outcome of all known environmental
liabilities will have a material adverse effect on the Company's financial
condition, results of operations and liquidity.
ITEM 2. FACILITIES AND PROPERTIES
The Company owns certain of its properties and leases certain other
properties used in the manufacture and distribution of the Company's products.
The Company's leased properties have lease expirations ranging from 1996 to 1999
with provisions for renewal. Substantially all of the Company's facilities
collateralize borrowings under its credit agreement with a syndicate of banks
led by Chemical Bank. The following table sets forth certain information with
respect to the Company's principal operating properties:
<TABLE>
<CAPTION>
LOCATION NATURE OF PROPERTY SQUARE FEET STATUS
-------- ------------------ ----------- ------
<S> <C> <C> <C>
Uhrichsville, Ohio................... Rolling mill 220,000 Owned
Carson, California................... Rolling mill 103,000 Owned
Bedford, Ohio........................ Painting facility 103,000 Leased
Torrance, California................. Painting facility 60,000 Leased
Long Beach, California............... CasTech administrative headquarters; 210,000 Leased
Electrical Products Division
fabricating facility and warehouse
Akron, Ohio.......................... Administrative headquarters-- 16,000 Leased
Mill Products Division
</TABLE>
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In addition to the above operating plants, the Company owns three
facilities consisting of an aggregate of 516 acres of land and 437,000 square
feet of facilities which were closed during Fiscal 1992 and 1993. The ultimate
disposition of these facilities has not yet been determined. The Company also
owns one of its former waste disposal sites in Olaton, Kentucky on 500 acres of
land.
All of the Company's active operating properties are maintained and
updated on a regular basis. The two casting and rolling mills located in
Uhrichsville, Ohio and Carson, California have a total annual capacity of
approximately 360 million pounds and as of March 31, 1996, were utilized at an
aggregate of approximately 82% of capacity. In addition to production
facilities, all of the plant locations include office and warehouse facilities.
The Company believes that its operating facilities and equipment are
well-maintained, in good operating condition and, in general, suitable for the
Company's purposes and adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various non-environmental legal proceedings
and administrative actions, all of which are of an ordinary or routine nature
incidental to the operations of the Company. Although it is impossible to
predict the outcome of any legal proceeding, in the opinion of the Company's
management, such proceedings and actions should not, individually or in the
aggregate, have a material adverse effect on the Company's financial condition
or results of operations. For a description of certain environmental matters
involving the Company, see "Business-Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $.01 par value, is traded on the New York
Stock Exchange (NYSE), ticker symbol: CTA. The table below sets forth the high
and low sales prices as reported by NYSE:
<TABLE>
<CAPTION>
1996 1995
High Low High Low
<S> <C> <C>
First Quarter 17.875 13.125 - -
Second Quarter 21.875 15.000 - -
Third Quarter (1) 17.500 12.750 16.750 12.250
Fourth Quarter 15.750 13.000 16.500 12.375
<FN>
(1) Beginning from the Company's initial public offering in October 1994.
</TABLE>
The terms of the Company's revolving credit and term debt agreements
with a group of lenders led by Chemical Bank limit the total amount of dividends
on the Company's common stock. Dividends are limited to 25% of net income for
the prior fiscal year provided that the ratio of the Company's long-term debt to
the sum of (a) the Company's long-term debt and (b) the Company's total
stockholders' equity is less than .35 to 1.00 before and after such
distribution.
The Company has never declared or paid any dividends on its common
stock and does not expect to pay dividends for the foreseeable future.
There were 168 record holders of the Company's common stock on May 24,
1996.
11
<PAGE> 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations and balance sheet data for the periods indicated. The information
for, and as of the end of, each of the twelve months in the five year period
ended March 31, 1996 are derived from the consolidated financial statements of
the Company for such periods which have been audited by Ernst & Young LLP. The
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Company and the notes
thereto and other financial information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS (1):
Net sales $ 400,449 $ 403,001 $ 262,793 $ 227,588 $ 216,178
Cost of goods sold 347,467 348,628 221,411 198,269 189,697
----------- ----------- ----------- ----------- -----------
Gross profit 52,982 54,373 41,382 29,319 26,481
Selling, general and administrative expenses 20,586 20,441 18,805 16,663 21,803
Other (income) expenses (708) 543 91 795 657
Non-recurring charges (2) - - - 48,946 4,033
----------- ----------- ----------- ----------- -----------
Operating income (loss) 33,104 33,389 22,486 (37,085) (12)
Interest expense 3,474 7,744 10,231 10,143 13,247
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes,
extraordinary credit and cumulative effect
of change in accounting for inventories 29,630 25,645 12,255 (47,228) (13,259)
Income tax (expense) benefit (6,956) (2,532) (1,550) 2,277 1,350
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary credit and
cumulative effect of change in accounting
for inventories 22,674 23,113 10,705 (44,951) (11,909)
Extraordinary credit (3) - 2,534 - 3,825 -
Cumulative effect of change in accounting for
inventories (4) - - - - (10,085)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 22,674 $ 25,647 $ 10,705 $ (41,126) $ (21,994)
=========== =========== =========== =========== ===========
Earnings (loss) per share before extraordinary credit
and cumulative effect of change in accounting
for inventories (4) $1.70 $2.10 $1.22 ($5.00) ($1.41)
Earnings (loss) per share $1.70 $2.33 $1.22 ($4.58) ($2.60)
</TABLE>
(Footnotes on following page)
12
<PAGE> 13
<TABLE>
<CAPTION>
Fiscal Year Ended March 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, Except Operating Amounts)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Depreciation and amortization ($000) $ 8,598 $ 8,159 $ 7,914 $ 8,955 $ 9,583
Capital expenditures ($000) $ 10,361 $ 6,315 $ 4,381 $ 7,448 $ 9,739
Mill Products Division (5)
Net sales ($000) $ 279,981 $ 295,552 $ 185,915 $ 160,560 $ 152,782
Operating income ($000) $ 21,603 $ 19,215 $ 12,492 $ (43,590) $ (5,187)
Shipments (000 lbs.) 263,600 302,075 243,377 200,950 214,154
Net sales per lb. $ 1.062 $ 0.978 $ 0.764 $ 0.799 $ 0.713
Electrical Products Division
Net sales ($000) $ 115,007 $ 103,073 $ 77,913 $ 68,504 $ 67,064
Operating income ($000) $ 11,501 $ 14,174 $ 9,994 $ 6,505 $ 5,175
Shipments (000 ft.) 450,764 417,430 347,741 304,003 303,771
Net sales per 000 ft. $ 255.14 $ 246.92 $ 224.05 $ 225.34 $ 220.77
BALANCE SHEET DATA:
Working capital $ 62,299 $ 59,497 $ 38,251 $ 37,960 $ 38,667
Total assets 213,284 215,714 189,492 184,494 232,056
Total debt 45,770 63,755 128,252 133,295 153,304
Total liabilities 93,388 118,735 171,827 177,534 185,163
Total stockholders' equity 119,896 96,979 17,665 6,960 46,893
- -----------------------------------------------------
<FN>
(1) Excludes discontinued operations for Fiscal 1992 and 1993.
(2) During Fiscal 1992, the Company entered into an alliance with IMCO and
closed certain of the Company's scrap melting operations, resulting in a
non-recurring charge of $4.0 million to reduce the assets to their net
realizable values. During Fiscal 1993, the Company closed its remaining
scrap processing and melting facilities at Rockport, Indiana, Livia,
Kentucky and Uhrichsville, Ohio, resulting in a non-recurring charge of
$20.6 million to reduce the fixed assets at the facilities to their net
realizable value. During Fiscal 1993, the Company reduced to its net
realizable value a landfill site owned by the Company and accrued estimated
future remediation costs to be incurred by the Company at the landfill and
two other sites resulting in a non-recurring charge of $28.3 million. These
sites were primarily associated with the past practices of the Company's
closed scrap melting operations.
(3) During Fiscal 1993, the Company retired a note held by a former officer in
exchange for cash and the termination of a related non-compete agreement,
resulting in a gain from the extinguishment of debt. During Fiscal 1995,
the Company repaid all amounts outstanding under its previous credit
agreements with The Prudential Insurance Company of America and a separate
note payable. In addition, the Company exercised its option to purchase
453,850 of the Company's common stock owned by Prudential. As a result of
the repayment of the credit agreements with Prudential, the Company
recorded an extraordinary gain of $2.5 million.
(4) Effective April 1, 1991, the Company changed its method of accounting for
the metal portion of inventories at the Mill Products Division to the LIFO
method, which management believes results in a better matching of current
costs and current revenues.
(5) The operating data for the Mill Products Division includes shipments of
mill products only. Other sales, such as the sale of certain raw materials
and intercompany sales, are excluded.
</TABLE>
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of CasTech Aluminum Group Inc. ("the Company") for each of
the years in the three-year period ended March 31, 1996, and certain factors
that may affect the Company's prospective financial condition. This section
should be read in conjunction with the consolidated financial statements of the
Company for the year ended March 31, 1996 and the notes thereto. The statements
under "Letter to Shareholders" and the other statements included in the
Company's 1996 Annual Report which are not historical facts are forward-looking
statements. These forward-looking statements involve risks and uncertainties
that could render them materially different, including, but not limited to, the
effect of global economic conditions, the impact of competitive products and
pricing, product development and commercialization, availability and cost of
critical raw materials, the rate of technological change, product demand and
market acceptance risks, capacity and supply constraints or difficulties, and
other risks detailed in the Company's Securities and Exchange Commission
filings.
OVERVIEW
The Company's operations are conducted through its subsidiary, Barmet Aluminum
Corporation ("Barmet," "Mill Products Division"), the Nation's leading
manufacturer of continuous cast aluminum sheet and its division, Alflex
Corporation ("Alflex," "Electrical Products Division"), a leading manufacturer
of electrical flexible conduit and prewired armored cable. The Company seeks to
increase value in the Mill Products Division by increasing its utilization of
manufacturing capacity for higher margin products. In the Electrical Products
Division, the Company seeks to increase value by continuing to broaden its
product lines, increasing its penetration of existing markets, and expanding its
channels of distribution geographically.
The Company's operating results, particularly those of the Mill Products
Division, are impacted by the margin between aluminum sheet selling prices and
aluminum scrap prices ("metal margin"). Because the price of primary aluminum in
world markets greatly influences the price of aluminum scrap, significant
movements in the price of primary aluminum can affect the Company's margins as
aluminum sheet selling prices do not move simultaneously nor necessarily to the
same degree as the primary markets. The Company seeks to manage its metal margin
through, among other things, the use of derivative contracts to hedge
anticipated raw material requirements and firm-priced sales orders.
Throughout the early 1990's, reduced demand led to a worldwide oversupply of
primary aluminum and forced aluminum producers to operate at levels
significantly below capacity. In addition, the oversupply effectively reduced
selling prices for many aluminum products, including those sold by the Company.
As a result, operating margins were under considerable pressure, reducing
profitability throughout the aluminum industry.
During fiscal 1995, demand for aluminum sheet increased and certain rolling
operations were closed by two large aluminum companies. As a result, aluminum
sheet prices increased dramatically, leading to improved metal margins and
profitability for the Company. In addition, the Company's shipments increased
substantially due to the improvement in demand.
In early fiscal 1996, metal margins reached near record levels as aluminum sheet
prices remained high while scrap prices began to soften. Thereafter, however,
demand for aluminum sheet began decreasing as customers worked off excess
inventory accumulated in advance of anticipated higher aluminum prices. As a
result, selling prices and metal margins retreated to more normal levels during
the second half of the fiscal year. The Company's metal margin decline during
the year was minimized as a result of an improved product mix and because a
substantial portion of its sales contracts contained selling prices which were
indexed to metal costs.
The Company expects metal margins to remain at normal levels throughout fiscal
1997 as customers complete their inventory adjustments and order activity
increases. The Company intends to supplement the anticipated increase in demand
by continuing to focus on penetrating higher margin markets through the further
development of its unique continuous cast process.
14
<PAGE> 15
Shipments of the Company's electrical products have continued to rise primarily
as a result of increased demand in the construction, renovation and remodeling
markets, increased penetration of new markets such as the Do-It-Yourself (DIY)
segment, and the increased acceptance of new products such as the Company's
PowerSnap(R) pre-fabricated wiring system. During fiscal 1996, however, higher
volumes were unable to offset a compression in margins that resulted from
significant increases in aluminum and copper, two of the primary raw materials
for the Electrical Products Division. As a result, Alflex's operating income
declined in fiscal 1996 from the record level achieved in fiscal 1995. By the
end of fiscal 1996, the prices for aluminum and copper were declining and
margins had begun to widen. The Company expects margins to continue to improve
in fiscal 1997, although they are not expected to reach the levels experienced
in fiscal 1995. In addition, the Company believes that Alflex's shipments will
continue to increase in fiscal 1997 due to growth in the construction,
renovation and remodeling markets, an increased penetration of the
Do-It-Yourself market, and an increase in the sales of Alflex's pre-fabricated
wiring systems.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales in fiscal 1996 of $400.4 million were slightly below the
$403.0 million for fiscal 1995. This was primarily the result of increased unit
prices at both divisions being offset by a decline in volume at the Mill
Products Division. The Mill Product Division's net sales for fiscal 1996
decreased 5% to $280.0 million from $295.6 million for fiscal 1995. This
decrease was primarily the result of reduced volumes as industry-wide shipments
of non-can aluminum sheet in fiscal 1996 were approximately 10% lower than in
fiscal 1995. The Electrical Products Division's net sales for fiscal 1996
increased 12% to $115.0 million from $103.1 million for fiscal 1995. This
increase resulted from higher volumes and increased average selling prices as
Alflex continued to penetrate the Do-It-Yourself and Original Equipment
manufacturers (OEM) markets and its pre-fabricated wiring systems continued to
gain acceptance among contractors.
Gross Profit. Gross profit for fiscal 1996 decreased 3% to $53.0 million from
$54.4 million for fiscal 1995. Unit gross margin at the Mill Products Division
for fiscal 1996 increased to $0.10 per pound from $0.09 per pound in fiscal
1995, while the Electrical Products Division unit gross margin decreased to
$0.05 per foot in fiscal 1996 from $0.06 per foot in fiscal 1995. The decrease
in unit margin at the Electrical Product Division was a result of significantly
higher copper and aluminum prices combined with competitive conditions which
limited the ability to increase selling prices.
Operating Income. Operating income for fiscal 1996 decreased slightly to $33.1
million from $33.4 million for fiscal 1995. The decrease primarily resulted from
the lower gross profits described above as selling and administrative expenses
were level from fiscal 1995 to fiscal 1996.
Interest Expense. Interest expense decreased to $3.5 million for fiscal 1996
from $7.7 million for fiscal 1995. This decrease was a result of a decrease in
both average outstanding borrowings and weighted average interest rates during
fiscal 1996.
Income Tax Expense. Income tax expense increased for fiscal 1996 from fiscal
1995, primarily as a result of an increase in the Company's effective tax rate
from 10% in fiscal 1995 to 24% in fiscal 1996.
As of March 31, 1996, the Company had utilized all of its federal net operating
loss carryforwards. Consequently, the Company expects its tax rate to more
closely approximate the statutory rate in fiscal 1997.
Net Income. Net income for fiscal 1996 decreased to $22.7 million from $25.6
million for fiscal 1995, primarily as a result of the factors described above.
In addition, fiscal 1995 net income includes an extraordinary gain of $2.5
million.
15
<PAGE> 16
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales in fiscal 1995 increased 53% to $403.0 million from $262.8
million for fiscal 1994. This increase was primarily due to higher unit sales
and price increases at both the Mill Products and Electrical Products Divisions.
The Mill Products Division's net sales for fiscal 1995 increased 59% to $295.6
million from $185.9 million for fiscal 1994. This increase was attributable to
increased unit selling prices, the continuing penetration of new product markets
by the Company and to a strong market for aluminum which has led to increased
demand for the Company's products, particularly in the construction, renovation
and remodeling markets. The Electrical Products Division's net sales for fiscal
1995 increased 32% to $103.1 million from $77.9 million for fiscal 1994. This
increase resulted primarily from increased unit selling prices, continued demand
in the commercial renovation and remodeling market and the continued expansion
into the DIY and OEM markets.
Gross Profit. Gross profit for fiscal 1995 increased 31% to $54.4 million from
$41.4 million for fiscal 1994. Gross profit as a percentage of net sales for
fiscal 1995 decreased to 13% from 16% for fiscal 1994. The decrease was
primarily attributable to the significant increase in aluminum product prices
which resulted in a disproportionate increase in the net sales base in relation
to gross profit and, to a lesser extent, a reduction in the spread between the
average cost of the Company's raw materials and average realized selling prices.
Unit gross margin at the Mill Products Division for fiscal 1995 increased to
$0.09 per pound from $0.08 per pound for fiscal 1994 while the Electrical
Products Division unit gross margin remained constant at $0.06 per foot.
Operating Income. Operating income for fiscal 1995 increased to $33.4 million
from $22.5 million for fiscal 1994. This increase in operating income resulted
from the higher gross profits described above and a decrease in selling and
administrative unit costs.
Interest Expense. Interest expense decreased to $7.7 million for fiscal 1995
from $10.2 million for fiscal 1994. This was a result of a decrease in average
outstanding borrowings during fiscal 1995 as well as a decrease in the Company's
weighted average interest rates.
Income Tax Expense. Income tax expense increased for fiscal 1995 as compared to
fiscal 1994, primarily reflecting the Company's improved results and the
provision for alternative minimum tax, net of the utilization of tax credit
carryforwards.
Net Income. Net income for fiscal 1995 increased to $25.6 million from $10.7
million for fiscal 1994, primarily as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
On October 20, 1994, the Company repaid $121.8 million representing all
outstanding amounts under its previous credit agreements with The Prudential
Insurance Company of America, and $4.2 million related to a separate note
payable. The debt was satisfied with net proceeds from the Company's initial
public offering of $62.2 million and borrowings of $69.0 million under a credit
agreement with a syndicate of banks and other financial institutions led by
Chemical Bank (the "Credit Agreement"). The Credit Agreement originally
consisted of a $40.0 million term loan and a revolving line of credit commitment
in the aggregate of $50.0 million. As of July 27, 1995, the Credit Agreement was
amended to provide for reduced interest rates and to increase the revolving line
of credit commitment by $10.0 million.
16
<PAGE> 17
The Company's primary sources of working capital are cash flows from operating
activities and borrowings under the $60.0 million revolving line of credit.
Working capital amounted to $62.3 million, $59.5 million and $38.2 million at
March 31, 1996, March 31, 1995 and March 31, 1994, respectively. The Company's
liquidity needs primarily arise from working capital requirements, capital
investments and, to a lesser extent, principal payments on its indebtedness.
The Company's statements of cash flows for the periods indicated are summarized
below:
<TABLE>
<CAPTION>
Year ended March 31
--------------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Net cash provided by operating activities......................... $ 27,663 $ 11,229 $ 11,764
Net cash used by investing activities............................. (10,090) (6,315) (4,048)
Net cash used by financing activities............................. (17,742) (7,757) (5,403)
--------- --------- --------
(Decrease) increase in cash and cash equivalents.................. $ (169) $ (2,843) $ 2,313
========== ========== ========
</TABLE>
Capital expenditures for equipment and facility improvements were $10.4 million,
$6.3 million and $4.4 million for fiscal years 1996, 1995 amd 1994,
respectively. The Company used all the expenditures to purchase, modernize or
upgrade production equipment and to maintain facilities. Capital expenditures
for fiscal 1997 are expected to be approximately $11.2 million, principally
related to continued capacity expansion, equipment upgrades and maintaining the
Company's manufacturing facilities. The costs of these capital projects are
expected to be funded out of the Company's operating cash flow and by borrowings
under the Company's revolving line of credit.
As of March 31, 1996, the Company's long-term indebtedness was $39.5 million,
with the current portion of long-term indebtedness totaling an additional $6.3
million. Substantially all of the Company's long-term indebtedness consisted of
borrowings under the Credit Agreement, which amounts are secured by certain
property and substantially all of the Company's plant and equipment. As of March
31, 1996, the Company had a maximum of $48.0 million available under the Credit
Agreement.
Of the long-term indebtedness, including current portion, $ 6.3 million will
mature in 1997, $7.8 million will mature in 1998, $8.8 million will mature in
1999 and $22.9 million will mature thereafter.
The Company believes that its cash flow from operations and borrowings available
under the revolving line of credit will be sufficient to fund its working
capital requirements, capital expenditures and debt service requirements for at
least the next 24 months.
FINANCIAL INSTRUMENTS
The Company uses futures and option contracts to hedge portions of its exposure
to market risks resulting from fluctuations in metal prices. In determining its
strategy with respect to such instruments, the Company gives consideration to
market conditions, anticipated sales and purchase transactions and other factors
that may affect the Company's level of risk. Realized gains on futures and
option contracts are deferred and recognized as a component of the related
transactions. The Company had no net realized gains or losses deferred at March
31, 1996 related to such contracts. In addition, the Company had no open futures
or option contracts as of March 31, 1996.
17
<PAGE> 18
The Company uses interest rate cap, floor and swap agreements to manage interest
rate risk on its floating rate debt. These agreements are susceptible to market
fluctuations based on changes in the cost of borrowing. The total notional
amount of the interest rate agreements is limited to the amount of debt
outstanding. Fair value of the instruments is based on estimated settlement
costs. Realized gains and losses on interest rate agreements are deferred and
recognized as a component of interest expense over the term of the agreements.
The Company had agreements with a notional amount of $28.2 million outstanding
as of March 31, 1996. Had these agreements been terminated at March 31, 1996,
the Company would have been required to pay $0.1 million.
The Company does not enter into financial instrument agreements for trading or
speculative purposes.
ENVIRONMENTAL MATTERS
The Company generates various wastes in its aluminum recycling and rolling
processes, the treatment, storage, transportation and disposal of which are
regulated by various governmental agencies. The Company had recorded
environmental accruals of $5.1 million at March 31, 1996 to cover future
environmental remediation expenditures with respect to four superfund sites and
the Company's closed secondary melting facility in Uhrichsville, Ohio. The
Company expects most of these environmental expenditures to be made over the
next two years, with approximately $ 3.3 million to be expended in the next
year.
The Company has incurred and will in the future make capital and operating
expenditures relating to environmental remediation activities, and environmental
control and monitoring operations. The Company believes that because of the
implementation of its comprehensive environmental remediation program and the
closing of its principal secondary melting facilities, the Company will not have
to incur significant environmental charges, such as those incurred in fiscal
years 1992 and 1993, in the foreseeable future. The Company has made and intends
to continue to make the necessary capital expenditures needed for environmental
remediation and compliance with environmental laws and regulations. The Company
believes that compliance with current governmental regulations at all levels
will not have a material adverse effect on its future rate of capital
expenditures, financial condition or results of operations. However,
environmental laws and regulations have changed rapidly in recent years and the
Company may be subject to more stringent environmental laws and regulations in
the future. There can be no assurance that compliance with more stringent
environmental laws and regulations that may be enacted in the future would not
have a material adverse effect on the Company's financial condition or results
of operations.
SEASONALITY
The Company's businesses have generally not been seasonal in nature, although
the Company does experience a moderate increase in sales during the summer
months to certain industry segments that its serves.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During fiscal 1996, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Company intends to adopt
this standard during fiscal 1997 and elect the disclosure method of reporting.
The Company intends to adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" during fiscal
1997. The adoption of this standard is not expected to have a material effect on
the Company's financial statements for fiscal 1997.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
CASTECH ALUMINUM GROUP INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31
--------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 190 $ 359
Accounts receivable (Note 1)............................................ 57,802 73,641
Inventories (Note 3).................................................... 51,377 39,288
Prepaid expenses and other current assets............................... 4,454 5,030
----------- -----------
Total current assets............................................................ 113,823 118,318
Property, plant and equipment (Note 4).......................................... 74,294 71,779
Other long-term assets:
Loan fees .............................................................. 1,211 1,397
Goodwill (Note 1)....................................................... 22,082 22,803
Other................................................................... 1,874 1,417
----------- -----------
25,167 25,617
----------- -----------
Total assets.................................................................... $ 213,284 $ 215,714
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 34,041 $ 37,334
Accrued liabilities (Note 11)........................................... 9,774 11,911
Income taxes payable.................................................... 1,439 4,339
Current portion of long-term debt (Note 6).............................. 6,270 5,237
----------- -----------
Total current liabilities....................................................... 51,524 58,821
Long-term debt, less current portion (Note 6)................................... 39,500 58,518
Other non-current liabilities (Note 11)......................................... 2,364 1,396
Stockholders' equity:
Common stock, $.01 par value, 25,000 shares authorized, 12,943 and
12,920 shares issued and outstanding at
March 31, 1996 and 1995, respectively................................ 129 129
Paid in capital in excess of par value.................................. 136,445 136,202
Deficit................................................................. (16,678) (39,352)
----------- -----------
Total stockholders' equity...................................................... 119,896 96,979
----------- -----------
Total liabilities and stockholders' equity...................................... $ 213,284 $ 215,714
=========== ===========
</TABLE>
See accompanying notes
19
<PAGE> 20
CASTECH ALUMINUM GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended March 31
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales................................................ $ 400,449 $ 403,001 $ 262,793
Cost of goods sold....................................... 347,467 348,628 221,411
------------ ---------- ---------
Gross profit............................................. 52,982 54,373 41,382
Selling, general and administrative expense.............. 20,586 20,441 18,805
Other (income) expense................................... (708) 543 91
------------ ---------- ---------
Operating income......................................... 33,104 33,389 22,486
Interest expense......................................... 3,474 7,744 10,231
------------ ---------- ---------
Income before income taxes............................... 29,630 25,645 12,255
Income tax expense (Note 8).............................. 6,956 2,532 1,550
------------ ---------- ---------
Income before extraordinary gain......................... 22,674 23,113 10,705
Extraordinary gain (Note 6).............................. - 2,534 -
------------ ---------- ---------
Net income............................................... $ 22,674 $ 25,647 $ 10,705
============ ========== =========
Earnings per share (Note 1):
Income before extraordinary gain ................... $ 1.70 $ 2.10 $ 1.22
Extraordinary gain.................................. - .23 -
------------ ---------- ---------
Net income........................................ $ 1.70 $ 2.33 $ 1.22
============ ========== =========
</TABLE>
See accompanying notes
20
<PAGE> 21
CASTECH ALUMINUM GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Capital In
Common Excess of
Stock Par Value Deficit Total
----- --------- ------- -----
<S> <C> <C> <C> <C>
Balance at April 1, 1993................................. $ 13 $ 82,651 $ (75,704) $ 6,960
Net income............................................... - - 10,705 10,705
Balance at March 31, 1994................................ 13 82,651 (64,999) 17,665
Effect of 7.25 for 1 stock split......................... 75 (75) - -
Issuance of 4,600 shares of Common Stock,
net of related expenses.............................. 46 60,208 - 60,254
Repurchase of Common Stock............................... (5) (6,582) - (6,587)
Net income............................................... - - 25,647 25,647
------- --------- ----------- ---------
Balance at March 31, 1995................................ 129 136,202 (39,352) 96,979
Exercise of stock options (Note 7)...................... - 243 - 243
Net income............................................... - - 22,674 22,674
------- --------- ----------- ---------
Balance at March 31, 1996................................ $ 129 $ 136,445 $ (16,678) $ 119,896
======= ========= =========== =========
</TABLE>
See accompanying notes
21
<PAGE> 22
CASTECH ALUMINUM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended March 31
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 22,674 $ 25,647 $ 10,705
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization......................... 8,598 8,159 7,914
Deferred income taxes (benefit)....................... 1,716 (2,300) -
(Gain) loss on sale of assets......................... (18) 160 (218)
Extraordinary gain.................................... - (2,534) -
Changes in operating assets and liabilities:
Accounts receivable................................ 15,839 (26,282) (5,699)
Inventories........................................ (12,089) (888) (1,565)
Accounts payable................................... (3,293) 11,557 2,452
Other liabilities and other assets................. (5,764) (2,290) (1,825)
----------- ---------- ----------
Net cash provided by operating
activities............................................ 27,663 11,229 11,764
INVESTING ACTIVITIES
Purchase of property, plant and equipment.................. (10,361) (6,315) (4,381)
Net receipts on sales of assets............................ 271 - 333
----------- ---------- ---------
Net cash used by investing
activities............................................ (10,090) (6,315) (4,048)
FINANCING ACTIVITIES
Net change in notes payable................................ - - (1,800)
Proceeds from long-term borrowings......................... 17,000 80,500 11,952
Principal payments on long-term debt....................... (34,985) (145,985) (15,555)
Net proceeds from issuance of stock ....................... 243 60,254 -
Stock repurchase........................................... - (2,526) -
----------- ----------- ---------
Net cash used by financing
activities............................................ (17,742) (7,757) (5,403)
(Decrease)increase in cash and cash
equivalents........................................... (169) (2,843) 2,313
Cash and cash equivalents at beginning of year............. 359 3,202 889
----------- ---------- ---------
Cash and cash equivalents at end of year................... $ 190 $ 359 $ 3,202
=========== ========== =========
</TABLE>
See accompanying notes
22
<PAGE> 23
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
CasTech Aluminum Group Inc. (the "Company") operates principally in the
United States in one business segment. The Company is a manufacturer of
continuous cast aluminum sheet and flexible electrical conduit and cable
products made principally from recycled aluminum. A significant percentage of
the Company's sales are made to customers operating in the domestic building and
construction market and the domestic commercial renovation market.
The operations of the Company are conducted principally through two
divisions: (i) the Mill Products Division, a subsidiary, which manufactures and
markets continuous cast aluminum sheet products under the trade name "Barmet
Aluminum Corporation" ("Barmet"), and (ii) the Electrical Products Division, an
operating division, which produces and distributes flexible conduit and
pre-wired armored cable under the trade name "Alflex."
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different geographical regions. The Company routinely assesses the financial
strength of its customers and requires collateral such as letters of credit in
certain circumstances.
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of
three months or less at the acquisition date to be cash equivalents. The
carrying amount of cash and cash equivalents approximates their fair value.
Accounts Receivable
Accounts receivable are net of an allowance of $1.0 million and $1.4
million at March 31, 1996 and 1995, respectively.
23
<PAGE> 24
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market. The methods of
accounting for inventories are described in Note 3.
Long-Lived Assets
Property, plant and equipment is recorded at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets.
Goodwill, the excess of acquisition cost over the fair value of the net
assets of the Electrical Products Division, is amortized by the straight-line
method over forty years. Accumulated amortization was $6.7 million and $6.0
million at March 31, 1996 and 1995, respectively.
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related group
of assets, may not be recoverable. Measurement of the amount of impairment may
be based on appraisal, market values of similar assets or estimated undiscounted
future cash flows resulting from use and ultimate disposition of the assets.
Income Taxes
Income taxes are provided based on earnings reported for financial
statement purposes. The provision for income taxes differs from the amount
currently payable because of timing differences in the recognition of certain
income and expense items for financial reporting and tax reporting purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Stock Compensation
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, recognizes no compensation expense for the stock option grants.
Earnings Per Share
Earnings per share is based on the weighted average number of shares of
Common Stock and Common Stock equivalents (stock options) outstanding during
each year. Weighted average shares outstanding were 13,327,402, 11,016,252, and
8,774,015 for fiscal 1996, 1995 and 1994, respectively.
Recently Issued Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." The Company intends to adopt the standard during
fiscal 1997 and elect the disclosure method of reporting.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The Company intends to adopt this standard during the
first quarter of fiscal 1997. The Company does not expect the adoption of the
standard to have a material impact on the financial statements for fiscal 1997.
24
<PAGE> 25
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments were as follows:
<TABLE>
<CAPTION>
Year Ended March 31
---------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income taxes...................................................... $ 8,140 $ 2,382 $ 367
Interest.......................................................... 3,982 7,445 8,221
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31
----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Raw materials................................................................. $ 11,120 $ 12,403
Work in process............................................................... 21,178 16,537
Finished goods................................................................ 22,578 21,247
--------- ---------
54,876 50,187
LIFO reserve.................................................................. (3,499) (10,899)
---------- ----------
$ 51,377 $ 39,288
========= =========
</TABLE>
The values of inventories in the consolidated balance sheets are based on the
following accounting methods:
<TABLE>
<CAPTION>
March 31
----------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
LIFO.......................................................................... $ 26,493 $ 16,278
FIFO.......................................................................... 6,730 4,722
Moving average................................................................ 18,154 18,288
--------- ---------
$ 51,377 $ 39,288
========= =========
</TABLE>
During fiscal 1995, inventory quantities were reduced, resulting in
liquidation of certain LIFO inventory layers at costs which were lower than the
costs of current purchases. The effect of the reductions, recorded in the fourth
quarter, was to decrease cost of goods sold by approximately $1.9 million and to
increase net earnings by $1.5 million or $0.14 per share.
25
<PAGE> 26
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment
is as follows:
<TABLE>
<CAPTION>
March 31
------------------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Land.................................................................. $ 11,008 $ 11,028
Buildings and improvements............................................ 13,535 11,841
Machinery and equipment............................................... 97,899 88,188
Construction in progress.............................................. 1,596 4,202
----------- -----------
124,038 115,259
Less accumulated depreciation......................................... 49,744 43,480
----------- -----------
$ 74,294 $ 71,779
=========== ===========
</TABLE>
5. FINANCIAL INSTRUMENTS
The Company uses futures and option contracts to hedge a portion of its
exposure to market risks resulting from fluctuations in metal prices. In
determining its strategy with respect to such instruments, the Company gives
consideration to market conditions, anticipated sales and purchase transactions
and other factors that may affect the Company's level of risk. Metal price
contracts are obtained to hedge firm priced sales and anticipated purchase
transactions within one year of the contract date. Realized gains and losses on
futures and option contracts are deferred and recognized as a component of the
related transactions. The counterparties to these contracts are major brokerage
houses and management believes that losses related to credit risk are remote.
The Company had no net realized gains or losses related to aluminum futures
contracts deferred at March 31, 1996. In addition, the Company had no open
aluminum futures contracts as of March 31, 1996.
The Company also uses interest rate cap, floor, and swap agreements to
manage interest rate risk of its floating rate debt portfolio. The total
notional amount of the interest rate agreements is limited to the amount of debt
outstanding. Fair value of the instruments is based on estimated settlement
costs. Realized gains and losses on interest rate agreements are deferred and
recognized as a component of interest expense over the term of the agreements.
At March 31, 1996, the carrying value of interest rate swaps and floors
approximates fair value. The counterparties to interest rate contracts are major
commercial banks and management believes that losses related to credit risk are
remote.
26
<PAGE> 27
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
March 31
---------------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Revolving notes payable..................................................... $ 12,000 $ 26,000
Term notes payable.......................................................... 33,750 37,500
Other....................................................................... 20 255
--------- -----------
45,770 63,755
Less current maturities 6,270 5,237
--------- -----------
$ 39,500 $ 58,518
========= ===========
</TABLE>
On October 20, 1994, the Company repaid $121.8 million representing all
outstanding amounts under its previous credit agreements with The Prudential
Insurance Company of America ("Prudential"), and $4.2 million related to a
separate note payable. The debt was satisfied with proceeds from the Company's
initial public offering and borrowings of $69.0 million under a credit agreement
with a syndicate of banks and other financial institutions led by Chemical Bank
(the "Credit Agreement"). The Credit Agreement originally consisted of a $40.0
million term loan and a revolving credit facility with an aggregate commitment
of $50.0 million. On July 27, 1995, the Credit Agreement was amended to provide
for reduced interest rates and to increase borrowings available under the
revolving credit facility by $10 million.
The Credit Agreement is secured by a pledge of all of the outstanding
stock of its subsidiaries and substantially all of the assets of the Company.
The term loan is repayable over a six-year period in quarterly
installments. The Company is required to make prepayments in the event of
certain asset sales.
The Company's ability to borrow under the revolving credit facility is
based on the sum of stated percentages of its eligible accounts receivable and
eligible inventory. Up to $10.0 million of the revolving credit facility is
available for standby and commercial letters of credit. The revolving credit
facility commitment terminates on October 20, 2000.
27
<PAGE> 28
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Borrowings under the Credit Agreement bear interest at a base rate per
annum, at the Company's option, equal to a Reference Rate (as defined) or the
rate at which Eurodollar deposits for one, two, three or six months (as selected
by the Company) are offered by Chemical Bank in the interbank Eurodollar market.
Based on a quarterly financial test, a range of .50% to 1.00% is added to the
selected base rate to obtain the rate per annum paid by the Company for any
period. In addition, the Company must pay to the lenders under the Credit
Agreement, a commitment fee ranging from .25% to .375% on the unused portion of
the revolving credit facility. The commitment fee percentage is determined based
on the results of a quarterly financial test. The blended interest rate on
outstanding borrowings of the Credit Agreement was approximately 6.4% at March
31, 1996.
The Company must pay an administration fee to Chemical Bank in the
amount of $50,000 per annum. In addition, the Company must pay a commission on
all outstanding letters of credit of 1.125% per annum on the face amount of each
letter of credit. At March 31, 1996, no letters of credit were outstanding under
the revolving credit agreement.
The Credit Agreement includes covenants relating to working capital,
net worth, interest coverage and capital expenditures. In addition, there are
restrictions on the payment of dividends; however, the Company has never
declared or paid any dividends on its Common Stock and does not expect to pay
dividends for the foreseeable future. The Company was in compliance with all
covenants through March 31, 1996.
At March 31, 1996, the interest rates on all amounts outstanding under
the term loan and revolving credit facilities are scheduled to adjust in two
months or less. Accordingly, the face amount of the term loan and revolving
credit facilities approximates fair value at March 31, 1996.
Upon repayment of all outstanding amounts under the previous credit
agreements with Prudential in fiscal 1995, all warrants to purchase Common Stock
of the Company held by Prudential were surrendered to and canceled by the
Company. In addition, upon satisfaction of the conditions thereto, the Company
exercised its option to purchase from Prudential 453,850 shares of the Company's
Common Stock owned by Prudential at a price of $1.034 per share. As a result of
the repayment of the credit agreements with Prudential, the Company recorded an
extraordinary gain of $2.5 million in fiscal 1995.
Future aggregate maturities of long-term debt at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997...................................... $ 6,270
1998...................................... 7,813
1999...................................... 8,750
2000...................................... 8,750
2001...................................... 14,187
---------
$ 45,770
=========
</TABLE>
During fiscal 1996, the Company exercised its option to call the
pollution control bonds which had been extinguished in June 1987 through an
"in-substance defeasance". After retirement of the bonds, the Company closed the
trust that was used for satisfying the scheduled principal and interest payments
on the bonds.
28
<PAGE> 29
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. COMMON STOCK
On October 13, 1994, the Company issued 4,600,000 common shares in
connection with an initial public offering. Net proceeds to the Company before
deducting expenses of approximately $1.9 million were $62.2 million.
The Company has a Stock Option Plan that allows the granting of
nonqualified stock options or incentive stock options to key employees of the
Company. Up to 1,450,000 shares of Common Stock are available under the Stock
Option Plan. An option may be granted on such terms and conditions as the
Compensation Committee of the Board of Directors may approve provided that the
exercise price per share of Common Stock of a nonqualified stock option or an
incentive stock option shall not be less than the fair market value of a share
of Common Stock on the date the option is granted. Generally, all stock options
granted shall terminate following termination of employment or certain other
events. Unless the Compensation Committee otherwise provides, options shall
become exercisable as to 20% of the shares covered thereby on the date of grant
and as to an additional 20% of such shares on each of the first four
anniversaries of the date of grant. The options will terminate as to any and all
shares of Common Stock for which the option has not yet been exercised on the
tenth anniversary of the date of grant. The following table contains information
concerning the options:
<TABLE>
<CAPTION>
Number of Securities Exercise Price
Underlying Options ($/Share)
------------------ ---------
<S> <C> <C>
Outstanding at April 1, 1994 1,154,561 $10.34
Granted 110,000 14.50
Outstanding at March 31, 1995 1,264,561 10.34 to 14.50
Granted 7,500 14.50
Exercised (22,500) 10.34 to 14.50
Canceled (5,000) 14.50
Outstanding at March 31, 1996 1,244,561 10.34 to 14.50
</TABLE>
At March 31, 1996 and 1995, 780,481 and 581,689 options were exercisable,
respectively, at prices ranging from $10.34 to $14.50 per share.
29
<PAGE> 30
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. INCOME TAXES
Significant components of the income tax expense (benefit) from
continuing operations consist of the following:
<TABLE>
<CAPTION>
March 31
-------------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Federal:
Current expense............................... $ 4,400 $ 4,000 $ 1,450
Deferred expense (benefit).................... 1,716 (2,300) -
State - current expense................................ 840 832 100
----------- --------- --------
$ 6,956 $ 2,532 $ 1,550
=========== ========= ========
</TABLE>
The provision for income taxes from continuing operations differs from
the amount of income tax determined by applying the applicable U.S. statutory
federal income tax rate to pretax income from continuing operations as a result
of the following differences:
<TABLE>
<CAPTION>
March 31
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate................................. 35.0% 35.0% 35.0%
Increase (decrease) in rates:
Alternative minimum tax....................... - - (15.0)
State taxes, net of federal benefit........... 1.8 2.1 .5
Change in valuation reserve................... (14.3) (27.7) (12.3)
Other......................................... 1.0 .5 4.4
-------- --------- -------
Effective rate................................ 23.5% 9.9% 12.6%
======= ========= ========
</TABLE>
30
<PAGE> 31
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
March 31
------------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............ $ 1,000 $ 6,300
Tax credit carryforwards.................... 6,500 7,100
Environmental costs......................... 4,450 4,900
Other....................................... 2,100 3,800
---------- ---------
Total deferred tax assets................... 14,050 22,100
Deferred tax liabilities:
Tax over book depreciation.................. 12,100 13,200
Other....................................... 370 300
----------- ---------
Total deferred tax liabilities.............. 12,470 13,500
---------- ---------
Net deferred tax asset............................... 1,580 8,600
Valuation allowance for deferred tax assets. 1,000 6,300
---------- ---------
Net deferred taxes.......................... $ 580 $ 2,300
========== =========
</TABLE>
The Company generally does not recognize benefits on those deferred tax
assets which have expiration dates. Therefore, no benefit has been recognized as
of March 31, 1996 and 1995 for the net operating loss carryforwards. The
remaining deferred tax assets and liabilities approximately match each other in
terms of timing and, the net deferred assets at March 31, 1996 should be
realizable in the future given the Company's recent operating history.
The Company has approximately $5.8 million of alternative minimum tax
credit carryforwards which do not expire.
31
<PAGE> 32
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. RETIREMENT PLANS
The Company has defined contribution benefit plans covering
substantially all salaried employees. Contributions to the plans are at the
discretion of the Board of Directors and cannot exceed 15% of the participants'
annual wages.
The Company also contributes to union sponsored defined benefit
multi-employer pension plans for certain of its hourly employees. The Employee
Retirement Income Security Act of 1974, as amended by the Multi-Employers
Pension Plan Amendment Act of 1980, imposes certain liabilities upon employers
who are contributors to multi-employer plans in the event of the employers'
withdrawal from such a plan or upon a termination of such a plan. Management
does not intend to take any action that would subject the Company to any such
liabilities. Expense from continuing operations related to all retirement plans
was $1.4 million, $1.5 million and $1.3 million for the years ended March 31,
1996, 1995 and 1994, respectively.
10. OPERATING LEASES
The Company leases certain office and manufacturing facilities and
equipment under operating leases expiring through 1999. Certain of the
agreements contain renewal options and provide for minimum annual rentals plus
the payment of property taxes, insurance and normal maintenance. The Company, in
the ordinary course of business, leases offices and warehouse space from a
stockholder. Rent expense pursuant to these lease agreements was $0.7 million,
$1.0 million and $1.0 million for each of the years ended March 31, 1996, 1995
and 1994, respectively. Rental expense from continuing operations under all
operating leases was $2.1 million, $1.8 million, and $1.8 million for the years
ended March 31, 1996, 1995 and 1994, respectively. Future minimum rental
payments for operating leases are $1.4 million, $0.7 million, $0.7 million, $0.5
million and $0.5 million for Fiscal 1997 through 2001, respectively, and $3.8
million in the aggregate for the duration of the operating leases.
11. CONTINGENCIES
The Company's operations are subject to numerous laws and regulations
relating to the protection of human health and the environment, including, for
example, those relating to air and water pollution and solid waste disposal. The
Company believes its facilities are in substantial compliance with current laws
and regulations. The cost and administration of compliance with current laws and
regulations at the Company's present facilities are not expected to have a
material adverse effect on the Company's financial condition or results of
operations. The Company does not have any material capital expenditures for
environmental control facilities planned for fiscal 1997.
32
<PAGE> 33
CASTECH ALUMINUM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Owners and operators of sites containing hazardous wastes, as well as
generators and transporters of hazardous wastes, are subject to broad liability
under various federal, state and local environmental laws and regulations,
including liability for clean up costs and damages associated with past waste
disposal activity. The Company has been designated as a Potentially Responsible
Party ("PRP") by the EPA under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") at four federal Superfund
sites and is conducting remedial investigations at two of the sites for past
waste disposal activity associated with closed recycling facilities. At the two
other federal Superfund sites, the Company is a minor contributor and expects to
resolve its liability for a nominal amount. The Company is also under orders by
agencies in three states for environmental remediation at plants, one of which
is currently operating and two of which have been closed. The Company had $5.1
million of environmental accruals remaining at March 31, 1996. The Company
believes that any differences in the total future expenditures for all
environmental matters of which the Company is aware, when compared to
environmental accrual estimates, will not have a material adverse effect on the
financial condition or results of operations of the Company. It is not possible,
however, to predict the amount or timing of costs for future environmental
matters which may subsequently be determined. Although the outcome of any such
matters, to the extent they exceed any applicable reserves, could have a
material adverse effect on the Company's results of operations for the
applicable period, the Company has no reason to believe that such outcome will
have a material adverse effect on the Company's financial condition or results
of operations.
Risks of environmental costs and liabilities are inherent in certain of
the Company's operations, as is the case with other companies involved in the
aluminum industry, and there can be no assurance that significant costs and
liabilities will not be incurred by the Company in the future. It is also
possible that other developments, such as increasingly strict environmental
laws, regulations and enforcement policies thereunder and claims for damages to
property or persons resulting from plant or waste emissions, could result in
substantial costs and liabilities to the Company in the future. However, the
Company does not believe that the ultimate outcome of all known environmental
liabilities will have a material adverse effect on the Company's financial
condition, results of operations and liquidity.
Total environmental accruals are $5.1 million and $5.0 million at March
31, 1996 and 1995, respectively, of which $1.8 million and $1.1 million at March
31, 1996 and 1995, respectively, are included in the "other non-current
liabilities" section of the balance sheet.
The Company is also party to various non-environmental legal
proceedings and administrative actions, all arising from the ordinary course of
business. Although it is impossible to predict the outcome of any legal
proceeding, the Company believes that any liability that may finally be
determined with respect to such legal proceedings should not have a material
effect on the Company's consolidated financial position or results of
operations.
33
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CasTech Aluminum Group Inc.
We have audited the accompanying consolidated balance sheets of CasTech
Aluminum Group Inc. and subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CasTech Aluminum Group Inc. and subsidiaries at March 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Akron, Ohio
May 10, 1996
34
<PAGE> 35
SUPPLEMENTARY FINANCIAL INFORMATION
Selected unaudited quarterly financial data for the fiscal years 1996 and 1995
is summarized below:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) June 30 Sept. 30 Dec. 31 March 31
------- -------- ------- --------
<S> <C> <C> <C> <C>
1996
Sales $109,214 $102,814 $94,490 $ 93,931
Gross profit 15,554 13,792 12,065 11,571
Net income 6,836 6,494 5,310 4,034
Earnings per Common Share $ 0.51 $ 0.49 $ 0.40 $ 0.30
1995
Sales $ 89,136 $103,516 $98,269 $112,080
Gross profit 12,689 14,693 12,818 14,173
Income before extraordinary item 4,561 6,710 5,892 5,950
Net income (a) 4,561 6,710 8,426 5,950
Earnings per Common Share before extraordinary item $ 0.52 $ 0.76 $ 0.47 $ 0.45
Earnings per Common Share $ 0.52 $ 0.76 $ 0.66 $ 0.45
</TABLE>
(a) An extraordinary credit of $2,534 was recognized in the third quarter as a
result of a gain on the extinguishment of debt.
35
<PAGE> 36
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item is incorporated herein by
reference to the section entitled "Election of Directors" in the Company's
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders ("Proxy
Statement").
Information concerning Executive Officers required by this Item is
incorporated herein by reference to the section in Part I hereof entitled
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is incorporated herein by
reference to the section entitled "Executive Compensation" in the Company's
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is incorporated herein by
reference to the section entitled "Security Ownership of Management" in the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following documents are filed as part of this report:
Consolidated financial statements and financial statement schedules -
see "Item 8. Financial Statements and Supplementary Data."
(a)(2) Financial Schedules
The following financial schedules are included in this Form 10-K:
<TABLE>
<CAPTION>
Schedule No. Schedule Title Page No.
- ------------ -------------- --------
<S> <C> <C>
II Valuation and Qualifying Accounts 39
</TABLE>
All other financial statement schedules have been omitted because they
are inapplicable, not required, or the information is included elsewhere in the
consolidated financial statements and notes thereto.
36
<PAGE> 37
(a)(3) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report. See Exhibit Index on page 40.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter covered
by this report.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report. See Exhibit Index on page 40.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: CasTech Aluminum Group Inc.
By: /s/ Norman E. Wells, Jr.
-------------------------------------
Norman E. Wells, Jr.
President and Chief Executive Officer
37
<PAGE> 38
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 19, 1995.
Signature
- ---------
/s/ Charles J. Pilliod, Jr.
- --------------------------------------
Charles J. Pilliod, Jr.
Director and Chairman of the Board
/s/ Norman E. Wells, Jr.
- --------------------------------------
Norman E. Wells, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Robert D. Lloyd
- --------------------------------------
Robert D. Lloyd
Executive Vice President and Director
/s/ Terry D. Smith
- --------------------------------------
Terry D. Smith
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
/s/ Philip Caldwell
- --------------------------------------
Philip Caldwell
Director
/s/ C. Frederick Fetterolf
- --------------------------------------
C. Frederick Fetterolf
Director
/s/ Ronald D. Glosser
- --------------------------------------
Ronald D. Glosser
Director
/s/ Robert S. Hatfield
- --------------------------------------
Robert S. Hatfield
Director
/s/ Reginald H. Jones
- --------------------------------------
Reginald H. Jones
Director
/s/ Thomas P. Salice
- --------------------------------------
Thomas P. Salice
Director
38
<PAGE> 39
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1996
Allowance for doubtful accounts................. $ 1,400 $ 82 $ 487 (a) $ 995
Valuation allowance for deferred tax assets..... $ 6,300 $ (5,300) $ - $ 1,000
YEAR ENDED MARCH 31, 1995
Allowance for doubtful accounts................. $ 1,131 $ 429 $ 160 (a) $ 1,400
Valuation allowance for deferred tax assets..... $ 13,400 $ (7,100) $ - $ 6,300
YEAR ENDED MARCH 31, 1994
Allowance for doubtful accounts................. $ 1,250 $ 691 $ 810 (a) $ 1,131
Valuation allowance for deferred tax assets..... $ 14,900 $ (1,500) $ - $ 13,400
- -----------------------------------------------------
<FN>
(a) Uncollectible accounts written off, net of recoveries
</TABLE>
39
<PAGE> 40
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Restated Certificate of Incorporation of the Registrant. (1)
3.2 By-laws of the Registrant, as amended. (2)
3.3 Amended and Restated Certificate of Incorporation of the Registrant (1)
4.1 Form of Common Stock Certificate. (1)
4.3 Plan of Recapitalization (1)
10.06 CasTech Aluminum Group Inc. Stock Option Plan 1994 Amendment and
Restatement dated as of February 1, 1994. (1)
10.07 Non-Exclusive License Agreement between Hazelett Strip-Casting
Corporation and Barmet of Kentucky, Inc. dated as of June 2, 1982. (1)
10.08 Agreement between Hazelett Strip-Casting Corporation, Barmet of
Kentucky, Inc. and Barmet Aluminum Corporation, dated as of November
29, 1984. (1)
10.09 Supply Agreement between Barmet Aluminum Corporation and IMCO, dated as
of March 2, 1992. (1)
10.11 Indemnification Agreement between the Company and its directors. (1)
10.12 Stock Purchase Agreement between the Company and WGS Acquisition Inc.,
dated as of July 15, 1992. (1)
10.13 Industrial Real Estate Lease of 2050 South Alameda Street, Rancho
Dominguez, California by Alflex Corporation from John B.F. Bacon, Jr.
Article Third Trust - B expiring July 31, 2004. (2)
10.14 Lease of 2630 El Presidio Street, Long Beach, California by Alflex
Corporation from Brian L. Harvey, expiring October 31, 1996. (1)
10.15 Indenture of Lease by and between Jacob Pollock and Gertrude Pollock
and Barmet Aluminum Corporation, expiring March 31, 1997. (1)
10.16 Industrial Real Estate Lease of 2303 Jefferson Street, Torrance,
California, by Barmet Aluminum Corporation from Cypress Land Company,
expiring April 30, 1999. (1)
10.17 Credit Agreement among the Company, the several lenders from time to
time parties thereto, Chemical Securities Inc., as arranger and
Chemical Bank, as agent, dated as of June 14, 1994. (1)
10.18 Security Agreement entered into by the Company in favor of Chemical
Bank, as agent, dated October 20, 1994. (2)
10.19 Pledge Agreement entered into by the Company in favor of Chemical Bank,
as agent, dated October 20, 1994. (2)
40
<PAGE> 41
Exhibit
No. Description
- ------- -----------
10.20 Amended and Restated Subsidiaries Stock Pledge Agreement entered into
by the subsidiaries of the Company in favor of Chemical Bank as agent
dated March 31, 1995. (2)
10.21 Subsidiaries Security Agreement entered into by the subsidiaries of the
Company, collectively, in favor of Chemical Bank, as agent, dated
October 20, 1994. (2)
10.22 Subsidiaries Guarantee entered into by the subsidiaries of the Company,
collectively, in favor of Chemical Bank, as agent, dated October 20,
1994. (2)
10.23 First amendment to the Credit Agreement among the Company, the several
lenders from time to time parties thereto, Chemical Securities Inc., as
arranger and Chemical Bank, as agent, dated as of March 31, 1995. (2)
10.24 Second amendment to the Credit Agreement among the Company, the several
lenders from time to time parties thereto, Chemical Securities Inc., as
arranger, and Chmeical Bank, as agent, dated as of July 27, 1995. (3)
21.1 Subsidiaries of Registrant. (2)
23.0 Independent Auditors' Consent included herein on page 42.
27.0 Financial Data Schedule (Edgar version only)
(1) Previously filed with and incorporated by reference to Form S-1 of
CasTech Aluminum Group Inc. filed on October 13, 1994 (Commission File
No. 33-77116), and all amendments filed thereto.
(2) Previously filed with and incorporated by reference to Form 10-K of
CasTech Aluminum Group Inc. for the year ended March 31, 1995 filed on
June 29, 1995 (Commission File No. 1-13076).
(3) Previously filed with and incorporated by reference to Form 10-Q of
CasTech Aluminum Group Inc. for the quarter ended September 30, 1995,
filed on November 13, 1995 (Commission File No. 1-13076).
41
<PAGE> 1
EXHIBIT 23.0
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-85254) pertaining to the CasTech Aluminum Group Inc. Stock
Option Plan 1994 Amendment and Restatement of our report dated May 10, 1996,
with respect to the consolidated financial statements and schedule of CasTech
Aluminum Group Inc. included in the Annual Report (Form 10-K) for the year
ended March 31, 1996.
ERNST & YOUNG LLP
Akron, Ohio
June 17, 1996
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1996 AND 1995 AND THE RELATED
CONSOLIDATED STATEMENTS OF INCOME FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 190
<SECURITIES> 0
<RECEIVABLES> 57,802
<ALLOWANCES> 995
<INVENTORY> 51,377
<CURRENT-ASSETS> 113,823
<PP&E> 124,038
<DEPRECIATION> 49,744
<TOTAL-ASSETS> 213,284
<CURRENT-LIABILITIES> 51,524
<BONDS> 39,500
<COMMON> 129
0
0
<OTHER-SE> 119,767
<TOTAL-LIABILITY-AND-EQUITY> 213,284
<SALES> 400,449
<TOTAL-REVENUES> 400,449
<CGS> 347,467
<TOTAL-COSTS> 368,053
<OTHER-EXPENSES> (708)
<LOSS-PROVISION> 82
<INTEREST-EXPENSE> 3,474
<INCOME-PRETAX> 29,630
<INCOME-TAX> 6,956
<INCOME-CONTINUING> 22,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,674
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
