<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended on June 30, 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)
(800) 468-5052
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 1996, the registrant has 12,942,443 shares of common
stock outstanding.
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CasTech Aluminum Group Inc.
Table of Contents for
Quarterly Report on
Form 10-Q
<TABLE>
<CAPTION>
Part I. Financial Information Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K
Signatures 11
</TABLE>
Page 2 of 11
<PAGE> 3
Part 1. Financial Information
---------------------
Item 1. Financial Statements
CasTech Aluminum Group Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---- ----
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 389 $ 190
Accounts receivable, net 72,176 57,802
Inventories 45,774 51,377
Prepaid expenses and supplies 5,434 4,454
--------- ---------
Total current assets 123,773 113,823
Property, plant and equipment, net 72,924 74,294
Other long-term assets:
Loan fees, net 1,139 1,211
Goodwill, net 21,902 22,082
Other long-term assets 1,061 1,874
--------- ---------
24,102 25,167
--------- ---------
Total assets $ 220,799 $ 213,284
========= =========
Accounts payable $ 32,329 $ 34,041
Accrued liabilities 10,364 9,774
Income taxes payable 4,057 1,439
Current portion of long-term debt 5,012 6,270
--------- ---------
Total current liabilities 51,762 51,524
Long-term debt, less current portion 42,750 39,500
Other long-term liabilities 2,256 2,364
Common stock, $.01 par value, 25,000 shares authorized, 12,942
shares issued and outstanding at June 30, 1996 and
and March 31, 1996, respectively 136,574 136,574
Deficit (12,543) (16,678)
--------- ---------
Total stockholders' equity 124,031 119,896
--------- ---------
Total liabilities and stockholders' equity $ 220,799 $ 213,284
========= =========
</TABLE>
See accompanying notes.
Page 3 of 11
<PAGE> 4
CasTech Aluminum Group Inc.
Consolidated Statements of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 107,602 $ 109,214
Cost of goods sold 94,962 93,660
--------- ---------
Gross profit 12,640 15,554
Selling and administrative expenses 5,155 5,644
Other income (65) (64)
--------- ---------
Operating income 7,550 9,974
Interest expense 770 1,194
--------- ---------
Income before income taxes 6,780 8,780
Income tax expense 2,644 1,944
--------- ---------
Net income $ 4,136 $ 6,836
========= =========
Earnings per share $ 0.31 $ 0.51
========= =========
</TABLE>
See accompanying notes.
Page 4 of 11
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CasTech Aluminum Group Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,136 $ 6,836
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization 2,567 2,214
Changes in operating assets and liabilities:
Accounts receivable (14,374) 4,478
Inventories 5,602 (9,424)
Accounts payable (1,711) 3,715
Other liabilities and other assets 2,931 (3,289)
-------- -------
Net cash (used) provided by operating activities (849) 4,530
INVESTING ACTIVITIES
Purchase of property, plant and equipment (944) (2,312)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 4,500 4,000
Principal payments on long-term debt (2,508) (6,447)
-------- -------
Net cash provided (used) by financing activities 1,992 (2,447)
-------- -------
Increase (decrease) in cash and cash equivalents 199 (229)
Cash and cash equivalents at beginning
of period 190 359
-------- -------
Cash and cash equivalents at end of period $ 389 $ 130
======== =======
</TABLE>
See accompanying notes
Page 5 of 11
<PAGE> 6
CasTech Aluminum Group Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Results for the three month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1997. The interim financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Report and with the consolidated
financial statements of the Company and the notes thereto for the year ended
March 31, 1996 included in the Company's Form 10-K as filed with the Securities
and Exchange Commission.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---- ----
(in thousands)
<S> <C> <C>
Raw materials $ 14,178 $ 11,120
Work in process 15,723 21,178
Finished goods 20,414 22,578
---------- ----------
50,315 54,876
LIFO reserve (4,541) (3,499)
---------- ----------
$ 45,774 $ 51,377
========== ==========
</TABLE>
3. FINANCIAL INSTRUMENTS
The Company may enter into aluminum futures contracts to hedge its
exposure to price fluctuations on its anticipated raw material requirements
during a maximum nine month period and on fixed price sales contracts in its
mill products operations. Gains and losses on hedging contracts are deferred and
recognized in mill products operating expenses as part of the cost of raw
materials over the hedged period. There were no open futures contracts as of
June 30, 1996.
The Company uses interest rate swap, cap and floor agreements to reduce the
impact of interest rate changes on future income. Approximately $20 million and
$8.2 million of the Company's outstanding debt was subject to interest rate
floor and swap agreements, respectively, at June 30, 1996.
Page 6 of 11
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Shipments at the Mill Products Division ("Barmet") increased 12% in the
quarter ended June 30, 1996 compared to the same period last year despite an
industry-wide reduction in aluminum sheet shipments between the periods. Order
backlogs at Barmet were strong at the end of the first quarter as industry
demand has begun to rebound and the Company's mini-mills have lead times into
September. As a result, the Company expects its aluminum sheet shipments in the
second quarter to be higher than the same period last year as well as the
quarter just ended.
Metal margins, the difference between aluminum sheet selling prices and
aluminum scrap costs, narrowed during the quarter ended June 30, 1996 as selling
prices declined to a greater extent than the underlying scrap costs. As a
result, Barmet's operating income for the quarter just ended was lower than the
same period last year. Second quarter metal margins are expected to improve as
increased demand is keeping selling prices steady while aluminum scrap costs
have trended lower.
The Electrical Products Division ("Alflex") established a new shipment
record in the first quarter of fiscal 1997. Non-residential renovation and
construction spending continues to be strong and the Company expects its
electrical product shipments to remain solid through the second quarter. Gross
margins also improved during the quarter ended June 30, 1996 due to selling
price increases and lower raw materials cost later in the quarter. Raw material
costs are expected to stabilize in the second fiscal quarter and the Company
anticipates further improvements in electrical product gross margins,
provided that selling prices do not deteriorate.
The Company's financial results are greatly influenced by volume and
the maintenance of acceptable margins between finished goods selling prices and
raw material costs. While volumes have recently benefited from an overall solid
economic environment, events such as increased interest rates could cause a
reduction in demand for the Company's products and impact shipments. The pricing
of primary aluminum in world markets influences the cost of the Company's
principal raw material, aluminum scrap. Therefore, although the Company is not
dependent upon primary aluminum in its production processes, significant
movements in the price of primary aluminum can affect the Company's margins
since selling prices for the Company's finished mill products do not move
simultaneously nor necessarily to the same degree as the primary aluminum
markets. In addition, operating margins of the Electrical Products Division are
sensitive to the pricing of copper on world markets because electrical cable
selling prices are influenced by the price of copper. However, similar to
finished mill products, electrical cable selling prices do not necessarily move
at the same time or to the same degree as the copper markets. The continued
success of the Company's product diversification strategy at both divisions is
an important factor in increasing volume and enhancing margins.
RESULTS OF OPERATIONS
Selected operating data for the three month periods ended June 30, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
---- ----
MILL PRODUCTS (1)
- -----------------
<S> <C> <C>
Net sales ($000) $ 73,830 $77,222
Operating income ($000) $ 3,340 $ 6,952
Shipments (000 lbs.) 76,628 68,514
</TABLE>
Page 7 of 11
<PAGE> 8
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
---- ----
ELECTRICAL PRODUCTS
- -------------------
<S> <C> <C>
Net sales ($000) $ 33,558 $30,229
Operating income ($000) $ 4,210 $ 3,022
Shipments (000 ft) 130,370 117,945
</TABLE>
(1) Operating data of the Mill Products Division includes shipments of mill
products only. Other sales, such as sales of certain raw materials and
intercompany sales, are excluded.
Net sales for the quarter ended June 30, 1996 were $107.6 million, a
decrease of less than 2% from the quarter ended June 30, 1995. Barmet's net
sales for the quarter ended June 30, 1996 were $73.8 million, a decrease of 4.9%
over the quarter ended June 30, 1995. This decrease was attributable to lower
selling prices for aluminum sheet offset partially by increased volumes.
Alflex's net sales for the three month period ended June 30, 1996 were $33.6
million, an increase of 11.0% over the corresponding period ended June 30, 1995.
The increase resulted primarily from higher volumes and increased selling prices
of Alflex's core cable and conduit products.
Gross profit for the three month period ended June 30, 1996 was $12.6
million, a decrease of 18.7% over the three month period ended June 30, 1995.
Gross profit as a percentage of net sales for the quarter ended June 30, 1996
decreased to 11.7% from 14.2% for the quarter ended June 30, 1995. The decreases
in gross profit percentage were primarily attributable to narrower metal margins
at Barmet.
Operating income for the quarter ended June 30, 1996 was $7.6 million,
a decrease of 24.3% over the quarter ended June 30, 1995. The change was
primarily a result of the gross profit fluctuations described above.
Interest expense decreased to $0.8 million in the three month period
ended June 30, 1996 from $1.2 million for the three month period ended June 30,
1995. The decrease was a result of reduced average outstanding borrowings and,
to a lesser extent, reduced interest rates.
Income tax expense increased for the quarter ended June 30, 1996 as
compared to the quarter ended June 30, 1995. The Company utilized its remaining
net operating loss carryforward during fiscal 1996 and, as a result, its tax
rate for fiscal 1997 will more closely approximate the full statutory rate.
Page 8 of 11
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flows from
operating activities and borrowings under the Company's revolving credit
facility. Working capital amounted to $72.0 million and $62.3 million at June
30, 1996 and March 31, 1996, respectively. The Company's liquidity requirements
arise from working capital needs, capital investments and, to a lesser extent,
debt service.
Capital expenditures for equipment and facility improvements were $0.9
million for the three months ended June 30, 1996 and $10.4 million for the
fiscal year ended March 31, 1996. The Company used all the expenditures to
purchase, modernize or upgrade production equipment and to maintain facilities.
Capital expenditures for the fiscal year ending March 31, 1997 are expected to
be approximately $11.2 million, principally related to increasing the Company's
manufacturing capacity. 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 credit facility.
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 $4.9 million at June 30, 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 $3.2 million to be expended in the next
twelve months. The Company has made and intends to continue to make the
necessary capital and operating 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 and results
of operations.
Page 9 of 11
<PAGE> 10
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit (11.1) Statement Re: Computation of Earnings Per Share.
Exhibit (27.1) Financial Schedule
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
Page 10 of 11
<PAGE> 11
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASTECH ALUMINUM GROUP INC.
July 31, 1996 /s/ Norman E. Wells, Jr.
- ----------------- -----------------------------------------
Date Norman E. Wells, Jr., President and C.E.O.
July 31, 1996 /s/ Terry D. Smith
- ----------------- ------------------------------------------
Date Terry D. Smith, Vice President and C.F.O.
Page 11 of 11
<PAGE> 1
Exhibit (11.1) - Statement Re: Computation of Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Weighted average shares of Common Stock outstanding 12,942 12,920
Weighted average shares of Common Stock equivalents
outstanding (stock options using treasury stock method) 360 404
------- -------
Weighted average shares of Common Stock and
Common Stock equivalents outstanding 13,302 13,324
======= =======
Net income $ 4,136 $ 6,836
======= =======
Earnings per share of Common Stock and
Common Stock equivalents $ 0.31 $ 0.51
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 389
<SECURITIES> 0
<RECEIVABLES> 73,246
<ALLOWANCES> 1,070
<INVENTORY> 45,774
<CURRENT-ASSETS> 123,773
<PP&E> 124,982
<DEPRECIATION> 52,058
<TOTAL-ASSETS> 220,799
<CURRENT-LIABILITIES> 51,762
<BONDS> 42,750
<COMMON> 136,574
0
0
<OTHER-SE> (12,543)
<TOTAL-LIABILITY-AND-EQUITY> 220,799
<SALES> 107,602
<TOTAL-REVENUES> 107,602
<CGS> 94,962
<TOTAL-COSTS> 112,757
<OTHER-EXPENSES> (65)
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 770
<INCOME-PRETAX> 6,780
<INCOME-TAX> 2,644
<INCOME-CONTINUING> 4,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,136
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
