<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER:
0-25834
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EASCO, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3157362
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
706 SOUTH STATE STREET, GIRARD, OHIO
(Address of principal executive office)
44420
(Zip Code)
(330) 545-4311
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 12, 1996
----- --------------------------------
Common Stock, $0.01 Par Value 10,243,144
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
<S> <C>
Consolidated Balance Sheets as of September 28, 1996 and December 31, 1995 .......................2
Consolidated Statements of Operations for the three months and nine months
ended September 28, 1996 and September 30, 1995................................................3
Consolidated Statements of Cash Flows for the nine months
ended September 28, 1996 and September 30, 1995................................................4
Notes to Consolidated Financial Statements......................................................5-6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................................7-11
PART II OTHER INFORMATION
Item 1 - Legal Proceedings..........................................................................12
Item 2 - Changes in Securities......................................................................12
Item 3 - Defaults Upon Senior Securities............................................................12
Item 4 - Submission of Matters to a Vote of Security Holders........................................12
Item 5 - Other Information..........................................................................12
Item 6 - Exhibits and Reports on Form 8-K........................................................12-14
Signature...........................................................................................15
</TABLE>
<PAGE> 3
ITEM 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
September 28, December 31,
1996 1995
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents..................................... $ 11,700 $ 7,670
Receivables, less allowance for doubtful accounts........ 53,862 45,416
Inventories, at LIFO..................................... 21,313 32,859
Other current assets..................................... 2,721 2,677
---------------- ----------------
Total current assets......................... 89,596 88,622
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT - NET.............................. 91,523 90,702
GOODWILL, net of accumulated amortization........................ 68,846 70,262
OTHER ASSETS..................................................... 3,581
================ ================
Total Assets................................. $ 253,546 $ 253,728
================ ================
LIABILITIES AND STOCKHOLDER' EQUITY
CURRENT LIABILITIES:
Accounts payable, accruals and other current
liabilities.............................................. $ 45,793 $ 48,357
---------------- ----------------
Total current liabilities 45,793 48,357
---------------- ----------------
LONG-TERM DEBT................................................... 85,000 85,000
DEFERRED INCOME TAXES............................................ 17,216 17,069
OTHER NONCURRENT LIABILITIES..................................... 16,878 18,188
---------------- ----------------
Total liabilities............................ 164,887 168,614
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, authorized
1,000,000 shares; none issued and outstanding -- --
Common Stock, $.01 par value, authorized
40,000,000 shares; 12,194,892 issued and
outstanding.................................. 122 122
Paid-in capital.......................................... 80,483 80,483
Retained earnings........................................ 27,805 24,260
Less: Treasury Stock: 1,951,748 shares................... (19,589) (19,589)
Stockholder loan................................ (162) (162)
---------------- ----------------
Total stockholders' equity................... 88,659 85,114
---------------- ----------------
Total Liabilities and Stockholders' Equity... $ 253,546 $ 253,728
================ ================
</TABLE>
Amounts shown are unaudited
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
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EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
1996 1995 1996 1995
-------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Net sales:
Product sales..................................... $ 69,899 $ 67,669 $ 205,551 $ 214,320
Tolling fees...................................... 17,830 15,180 51,800 49,149
------------ ----------- ----------- ----------
87,729 82,849 257,351 263,469
Cost of products sold................................. 75,475 70,873 214,231 217,054
------------ ----------- ----------- ----------
Gross profit.................................. 12,254 11,976 43,120 46,415
Selling, general and administrative................... 10,437 7,002 26,681 21,936
Amortization of goodwill and other.................... 507 492 1,521 1,477
Management fee........................................ 225 225 675 675
------------ ----------- ----------- ----------
Operating profit.............................. 1,085 4,257 14,243 22,327
Interest expense...................................... 2,196 2,229 6,783 7,068
------------ ----------- ----------- ----------
Income (loss) before income tax............... (1,111) 2,028 7,460 15,259
Income tax provision (benefit)........................ (217) 961 3,609 6,381
------------ ----------- ----------- ----------
Net income (loss)............................. (894) 1,067 3,851 8,878
============ =========== =========== ==========
Earnings (loss) per common share...................... (0.09) 0.10 0.38 0.93
============ =========== =========== ==========
Weighted average number of common shares outstanding.. 10,243,144 10,463,011 10,243,144 9,563,406
============ =========== =========== ==========
</TABLE>
Amounts shown are unaudited
The accompanying notes to consolidated financial statements
are an integral part of this statement
3
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EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income............................................... $ 3,851 $ 8,878
Adjustments to reconcile net income to net cash flows
from (for) operating activities:
Depreciation......................................... 5,576 4,572
Amortization of goodwill and other intangibles....... 1,521 1,477
Amortization of deferred debt issue costs............ 429 424
Changes in operating assets and liabilities:
Increase in receivables.......................... (8,446) (6,439)
(Increase) decrease in inventories............... 11,546 (1,213)
(Increase) decrease in other current assets...... (117) 261
(Increase) decrease in other assets.............. 28 (83)
Decrease in other accounts payable, accruals and
other current liabilities................ (2,564) (1,541)
Increase in deferred taxes (net)................. 220 1,004
Decrease in other noncurrent liabilities......... (1,310) (1,512)
-------- --------
Net cash from operating activities....... 10,734 5,828
-------- --------
CASH FLOWS (FOR) INVESTING ACTIVITIES:
Property additions (net)............................. (6,397) (11,732)
Aquisition of Dolton................................. -- (26,400)
-------- --------
Net cash for investing activities........ (6,397) (38,132)
-------- --------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Cash dividends paid.................................. (307) (102)
Issuance of common stock............................. -- 31,285
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Net cash from (for) financing activities. (307) 31,183
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CASH AND EQUIVALENTS:
Net increase (decrease) for the period............... 4,030 (1,121)
Balance, beginning of period......................... 7,670 8,614
======== ========
Balance, end of period............................... $ 11,700 $ 7,493
======== ========
</TABLE>
Amounts shown are unaudited
The accompanying notes to financial statements
are an integral part of this statement.
4
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EASCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 28, 1996 and September 30, 1995
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Easco, Inc. (the "Company") and its wholly-owned subsidiary
Easco Corporation ("Easco") and Easco's wholly-owned subsidiary, Dolton Aluminum
Company, Inc. ("Dolton"). These financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and accordingly do not include all of the information and disclosures
generally required for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been made.
Revenue is recognized when products are shipped to customers. Included
in net sales are tolling fees from casting and extruding customer-supplied
material.
Certain amounts in the 1995 financial statements have been reclassified
to conform to the 1996 classifications.
2. PER SHARE CALCULATIONS
Earnings per share have been computed based upon the "Treasury Stock
Method" using the weighted average outstanding shares of 10,243,144 for the
three and nine months ended September 28, 1996, respectively, and 10,463,011 and
9,563,406 for the three and nine months ended September 30, 1995.
3. INVENTORIES
Inventories are valued at the lower of cost or market, with cost
determined using the last-in, first-out (LIFO) method. If the first-in,
first-out (FIFO) method had been used, inventories would have been approximately
$1.8 million greater at September 28, 1996 and $3.7 million greater at December
31, 1995. The LIFO valuation method had the effect of increasing gross profit by
$715,000 and $1.9 million for the three and nine months ended September 28, 1996
and reducing gross profit by $163,000 and $844,000 for the three and nine month
periods ended September 30, 1995, respectively.
4. LONG-TERM DEBT
At September 28, 1996 and December 31, 1995, long-term debt consisted
of $85.0 million of 10% Senior Notes, due 2001.
5. CONTINGENCIES
Litigation
Lawsuits and claims are filed from time to time against the Company in
the ordinary course of business. Management of the Company, after reviewing
developments to date with legal counsel, is of the opinion that the outcome of
such matters will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
5
<PAGE> 7
Environmental Cleanup
The Company is subject to a wide variety of environmental laws which
continue to be adopted and amended. While the ultimate extent of the Company's
liability for pending or potential fines, penalties, remedial costs, claims and
litigation relating to environmental laws and health and safety matters and
future capital expenditures that may be associated with environmental laws
cannot be determined at this time, outside environmental consultants have
periodically assessed the Company's environmental contingencies. Based on the
most recent assessment, the consultants estimated that the cost of all the
Company's known potential environmental liabilities ranged from $1.8 million to
$31.3 million. The Company's best estimate within this range is $9.4 million,
for which reserves have been established.
6. COMMON STOCK OFFERING
On April 21, 1995, the Company issued 2.5 million shares of common
stock in an initial public offering (the "Offering"). Cash proceeds received by
the Company from the Offering, after underwriting discounts and commissions and
other expenses totaling approximately $3.7 million, were $31.3 million. As a
result of the Offering, long-term debt decreased and stockholders' equity
increased by approximately $31.3 million. If the Offering had occurred as of
January 1, 1995, net income and the weighted average number of common shares
outstanding would not have been affected for the three months ended September
30, 1995 and would have increased by $250,000 and 679,738, respectively, for the
nine months ended September 30, 1995. Net income per common share would have
decreased $0.04 for the nine months ended September 30, 1995.
6
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, net sales, gross
profit, operating profit, net income (loss), pounds shipped, the calculation of
Adjusted EBITDA, gross profit and Adjusted EBITDA per pound, and the average
market price of aluminum per pound. For the reasons discussed below, management
focuses on pounds shipped, gross profit per pound (excluding non-cash LIFO
charges or income) and Adjusted EBITDA per pound as important measures of the
Company's performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- --------------------------
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
(AMOUNTS IN MILLIONS, EXCEPT PER POUND DATA) 1996 1995 1996 1995
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales........................................ $ 87.7 $ 82.8 $257.4 $263.5
Gross profit..................................... 12.3 12.0 43.1 46.4
Operating profit................................. 1.1 4.3 14.2 22.3
Net income (loss)................................ (0.9) 1.1 3.9 8.9
======= ======= ======== ========
Pounds shipped:
Company-owned material................... 53.6 46.8 154.1 142.5
Customer Conversion Program.............. 30.4 28.0 91.7 90.9
======= ======= ======== ========
Total pounds shipped............................. 84.0 74.8 245.8 233.4
======= ======= ======== ========
Other performance measures:
Operating profit................................. $ 1.1 $ 4.3 $ 14.2 $ 22.3
Non-cash charges (income):
Depreciation and amortization........... 2.4 1.9 7.2 6.1
LIFO charges (income)................... (0.7) 0.2 (1.9) 0.8
======= ======= ======== ========
Adjusted EBITDA.................................. $ 2.8 $ 6.4 $ 19.5 $ 29.2
======= ======= ======== ========
Gross profit per pound........................... $0.146 $0.160 $0.175 $0.199
Adjusted EBITDA per pound........................ 0.033 0.086 0.079 0.125
Average market price of aluminum per pound....... 0.691 0.859 0.728 0.891
</TABLE>
Pounds Shipped. Pounds shipped includes the weight of all aluminum and vinyl
extrusions shipped, including shipments to customers under the Company's
Customer Conversion Program (described below). Because aluminum price
fluctuations and the relative prevalence of sales under the Company's Customer
Conversion Program and other aluminum price fluctuation management programs
affect reported net sales but generally have no material effect on the overall
level of profitability, management believes that pounds shipped is the most
important indicator of overall business activity for the Company and the
aluminum extrusion industry as a whole. The Company's volume, measured in pounds
shipped, directly impacts profitability due in part to the Company's fixed
costs.
Performance Measures. Management believes that the Company's ability to control
other variable costs (such as scrap reprocessing costs, delivery costs, and
labor costs relative to productivity) is a significant determinant of
profitability. As a result, in an effort to control variable costs, management
measures variable cost performance levels on a per pound basis. Management
believes the Company's gross profit per pound (excluding non-cash LIFO charges
or income) and Adjusted EBITDA per pound are the best indicators of the
Company's performance.
7
<PAGE> 9
Aluminum Prices; LIFO Adjustments. A substantial portion of the Company's net
sales and cost of products sold reflects the cost of raw materials, principally
aluminum. Changes in aluminum prices are generally passed through to the
Company's customers. As a result, increases and decreases in aluminum prices
generally cause similar increases and decreases in selling prices, reported net
sales and cost of products sold but historically have generally had little
impact on the Company's level of profitability. The Company values its inventory
under the LIFO method. This practice is intended to match most recently incurred
costs to current sales. Accordingly, during periods of rising aluminum prices,
compared to historical LIFO inventory values, the Company may incur non-cash
LIFO charges which reduce taxable income. Generally if these charges are
incurred, non-cash LIFO income may be recognized when aluminum prices
subsequently decline. Because the Company routinely matches its inventory levels
to its sales commitments in order to minimize the effects of aluminum price
fluctuations, management believes that LIFO adjustments are not related to the
Company's underlying level of business activity, including its shipments and
cash flow.
Aluminum Price Fluctuation Management Programs. Under its Customer Conversion
Program, the Company's customers supply aluminum directly to the Company, and
the Company converts this aluminum into finished product for an agreed tolling
charge. Accordingly, neither net sales nor cost of products sold reflect the raw
material cost for these sales, and depending upon the degree to which aluminum
is customer-supplied, net sales and cost of products sold will fluctuate without
regard to underlying business activity. This program and other fixed-spread or
hedged fixed-price arrangements with customers were utilized for over 60% of the
Company's shipments in the first nine months of 1996. Combined with the
Company's turnover of its aluminum inventory, these programs serve to minimize
the impact of aluminum price changes on the Company.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
Demand for the Company's products is cyclical in nature and subject to
changes in general market conditions that affect demand. The Company's customers
operate primarily in industries (e.g., building and construction and
transportation) that are affected by changes in economic conditions, which in
turn can affect orders for extrusions. The Company and the extrusion industry
generally operate without significant order backlogs. As a result, economic
slowdowns and recessions could adversely affect the extrusion industry and the
Company. In addition, the Company's performance may also be affected by other
risks and uncertainties that may cause actual performance to materially differ
from any forward-looking statements, including but not limited to the following:
the Company's level of utilization of its extrusion capacity and the impact of
capacity utilization on costs; the Company's ability to increase its market
share, which may be necessary to increase capacity utilization, and the costs
associated with any such effects; the highly competitive nature of the extrusion
industry and the relatively greater capitalization and lower levels of
indebtedness of certain competitors, particularly integrated aluminum producers;
developments with respect to contingencies such as environmental matters
(including those described under "Business-Environmental Matters" in the
Company's Annual Report on Form 10-K) and litigation; labor market conditions
and raw materials costs (primarily aluminum); seasonal variations in the
extrusion business which is generally stronger in the second and third quarters
and weaker in the first and fourth quarters; whether and to what extent the
Company's capital expenditures can facilitate reductions in variable costs; and
the Company's ability to integrate and operate acquired facilities on a
profitable basis.
OUTLOOK
The following forward-looking statement is qualified by the Cautionary
Statement set forth above. In 1995, the Company expanded its annual
manufacturing capacity from 310 million to 450 million pounds. During 1996, the
Company has utilized a portion of its expanded capacity to increase its shipment
volume. Production problems and one-time charges discussed under "Results of
Operations" have combined, however, to reduce the Company's profits for the
period, despite the increased volume. Management continues to believe that its
strategy of commitment to continuous improvement is sound and that if the
8
<PAGE> 10
Company is successful in its efforts to continue improving capacity utilization
and reducing its production difficulties, it will begin to convert its shipment
volume increases to profitability improvements.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 28, 1996 COMPARED TO
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995
Pounds shipped during the third quarter and first nine months of 1996
increased to 84.0 million and 245.8 million, respectively from 74.8 million and
233.4 million for the corresponding periods in 1995, representing increases of
12.3% and 5.3%, respectively. This increase in shipments compared to the prior
year periods is due primarily to continued strong demand during the second and
third quarters of 1996 in most of the end-use markets served by the Company. The
increase in shipments was particularly strong in the transportation,
distribution and building and construction markets during the third quarter and
first nine months of 1996, offsetting a decline in the electrical sector. Net
sales increased 5.9% during the third quarter of 1996 compared to the third
quarter of 1995, on higher shipments at lower per pound selling prices, and
decreased 2.3% during the first nine months of 1996 compared to the same period
in 1995 despite increased shipments, due to lower selling prices. The lower
selling prices compared to earlier periods reflects the cost declines of
aluminum ingot and scrap, the Company's principal raw materials.
Gross profit increased to $12.3 million (after giving effect to
$715,000 of non-cash LIFO income) in the third quarter of 1996 compared to $12.0
million (after giving effect to $163,000 of non-cash LIFO expense) in the third
quarter of 1995, an increase of $300,000 or 2.5%. For the first nine months of
1996, gross profit declined 7.1% to $43.1 million from $46.4 million in 1995,
after giving effect to $1.9 million of non-cash LIFO income in the 1996 period
compared to $844,000 non-cash LIFO expense in the 1995 period. Despite higher
shipment levels, gross profit declined in the 1996 periods (prior to the benefit
of non-cash LIFO income), compared to the same periods in 1995 principally as a
result of higher manufacturing costs, a less favorable product mix and more
competitive pricing in the truck trailer segment of the transportation market.
The higher manufacturing costs resulted primarily from a continuation of
production difficulties, principally at the Company's Dolton, Illinois plant
acquired in 1995 and a one-time write-off of work-in-process due to the
bankruptcy of a truck trailer customer. As a result of these factors, gross
profit per pound in the three and nine month periods ended September 28, 1996
declined to $0.146 and $0.175 compared to $0.160 and $0.199 in the 1995 periods.
Selling, general and administrative expenses increased by $3.4
million or 49.1% to $10.4 million during the third quarter of 1996 compared to
the third quarter of 1995, and $4.7 million or 21.6% to $26.7 million for the
first nine months of 1996. The increase in these expenses for the three and nine
month periods of 1996, is primarily the result of: (i) higher costs relating to
a one-time bad debt charge incurred when a truck trailer customer experiencing
financial difficulty entered bankruptcy and ceased operating; (ii) higher
expenses due to recruitment and replacement of executive and management
personnel during the third quarter; (iii) increased shipping and delivery
expenses primarily relating to increased volume and (v) increased selling
expense, including commissions. On a per pound basis, overall selling, general
and administrative expenses increased by $0.030 and $0.015, respectively, from
$0.094 in both the three and nine months 1995 periods to $0.124 and $0.109 in
the 1996 three and nine month periods.
Operating profit for the three and nine month 1996 periods decreased
by $3.2 million and $8.1 million, respectively, from $4.3 million and $22.3
million in the 1995 periods to $1.1 million and $14.2 million in 1996. Included
in these amounts is non-cash LIFO income of $715,000 and $1.9 million in the
third quarter and first nine months of 1996, respectively, compared to $163,000
and $844,000 of non-cash LIFO expense in the third quarter and first nine months
of 1995, respectively. The lower operating profit results for the three and nine
month 1996 periods compared to the corresponding periods in 1995 was the result
of higher manufacturing costs and the impact of higher selling, general and
administrative expenses. Included in the higher manufacturing and administrative
costs in the three and nine month 1996 periods are one-time charges of $1.8
million, principally from the bankruptcy of a major truck trailer customer.
9
<PAGE> 11
Interest expense was essentially unchanged in the third quarter of
1996 compared to 1995, and decreased $285,000 in the first nine months of 1996
compared to 1995. The overall decrease in interest expense in the first nine
months of 1996 is the result of the effect during 1996 of the Company's issuance
of 2.5 million of shares of common stock in an initial public offering (the
"Offering") during April 1995, which reduced indebtedness by approximately $31.3
million.
The effective tax rate for the third quarter and first nine months of
1996 was 19.5% and 48.4%, respectively, compared to 47.4% and 41.8% for the same
periods in 1995. These rates differ from the federal statutory rate of 35%
primarily due to state and local income taxes and the non-deductible
amortization of goodwill. The differences in the effective tax rates for the
1996 periods compared to 1995, primarily resulted from higher non-deductible
amortization of goodwill in proportion to pre-tax income or loss compared to
1995.
Due to the decline in operating profit discussed above, a net loss
was incurred for the three months ended September 28, 1996 of $894,000 or $0.09
per share, compared to net income of $1.1 million or $0.10 per share, for the
three months ended September 30, 1995. For the nine months ended September 28,
1996 net income was $3.9 million or $0.38 per share compared to $8.9 million or
$0.93 per share for the nine months ended September 30, 1995, as the decrease in
operating profit was partially offset by the decrease in interest expense.
Non-cash LIFO charges and income decreased net loss and increased net income per
share by $0.04 and $0.11, respectively in the three and nine month 1996 periods
and decreased net income per share by $0.01 and $0.05 for the three and nine
month 1995 periods. The per share amounts for 1996 are based on 10,243,144
shares outstanding while the 1995 per share amounts for the three and nine month
periods are based on 10,463,011 and 9,563,406 shares outstanding, respectively.
The changes are due to the Offering.
Adjusted EBITDA, which represents operating profit adjusted for
non-cash items, decreased 56.2% and 33.2%, respectively for the three and nine
month 1996 periods from $6.4 million and $29.2 million in 1995, respectively, to
$2.8 million and $19.5 million in 1996, respectively. The decreases are due to
the $1.8 million of third quarter 1996 one-time charges and the operating
difficulties discussed above.
FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
Total working capital at September 28, 1996 was $43.8 million
compared to $40.3 million at December 31, 1995. This net overall increase in
working capital at September 28, 1996 is principally the result of increases in
cash and equivalents and increased accounts receivable due to higher volume.
Offsetting factors were decreased inventories due to lower physical quantities
and lower aluminum prices, and decreases in accounts payable, accruals and other
current liabilities because of reduced raw materials purchases and the September
1996 semi-annual payment of interest on long-term debt.
Cash flow provided from operating activities for the nine months
ended September 28, 1996 was $10.7 million, compared to $5.8 million for the
same period in 1995. Cash flow increased despite lower net income adjusted for
non-cash charges, primarily as a result of inventory reductions, offset by
higher accounts receivable and lower accrued liabilities.
Capital expenditures totaled $6.4 million for the first nine months
of 1996 compared to $11.7 million in the first nine months of 1995. Major
projects for the first nine months of 1996 have included the upgrade of an
extrusion press and the installation of a new age-oven at the Dolton plant, as
well as the refurbishment of paint lines at the Company's Winton, North Carolina
and Girard, Ohio plants. Since 1993 the Company has invested to increase its
total aluminum and vinyl capabilities and to improve its overall efficiency and
productivity. The Company expects 1996 capital spending to be between $8.0 and
$9.0 million.
10
<PAGE> 12
On January 18, 1995 the Company acquired all of the stock of Dolton
Aluminum Company, Inc. ("Dolton") for $26.4 million including fees and expenses
related to the transaction, with possible additional consideration of up to $3.3
million payable after three years, depending on Dolton's performance during that
period. Management believes the payment of such additional consideration is
unlikely. The acquisition, which was accounted for as a purchase, was financed
with cash and borrowings under the Company's credit facility.
Long-term debt was $85.0 million at September 28, 1996 and December 31,
1995. The Company has no scheduled principal amortization requirements with
respect to any of its debt until 2000.
On April 21, 1995, the Company issued 2.5 million shares of common
stock in the Offering. Cash proceeds received by the Company from the Offering,
after underwriting discounts and commissions and before deducting other expenses
totaling approximately $3.7 million, were $31.3 million. As a result of the
Offering, stockholders' equity increased and long-term debt (incurred primarily
to effect the Dolton acquisition) decreased by approximately $31.3 million.
HEDGING ACTIVITIES
The Company entered into agreements with various customers to sell
finished product at set prices during 1996, and hedged most of these sales
commitments through offsetting raw material purchases at corresponding prices
and delivery dates. Futures contracts are used to reduce the risks associated
with fluctuations in aluminum prices by matching exposed inventory positions
that are not subject to corresponding sales agreements. As of November 12, 1996
the Company had no open forward aluminum commodity sales contracts.
LIFO ADJUSTMENTS; INFLATION
The largest component of the Company's cost of sales is raw material
costs. These costs vary due to changes in aluminum prices, and reported results
may vary due to LIFO adjustments, as previously discussed. For the third quarter
and first nine months of 1996 the Company reported non-cash LIFO income of
$715,000 and $1.9 million, compared to non-cash LIFO expense of $163,000 and
$844,000 for the third quarter and first nine months of 1995, respectively.
Except for these non-cash LIFO adjustments, the Company does not believe that
inflation has had a significant impact on the results of operations over the
periods presented.
11
<PAGE> 13
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1* Stock Purchase Agreement dated as of January 18, 1995, among
Easco Corporation, Dolton Aluminum Company, Inc.
("Dolton")and Stockholders of Dolton
3.1(a)* Amended and Restated Certificate of Incorporation
3.1(b) Certificate of Correction to the Amended and Restated
Certificate of Incorporation (Incorporated by reference to
corresponding exhibit filed as an exhibit to Form 10-Q filed
November 13, 1995) (SEC file number 0-25834)
3.2* By-Laws of Easco, Inc.
4.1* Form of Common Stock Certificate
4.2* Indenture dated March 18, 1994 between Easco and United
States Trust Company, as Trustee, with respect to 10% Senior
Notes due 2001
4.3(a)* Credit Agreement dated March 18, 1994 between Easco and
Bank of America - Illinois (formerly Continental Bank)
4.3(b)* First Amendment to Credit Agreement dated January 31,
1995
4.4* Information and Registration Rights Agreement dated as of
May 15, 1992
10.1** Amended and Restated Services Agreement for general
management, financial and other services between Easco and
American Industrial Partners Management Company, Inc.
10.3(a)* Option Agreement for the right to purchase stock of
Easco, Inc. between Easco, Inc. and Alumen, Inc. (CVC)
10.3(b)* Amendment to Option Agreement dated as of April 12, 1995
10.4* Stock Purchase Agreement dated as of December 21, 1993
among AIP, Easco, Inc. and Michael M. Hagerty
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C>
10.5(a)* Easco, Inc. Stock Option Plan dated December 17, 1993,
as amended effective October 12, 1994+
10.5(b) Easco, Inc. Stock Option Plan dated December 17, 1993, as
amended effective October 12, 1994 and December 15, 1995+
(incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1995) (SEC file number 0-25834)
10.6* Stock Option Agreement between Easco, Inc. and Michael M.
Hagerty dated December 17, 1993+
10.7* Secured Promissory Note of Michael M. Hagerty, payable to
Easco, Inc. dated December 21, 1993
10.8* Easco Corporation Supplemental Executive Welfare Benefit
Plan+
10.9* Easco Corporation Supplemental Executive Retirement Plan+
10.10* Easco Corporation Retirement Plan for Corporate Vice
Presidents and Other Selected Executives+
10.11* Severance Policy for Specified Executives+
10.12* Employment Agreement between Easco Corporation and Michael
M. Hagerty+
10.13** Stock Option Agreement between Easco, Inc. and:
(a) Donald W. Folkwein+
(b) Frank L. Rich+
(c) L. Stephen Miner+
(d) David R. Best+
10.14 Cash Incentive Bonus Plan of Easco Corporation for 1996+
(incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1995) (SEC file number 0-25834)
10.15*** Employment and Separation Agreement between Easco
Corporation and Frank L. Rich+
10.16*** Consulting Agreement between Easco Corporation and Frank
L. Rich+
10.17*** Separation and Consulting Agreement between Easco
Corporation and Donald W. Folkwein+
10.18 Employment Agreement between Easco Corporation and
Bruce McH. Kirchner (filed herewith)
21.1* Subsidiaries of Easco, Inc.
<FN>
* Incorporated by reference to corresponding exhibit filed as
an exhibit to the Company's Registration Statement on Form
S-1 dated February 15, 1995, as amended by Amendment No. 1
thereto filed March 22, 1995, Amendment No. 2 filed March
28, 1995, and Amendment No. 3 filed April 12, 1995.
(Registration Statement Number 33-89556).
** Incorporated by reference to corresponding exhibit filed as
an exhibit to Form 10-Q filed May 15, 1995. (SEC file number
0-25834)
*** Incorporated by reference to corresponding exhibit filed as
an exhibit to Form 10-Q filed August 12, 1996. (SEC file
number 0-25834)
</TABLE>
13
<PAGE> 15
+ Executive compensation plan or arrangement.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated September
24, 1996, with respect to announcing under Item 5 of such Form,
lower than anticipated third quarter and full year 1996 earnings.
14
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EASCO, INC.
/s/ Bruce McH. Kirchner
November 12, 1996 ------------------------------
Bruce McH. Kirchner
Vice President and Chief Financial Officer
(Principal Accounting Officer duly authorized
to sign on behalf of the Registrant)
15
<PAGE> 1
Exhibit 10.18
July 16, 1996
Mr. Bruce McH. Kirchner
41 Fairview Court
Grand Island, NY 14072
Dear Bruce:
I am pleased to offer you the position of Chief Financial Officer of Easco
Corporation. This letter will confirm the details of our offer of employment.
1. Base Salary
Your base salary will be $175,000 per year. Your salary and performance
will be reviewed at least annually with adjustments to salary being made at
the discretion of the Chief Executive Officer.
2. Annual Bonus
You will be eligible to participate in Easco's cash incentive program. You
will be eligible for a bonus equal to 60% of your base pay. Detailed
information regarding the plan will be provided to you, but the basic
components are based 75% on the company's consolidated EBIT and 25% on
individual performance. In 1996 you will be able to receive a pro rata
award based on months of service.
3. Stock Options
You will be awarded options on 75,000 shares of Easco stock through the
company's non-qualified stock option plan. The exercise price will be fixed
on the date of award which should occur not later than September 1, 1996.
The vesting period will be three years with 25,000 shares vesting at the
end of each year.
4. Automobile
You will be provided the use of a new, full sized automobile with all
related expenses paid by the company.
<PAGE> 2
Mr. Bruce McH. Kirchner
Page 2
5. Health Care Insurance and Pension
You will be eligible for Easco's executive health care and pension
packages, details of which have been provided to you. If you have any
questions, please contact me.
6. Employment Agreement
If during the first two years your employment is terminated for reasons
other than cause, your service will be continued for 12 months and you will
receive a continuation of base pay and all benefits other than the bonus
plan for that period or until such time as you secure other employment,
whichever comes first. After two years you will receive not less than six
months severance pay.
7. Vacation
You will be eligible for three weeks of vacation. After five years you will
be eligible for four weeks.
8. Relocation
All reasonable and customary expenses associated with your relocation to
Ohio will be paid by the company. This includes movement of household
effects and real estate transaction fees grossed up for taxes. You will
also be allowed 90 days temporary living expenses and reasonable costs
associated with house hunting trips for your wife.
9. Start Date
As we have agreed, your start date may be as early as July 31, 1996 but in
no case later than August 5, 1996. We will set a firm date by Friday, July
19.
Bruce, on behalf of the Board of Directors, I extend to you a warm welcome. I am
confident that you will make a significant contribution to our shareholders and
fellow employees. I look forward to working with you and I am committed to your
success in the years ahead.
Sincerely,
EASCO ALUMINUM
Michael M. Hagerty
MMH/slr
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,700
<SECURITIES> 0
<RECEIVABLES> 57,288
<ALLOWANCES> 3,396
<INVENTORY> 21,313
<CURRENT-ASSETS> 2,721
<PP&E> 113,885
<DEPRECIATION> 22,362
<TOTAL-ASSETS> 253,846
<CURRENT-LIABILITIES> 45,793
<BONDS> 8,500
<COMMON> 122
0
0
<OTHER-SE> 88,537
<TOTAL-LIABILITY-AND-EQUITY> 254,546
<SALES> 257,351
<TOTAL-REVENUES> 257,351
<CGS> 214,231
<TOTAL-COSTS> 214,231
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,448
<INTEREST-EXPENSE> 6,783
<INCOME-PRETAX> 7,460
<INCOME-TAX> 3,609
<INCOME-CONTINUING> 3,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,851
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
