<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 JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER:
0-25834
----------------------
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 AUGUST 12, 1997
----- ------------------------------
Common Stock, $0.01 Par Value 10,409,670
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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 June 30, 1997 and December 31, 1996 ............................2
Consolidated Statements of Income for the three months and six months
ended June 30, 1997 and June 29, 1996..........................................................3
Consolidated Statements of Cash Flows for the three months and six months
ended June 30, 1997 and June 29, 1996..........................................................4
Notes to Consolidated Financial Statements......................................................5-6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................................7-9
PART II, OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders........................................10
Signature...........................................................................................11
</TABLE>
<PAGE> 3
ITEM 1 - FINANCIAL INFORMATION
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents .................................... $ 19,895 $ 13,245
Receivables, less allowance for doubtful accounts ....... 51,782 40,802
Inventories ............................................. 29,989 27,143
Other current assets .................................... 4,422 6,592
--------- ---------
Total current assets ........................ 106,088 87,782
--------- ---------
PROPERTY, PLANT AND EQUIPMENT - NET ............................. 79,098 79,661
GOODWILL, net of accumulated amortization ....................... 53,996 54,754
OTHER ASSETS .................................................... 8,879 8,260
--------- ---------
Total Assets ................................ $ 248,061 $ 230,457
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accruals and other current
liabilities ............................................. $ 65,240 $ 48,852
--------- ---------
Total current liabilities ................... 65,240 48,852
--------- ---------
LONG-TERM DEBT .................................................. 85,000 85,000
DEFERRED INCOME TAXES ........................................... 13,517 13,444
OTHER NONCURRENT LIABILITIES .................................... 19,872 20,120
--------- ---------
Total liabilities ........................... 183,629 167,416
--------- ---------
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; 12,414,892 issued and
outstanding ................................. 124 124
Paid-in capital ......................................... 81,482 81,373
Retained earnings ....................................... 2,816 1,534
Less: Treasury Stock, 2,005,222 shares .................. (19,990) (19,990)
--------- ---------
Total stockholders' equity .................. 64,432 63,041
--------- ---------
Total Liabilities and Stockholders' Equity .. $ 248,061 $ 230,457
========= =========
</TABLE>
Amounts shown are unaudited
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
<PAGE> 4
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Product sales .................................. $ 76,637 $ 71,628 $ 141,130 135,653
Tolling fees ................................... 16,401 18,125 31,906 33,969
----------- ----------- ----------- -----------
93,038 89,753 173,036 169,622
Cost of products sold .............................. 78,304 73,704 147,444 138,756
----------- ----------- ----------- -----------
Gross profit ............................... 14,734 16,049 25,592 30,866
Selling, general and administrative ................ 9,135 8,389 17,195 16,244
Amortization of goodwill and other ................. 414 507 828 1,014
Management fee ..................................... 225 225 450 450
----------- ----------- ----------- -----------
Operating profit ........................... 4,960 6,928 7,119 13,158
Interest expense ................................... 2,067 2,314 4,231 4,587
----------- ----------- ----------- -----------
Income before income tax ................... 2,893 4,614 2,888 8,571
Income tax provision ............................... 1,400 2,085 1,398 3,826
----------- ----------- ----------- -----------
Net income ................................. $ 1,493 $ 2,529 $ 1,490 $ 4,745
=========== =========== =========== ===========
Earnings per common share .......................... $ 0.14 $ 0.25 $ 0.14 $ 0.46
=========== =========== =========== ===========
Weighted average number of common shares outstanding 10,409,670 10,243,144 10,409,670 10,243,144
=========== =========== =========== ===========
</TABLE>
Amounts shown are unaudited.
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
<PAGE> 5
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 29,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income .............................................. $ 1,490 $ 4,745
Adjustments to reconcile net income to net cash flows
from (for) operating activities:
Depreciation ........................................ 3,577 3,666
Amortization of goodwill and other intangibles ...... 828 1,014
Amortization of deferred debt issue costs ........... 286 286
Stock compensation expense .......................... 110 --
Changes in operating assets and liabilities:
Increase in receivables ......................... (10,980) (10,987)
(Increase) decrease in inventories .............. (2,846) 3,784
Decrease (increase) in other current assets ..... 2,330 (1,014)
(Increase) decrease in other assets ............. (975) 29
Increase (decrease) in accounts payable, accruals
and other current liabilities ........... 16,388 (118)
(Decrease) increase in deferred taxes (net) ..... (88) 350
Decrease in other noncurrent liabilities ........ (248) (1,185)
-------- --------
Net cash from operating activities ...... 9,872 570
-------- --------
CASH FLOWS (FOR) INVESTING ACTIVITIES:
Property additions (net) ............................ (3,014) (4,183)
-------- --------
Net cash for investing activities ....... (3,014) (4,183)
-------- --------
CASH FLOWS (FOR) FINANCING ACTIVITIES:
Cash dividends paid ................................. (208) (205)
-------- --------
Net cash for from financing activities .. (208) (205)
-------- --------
CASH AND EQUIVALENTS:
Net increase (decrease) for the period .............. 6,650 (3,818)
Balance, beginning of period ........................ 13,245 7,670
-------- --------
Balance, end of period .............................. $ 19,895 $ 3,852
======== ========
</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 Six Months Ended June 30, 1997 and June 29, 1996
(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. Beginning in 1997 the Company changed to the calendar month method
for reporting interim financial results. Previously the Company reported its
results on four thirteen week quarters. The change did not have a significant
impact on comparability for the periods presented.
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130 "Reporting Comprehensive Income", and SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." SFAS No. 130 requires that
an enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. SFAS No. 131 requires that
a public business enterprise report financial and descriptive information about
its reportable operating segments such as a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. The Company will
adopt these statements for the Company's report on Form 10-K for the year ended
December 31, 1997. The Company does not expect that the adoption of these
pronouncements will have a material effect on the Company's financial position
or results of operation.
2. INVENTORIES
At June 30, 1997 and December 31, 1996, inventories consist of:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Raw materials....................................................... $ 2,291 $ 3,090
Work-in-process..................................................... 11,328 11,668
Finished goods ..................................................... 16,370 12,385
------------- -------------
$ 29,989 $ 27,143
Total............................................................... ============= =============
</TABLE>
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 $2.0 million
greater at June 30, 1997 and approximately equal to the FIFO value at December
31, 1996.
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3. 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.
Environmental Matters
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, management annually assesses the Company's
environmental contingencies. The Company has recorded a liability relating to
these matters totaling $9.1 million at June 30, 1997.
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, certain of the
Company's performance statistics. For the reasons discussed below, management
focuses on pounds shipped, gross profit per pound and Adjusted EBITDA per pound
as important measures of the Company's performance.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------- ---------------
June 30, June 29, June 30, June 29,
(AMOUNTS IN MILLIONS, EXCEPT PER POUND DATA) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales ................................ $ 93.0 $ 89.8 $173.0 $169.6
Gross profit ............................. 14.7 16.0 25.6 30.9
Operating profit ......................... 5.0 6.9 7.1 13.2
Net income ............................... 1.5 2.5 1.5 4.7
====== ====== ====== ======
Pounds shipped:
Company-owned material ........... 57.1 53.4 106.7 100.5
Customer Conversion Program ...... 28.6 32.6 56.7 61.3
====== ====== ====== ======
Total pounds shipped ..................... 85.7 86.0 163.4 161.8
====== ====== ====== ======
Other performance measures:
Operating profit ......................... $ 5.0 $ 6.9 $ 7.1 $ 13.2
Non-cash charges (income):
Depreciation and amortization ... 2.1 2.4 4.4 4.7
====== ====== ====== ======
Adjusted EBITDA .......................... $ 7.1 $ 9.3 $ 11.5 $ 17.9
====== ====== ====== ======
Gross profit per pound ................... $0.172 $0.186 $0.157 $0.191
Adjusted EBITDA per pound ................ 0.083 0.108 0.070 0.111
Average market price of aluminum per pound 0.776 0.738 0.772 0.747
</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 and Adjusted EBITDA per pound are
the best indicators of the Company's performance.
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.
7
<PAGE> 9
This program and other fixed-spread or hedged fixed-price arrangements with
customers were utilized for over 60% of the Company's shipments in 1996 and the
first half of 1997. Combined with the Company's turnover of its aluminum
inventory, these programs serve to minimize the impact of aluminum price changes
on the Company.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO
THREE MONTHS AND SIX MONTHS ENDED JUNE 29, 1996
Pounds shipped during the second quarter and first six months of 1997 were
85.7 million and 163.4 million, respectively, compared to 86.0 million and 161.8
million for the corresponding periods in 1996. Higher shipments to manufacturers
of recreational vehicles and travel trailers offset declines in the distribution
and consumer durables market sectors during the second quarter of 1997. Net
sales increased 3.7% and 2.0%, respectively, during the second quarter and first
six months of 1997 compared to the year earlier periods. The increase was
primarily due to higher unit selling prices and a lower percentage of shipments
under the Customer Conversion Program.
Gross profit declined to $14.7 million in the second quarter of 1997
compared to $16.0 million in the second quarter of 1996. For the first six
months of 1997, gross profit was $25.6 million compared to $30.9 million in
1996. The decrease in gross profit in the 1997 periods is due primarily to
relatively higher operating expenses resulting from certain production
inefficiencies, particularly at the Company's Dolton, Illinois plant, and the
effect of lower selling prices compared to raw materials costs. As a result of
these factors, gross profit per pound in the three and six month periods ended
June 30, 1997 declined to $0.172 and $0.157 compared to $0.186 and $0.191 in the
1996 periods.
Selling, general and administrative expenses increased 8.9% during the
second quarter of 1997 compared to the second quarter of 1996, and 5.9% for the
first six months of 1997 versus the same period in 1996. The increases in the
three and six month 1997 periods are due primarily to the effect of higher
compensation costs compared to the year earlier periods.
Operating profit for the three and six month periods ended June 30, 1997
was $5.0 million and $7.1 million, respectively, compared to $6.9 million and
$13.2 million, respectively, in 1996. The declines were primarily the result of
the factors described above.
Interest expense decreased $247,000 and $356,000 in the second quarter and
first six months of 1997 compared to the same periods in 1996 due to reduced
borrowings under the Company's revolving credit facility.
The effective tax rate for both the second quarter and first six months of
1997 was 48.4%, compared to 45.2% and 44.6% for the same periods in 1996. 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 increase
in the effective tax rate for 1997 primarily resulted from higher non-deductible
amortization of goodwill in proportion to pre-tax income.
Net income for the three months ended June 30, 1997 was $1.5 million or
$0.14 per share compared to $2.5 million or $0.25 per share, for the three
months ended June 29, 1996. For the six months ended June 30, 1997 net income
was $1.5 million or $0.14 per share compared to $4.7 million or $0.46 per share
for the six months ended June 29, 1996. The decline in 1997 was primarily due to
reduced operating profits that were partially offset by lower interest expense.
Adjusted EBITDA, which represents operating profit plus non-cash items, was
$7.1 million and $11.5, respectively, for the three and six month periods ended
June 30, 1997, compared to $9.3 million and
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<PAGE> 10
$17.9 million, respectively, for the three and six month periods ended June 29,
1996. The decrease in Adjusted EBITDA was primarily due to the reasons set forth
above.
FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
Total working capital at June 30, 1997 was $40.8 million compared to $38.9
million at December 31, 1996. The increase in working capital was principally
the result of increases in accounts receivable and cash and cash equivalents,
offset in-part by increases in accounts payable, accruals and other current
liabilities, all of which relate to higher business activity in the second
quarter of 1997 compared to the fourth quarter of 1996, consistent with
recurring seasonal patterns.
Capital expenditures for equipment totaled $3.0 million for the first six
months of 1997 compared to $4.2 million in the first six months of 1996. The
Company intends to incur capital spending during 1997, including
state-of-the-art casting technology at Dolton, at a level of between $7.0
million and $9.0 million for the year.
Long-term debt consisted of $85.0 million of 10% Senior Notes, due 2001 at
June 30, 1997 and December 31, 1996. The Company has no scheduled principal
amortization requirements with respect to any of its debt until 2000.
RISK MANAGEMENT
The Company enters into forward fixed price arrangements with certain
of its customers. The Company may enter into fixed price aluminum purchase
agreements which correspond to the duration and timing of sales agreements in
order to reduce the risk of fluctuations in aluminum prices. The Company is
exposed to losses in the event of non-performance by the counterparties to these
agreements; however, the Company does not anticipate non-performance by the
counterparties. In addition, the Company may use aluminum futures contracts to
protect against exposure to aluminum price risk. As of June 30, 1997, the
Company had no open aluminum futures positions.
9
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PART II, OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 9, 1997, the
following proposals were approved:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
------------- ------------ ------------
<S> <C> <C> <C>
1. Election of directors for a three year term.
Norman E. Wells, Jr. 8,460,490 73,100
W. Richard Bingham 7,578,990 954,600
2. Ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company for 1997. 8,524,728 4,762 4,100
</TABLE>
In addition there were 1,876,080 abstentions or non-votes on the above issues.
Other directors continuing their terms for 1997 are: Robert Cizik; Robert J.
Klein; Gene E. Little; Theodore C. Rogers; Samuel H. Smith and Lawrence W. Ward,
Jr.
10
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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.
<TABLE>
<S> <C>
August 12, 1997 /s/ Terry D. Smith
-----------------------
Terry D. Smith
Executive Vice President and Chief Financial Officer
Secretary and Treasurer
(Principal Accounting Officer duly authorized
to sign on behalf of the Registrant)
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 19,895
<SECURITIES> 0
<RECEIVABLES> 54,621
<ALLOWANCES> 2,839
<INVENTORY> 29,989
<CURRENT-ASSETS> 106,088
<PP&E> 105,722
<DEPRECIATION> 26,624
<TOTAL-ASSETS> 248,061
<CURRENT-LIABILITIES> 65,240
<BONDS> 85,000
<COMMON> 124
0
0
<OTHER-SE> 64,308
<TOTAL-LIABILITY-AND-EQUITY> 248,061
<SALES> 173,036
<TOTAL-REVENUES> 173,036
<CGS> 147,444
<TOTAL-COSTS> 147,444
<OTHER-EXPENSES> 18,014
<LOSS-PROVISION> 459
<INTEREST-EXPENSE> 4,231
<INCOME-PRETAX> 2,888
<INCOME-TAX> 1,398
<INCOME-CONTINUING> 1,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,490
<EPS-PRIMARY> .14
<EPS-DILUTED> .0
</TABLE>
