<PAGE> 1
================================================================================
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 30, 1999
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 NOVEMBER 29, 1999
----- --------------------------------
Common Stock, $0.01 Par Value 9,649,774
<PAGE> 2
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 ...................................................3
Condensed Consolidated Statements of Operations for the three
and six months ended September 30, 1999 and September 30,1998............4
Condensed Consolidated Statements of Cash Flows for the six
months ended September 30, 1999 and September 30, 1998..................5
Notes to Condensed Consolidated Financial Statements.......................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 5. Other Information....................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................14
Signature....................................................................15
2
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<TABLE>
<CAPTION>
EASCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 7,116 $ 14,057
Receivables, net 44,902 37,261
Inventories 25,081 25,248
Other current assets 3,711 4,353
--------- ---------
Total current assets 80,810 80,919
--------- ---------
Property, plant and equipment, net 81,251 81,576
Goodwill, net 50,711 51,722
Other assets 5,968 6,383
--------- ---------
Total assets $ 218,740 $ 220,600
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,404 $ 21,136
Accrued insurance obligations 2,215 1,954
Accrued payroll 7,004 4,106
Other current liabilities 8,017 9,742
--------- ---------
Total current liabilities 39,640 36,938
Long-term debt 91,081 91,158
Deferred income taxes 16,665 16,665
Accrued pension benefits 1,414 1,785
Accrued postretirement benefits 2,969 2,906
Other non-current liabilities 4,604 7,000
--------- ---------
Total liabilities 156,373 156,452
--------- ---------
Commitments and contingencies -- --
Stockholder's equity:
Preferred Stock, $.01 par value, authorized
1,000,000 shares; none issued or outstanding -- --
Common Stock, $.01 par value, authorized 40,000,000 shares;
12,677,794 and 12,440,276 issued and outstanding
at September 30, 1999 and December 31, 1998,
respectively 127 124
Paid-in capital 83,615 82,457
Retained earnings 10,877 13,819
Less: treasury stock, 3,028,020 shares (32,252) (32,252)
--------- ---------
Total stockholder's equity 62,367 64,148
--------- ---------
Total liabilities and stockholder's equity $ 218,740 $ 220,600
========= =========
</TABLE>
The accompanying notes are an integral part of these
statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
EASCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales:
Product $ 78,878 $ 61,690 $ 225,374 $ 192,369
Tolling fees 13,152 16,118 39,471 47,231
--------- --------- --------- ---------
92,030 77,808 264,845 239,600
Cost of products sold 81,151 66,974 229,594 208,224
--------- --------- --------- ---------
Gross profit 10,879 10,834 35,251 31,376
Selling, general and administrative 4,893 4,453 15,520 13,122
Amortization of goodwill and other 276 414 1,104 1,242
Management fees 150 225 600 675
Unusual item 13,507 -- 13,507 (3,041)
--------- --------- --------- ---------
Operating (loss) profit (7,947) 5,742 4,520 19,378
Interest expense (net) 2,199 2,214 6,599 6,304
--------- --------- --------- ---------
(Loss) income before income tax (10,146) 3,528 (2,079) 13,074
Income tax (benefit) provision (2,641) 1,483 578 5,489
--------- --------- --------- ---------
Net (loss) income $ (7,505) $ 2,045 $ (2,657) $ 7,585
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
statements.
4
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<TABLE>
<CAPTION>
EASCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,657) $ 7,585
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 6,343 5,295
Amortization of goodwill and other intangibles 1,104 1,242
Amortization of deferred debt issue costs 450 432
Stock compensation expense 7,866 157
Gain on sale of assets -- (3,041)
Changes in operating assets and liabilities:
Increase in receivables (7,641) (27)
Decrease in inventories 167 6,413
Decrease in other current assets 642 155
Increase in other assets (128) (218)
Increase (decrease) in other accounts payable,
accruals, and other current liabilities 2,702 (12,516)
Increase in deferred taxes (net) -- 76
Decrease in other noncurrent liabilities (2,704) (2,002)
-------- --------
Net cash provided by (used for) operating activities 6,144 3,551
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets -- 13,225
Property additions (net) (6,018) (11,212)
-------- --------
Net cash (used for) provided by investing activities (6,018) 2,013
-------- --------
Cash flows from financing activities:
Issuance of common stock 1,161 400
Settlement of stock options (7,866) --
Decrease in notes payable (77) (12,262)
Cash dividends paid (285) (313)
-------- --------
Net cash provided by (used for) financing activities (7,067) (12,175)
-------- --------
Net increase for the period (6,941) (6,611)
Cash and cash equivalents, beginning of period 14,057 8,470
-------- --------
Cash and cash equivalents, end of period $ 7,116 $ 1,859
======== ========
</TABLE>
The accompanying notes are an integral part of these
statements.
5
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EASCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. Acquisition
On August 31, 1999, E Acqco Inc. (the "Purchaser"), a Delaware
corporation and an indirect wholly owned subsidiary of Caradon Inc., a Delaware
corporation ("Parent"), an indirect wholly owned subsidiary of Caradon plc, a
public limited company organized under the laws of England, consummated its cash
tender offer (the "Offer") for all outstanding shares of Common Stock, $0.01 par
value (the "Shares"), of Easco, Inc., a Delaware corporation (the "Company").
Pursuant to the Offer, the Purchaser acquired all of the outstanding shares of
the Company as of August 30, 1999. The Offer was made pursuant to the Agreement
and Plan of Merger, dated as of July 28, 1999 (the "Merger Agreement"), among
Parent, the Purchaser and the Company.
As contemplated by the Merger Agreement, effective as of September 7,
1999, the Purchaser was merged with and into the Company (the "Merger"), with
the Company being the surviving corporation and an indirect wholly owned
subsidiary of Parent and Caradon plc. The Merger was effected pursuant to the
"short-form" merger provisions of Section 253 of the Delaware General
Corporation Law, as amended (the "Delaware Law"), without prior notice to, or
any action by, any stockholder of the Company. At the effective time of the
Merger, each Share that was issued and outstanding (other than Shares held in
the treasury of the Company or by Parent, the Purchaser or any other direct or
indirect wholly owned subsidiary of Parent or Shares with respect to which
appraisal rights are properly exercised under the Delaware Law) was converted
into the right to receive from the Company $15.20 in cash, without interest
thereon.
The total amount of funds required by the Purchaser to consummate the
Offer and the Merger (including a $7.9 million cash payment for settlement of
stock options) was approximately $155 million excluding related fees and
expenses. Caradon plc obtained such funds from cash on hand and from its
existing credit facilities with various financial institutions. The Company has
elected not to use push-down accounting and, accordingly, the financial
statements do not reflect any allocation of purchase price to the Company's
assets and liabilities.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries. These
condensed 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.
6
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<TABLE>
<CAPTION>
3. Inventories
At September 30, 1999 and December 31, 1998, inventories consist of:
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 7,685 $ 4,886
Work-in-process 8,025 9,113
Finished goods 9,371 11,249
-------------- -------------
Total at FIFO cost 25,081 25,248
Less excess of FIFO cost over
LIFO values -- --
-------------- -------------
Total $ 25,081 $ 25,248
============== =============
</TABLE>
Inventories are valued at the lower of cost or market, with cost
determined using the last-in, first-out (LIFO) method.
4. Unusual Items
In the third quarter of 1999, the Company incurred one time expenses of
$13.5 million in connection with the acquisition of the Company by E Acqco Inc.
and the subsequent merger of E Acqco Inc. with the Company. Included in this
amount was $7.9 million which represents settlement of outstanding stock options
in the Company.
In the first quarter of 1998, the Company realized a pre-tax,
non-recurring gain of $3.0 million related to the sale of its vinyl extrusion
operations. The transaction was recorded as an asset sale and involved the
transfer of all assets and liabilities associated with the vinyl extrusion
operations.
5. Contingencies
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.
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 continually assesses the Company's
environmental contingencies. The Company has recorded a reserve of $3.2 million
for environmental contingencies at September 30, 1999.
6. New Accounting Pronouncements
During June 1998, and June 1999, the Financial Accounting Standards
Board issued SFAS No. 133 and SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." These pronouncements establish accounting
and reporting standards for derivative instruments and hedging activities, and
require an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The Company is currently evaluating the impact, if any, this statement
may have on its financial position or the results of its operations.
7. Income Taxes
The Company will be included in the consolidated federal income tax
return of the Parent as of the date of acquisition of the Company as described
in Note 1. All tax amounts have been recorded as if the Company filed separate
federal and state tax returns. The provision for income taxes included in the
statement of operations includes federal, state and local taxes currently
payable and those deferred because of temporary differences
7
<PAGE> 8
between the financial statement and tax bases of assets and has been computed as
if the Company was a stand-alone entity. The balance sheet includes deferred tax
amounts applicable to the Company.
8. Subsequent Event
On September 15, 1999, as a result of the merger of the Company,
the Company made a Change of Control Offer to Purchase (the "Purchase Offer")
for cash its Series A and Series B Senior Notes due 2001 ("Notes") at 101% of
the principal amount as provided for in the related trust indenture. The
Purchase Offer expired on October 12, 1999 at which time Notes with a face
amount of approximately $22 million had been tendered.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
On August 31, 1999, E Acqco Inc. (the "Purchaser"), a Delaware
corporation and an indirect wholly owned subsidiary of Caradon Inc., a Delaware
corporation ("Parent"), an indirect wholly owned subsidiary of Caradon plc, a
public limited company organized under the laws of England, consummated its cash
tender offer (the "Offer") for all outstanding shares of Common Stock, $0.01 par
value (the "Shares"), of Easco, Inc., a Delaware corporation (the "Company").
Pursuant to the Offer, the Purchaser acquired all of the outstanding shares of
the Company as of August 30, 1999. The Offer was made pursuant to the Agreement
and Plan of Merger, dated as of July 28, 1999 (the "Merger Agreement"), among
Parent, the Purchaser and the Company.
As contemplated by the Merger Agreement, effective as of September 7,
1999, the Purchaser was merged with and into the Company (the "Merger"), with
the Company being the surviving corporation and an indirect wholly owned
subsidiary of Parent and Caradon plc. The Merger was effected pursuant to the
"short-form" merger provisions of Section 253 of the Delaware General
Corporation Law, as amended (the "Delaware Law"), without prior notice to, or
any action by, any stockholder of the Company. At the effective time of the
Merger, each Share that was issued and outstanding (other than Shares held in
the treasury of the Company or by Parent, the Purchaser or any other direct or
indirect wholly owned subsidiary of Parent or Shares with respect to which
appraisal rights are properly exercised under the Delaware Law) was converted
into the right to receive from the Company $15.20 in cash, without interest
thereon.
The total amount of funds required by the Purchaser to consummate the
Offer and the Merger (including a $7.9 million cash payment for settlement of
stock options) was approximately $155 million excluding related fees and
expenses. Caradon plc obtained such funds from cash on hand and from its
existing credit facilities with various financial institutions. The Company has
elected not to use push-down accounting and, accordingly, the financial
statements do not reflect any allocation of purchase price to the Company's
assets and liabilities.
On September 15, 1999, as a result of the acquisition, the Company made
a Change of Control Offer to Purchase (the "Purchase Offer") for cash its Series
A and Series B Senior Notes due 2001 ("Notes") at 101% of the principal amount
as provided for in the trust indenture. The Purchase Offer expired on October
12, 1999 at which time Notes with a face amount of approximately $22 million had
been tendered.
The Company operates 21 aluminum extrusion presses and three casting
facilities. The Company's products include standard and custom profiles,
conduit, cable sheathing and drawn tubing.
Demand in all of the Company's primary markets remained strong during
the third quarter of 1999. The transportation market continued to be
particularly strong as order rates from the recreational vehicle segment were
robust. The market strength is anticipated to continue through the balance of
the year with the first quarter of 2000 already showing signs of a strong start
to the new year. The increase in shipments and demand continues to be offset to
some degree by the narrower than expected spread between primary aluminum ingot
and scrap aluminum (the Company's primary raw material). Scrap supply remains
tight as aluminum producers not normally active in the aluminum extrusion scrap
markets continue to seek metal units to support their operations. This situation
has depressed metal margins below Company expectations and is expected to
continue in the near term.
9
<PAGE> 10
BASIS OF PRESENTATION:
The following table sets forth, for the periods shown, certain of the
Company's unaudited performance statistics.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------ ------------
(AMOUNTS IN MILLIONS, EXCEPT PER POUND DATA)
<S> <C> <C> <C> <C>
Net sales $ 92.0 $ 77.8 $ 264.8 $ 239.6
Gross profit 10.9 10.8 35.3 31.4
Unusual item 13.5 -- 13.5 (3.0)
Operating profit (7.9) 5.7 4.5 19.4
Net income $ (7.5) $ 2.0 $ (2.7) $ 7.6
Pounds shipped:
Company-owned material 66.1 52.3 194.2 157.5
Customer Conversion Program 20.6 27.4 63.0 82.1
--------- --------- ---------- ----------
Total pounds shipped 86.7 79.7 257.2 239.6
========= ========= ========== ==========
Other performance measures:
Operating profit $ (7.9) $ 5.7 $ 4.5 $ 13.6
Non-cash and unusual items:
Depreciation and amortization 2.3 2.3 6.3 5.3
Unusual item 13.5 -- 13.5 (3.0)
--------- --------- ---------- ----------
Adjusted EBITDA (1) $ 7.9 $ 8.0 $ 24.3 $ 15.9
========= ========= ========== ==========
Cash flows provided by operations $ 0.9 $ (1.7) $ 6.2 $ 3.5
========= ========= ========== ==========
Cash flows (used for) provided by investing $ (2.4) $ (3.0) $ (6.0) $ 2.0
========= ========= ========== ==========
Cash flows provided by financing $ (7.7) $ (12.4) $ (7.1) $ (12.2)
========= ========= ========== ==========
Gross profit per pound $ 0.126 $ 0.136 $ 0.137 $ 0.131
Adjusted EBITDA per pound $ 0.091 $ 0.100 $ 0.094 $ 0.066
<FN>
(1) Adjusted EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity.
</TABLE>
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. Combined with the Company's turnover of
its aluminum inventory and the Company's metal hedging strategies, this program
serves to minimize the impact of aluminum price changes on the Company.
10
<PAGE> 11
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
Net sales for the third quarter of 1999 increased 18.2% to $92.0
million from $77.8 million in the third quarter of 1998. This increase was
primarily due to a 8.7% increase in shipments and higher aluminum prices in 1999
as compared to the same period in 1998. For the nine months ended September 30,
1999, net sales were $264.8 million compared to $239.6 million for the same
period in 1998. This increase was primarily attributable to a 7.7% increase in
volume and the above mentioned increase in aluminum prices. In addition, the
Company is continuing to reduce the percentage of product shipped under its
Customer Conversion Program where selling prices are lower because the Company
invoices a tolling fee for converting customer supplied metal.
For the quarter ended September 30, 1999, gross profit was $10.9
million which was level with the same period in 1998. Gross profit remained
constant primarily due to a narrowing of metal magins which offset efficiencies
gained from the higher volumes and the increased supply of internally produced
billet from the Ahoskie casting expansion that was completed late in 1998. Gross
profit for the nine months ended September 30, 1999 increased 12.4% to $35.3
million from $31.4 million for the nine months ended September 30, 1998. This
increase is a result of the increased volumes, the Ahoskie expansion and
manufacturing efficiencies gained as a result of the Company's process
improvement initiatives such as higher plant yields and increased press
productivity.
Selling, general and administrative expenses increased 8.9% from $4.5
million in the third quarter of 1998 to $4.9 million in the same period of 1999.
This increase was primarily due to increased selling expenses as a result of the
higher shipments discussed above and an increase in accrued incentive
compensation that coincides with the improved operating results in 1999. For the
nine months ended September 30, 1999, selling, general and administrative
expenses were $15.5 million, an increase of 18.3% from $13.1 million for the
nine months ended September 30, 1998. This increase was due to higher selling
expenses relating to the increased volume in the nine month period ended
September 30, 1999, an increase in accrued legal expenses and the above
mentioned increase in accrued incentive compensation.
During the third quarter of 1999, the Company incurred one time
expenses of $13.5 million in connection with the acquisition of the Company by E
Acqco Inc. and the subsequent merger of E Acqco with the Company. Included in
this amount was $7.9 million representing settlement of outstanding stock
options in the Acquired Company. During the first quarter of 1998, the Company
recorded a pre-tax nonrecurring gain of $3.0 million related to the sale of the
Company's vinyl extrusion operations. The gain is net of any expenses related to
the negotiation and completion of the sales agreement.
Operating loss for the quarter ended September 30, 1999 was $7.9
million compared to operating income of $5.7 million for the same quarter in
1998. For the nine months ended September 30, 1999 operating profit was $4.5
million compared to $19.4 million for the same period in 1998. Excluding the
unusual items, operating income was $5.6 million and $18.0 million for the three
and nine months ended September 30, 1999, respectively and $5.7 million and
$16.4 million for the three and nine months ended September 30, 1998,
respectively. The periodic variances were primarily a result of the factors
discussed above.
Net interest expense for the third quarter was level with the same
period in 1998 as interest income from an increase in investable cash offset
additional interest expense on the industrial revenue bonds that were issued in
November 1998 to fund the Ahoskie expansion project.
For the quarter ended September 30, 1999, net loss was $7.5 million
while net loss for the nine months ended September 30, 1999 was $2.7 million.
These amounts compare to net income of $2.0 million and $7.6 million for the
three and nine month periods ended September 30, 1998, respectively. The three
and nine month period in 1999 include the unusual expenses associated with the
sale of the Company. Excluding the expenses, net income for the three and nine
months ended September 30, 1999 would have been $2.0 million and $6.9 million,
respectively. The nine month period in 1998 includes the unusual gain associated
with the Company's sale of its vinyl extrusion operation in January 1998.
Excluding the gain, net income for the nine months ended September 30, 1998
would have been $5.8 million. Income taxes were provided for at the Company's
estimated effective annual tax rate. This rate differs from the federal
statutory rate primarily due to non-deductible transaction related expenses,
goodwill and state taxes.
11
<PAGE> 12
FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash on hand and
intercompany borrowings with Caradon plc. There were no intercompany borrowings
as of September 30, 1999.
Working capital at September 30, 1999 was $41.2 million compared to
$44.0 million at December 31, 1998. This decrease is primarily due to higher
accrued liabilities in the third quarter of 1999.
Capital expenditures totaled $6.0 million for the first nine months of
1999 compared to $11.2 million in the same period of 1998. The Company is making
these expenditures to modernize or upgrade production equipment and to maintain
facilities. The costs of these capital projects are being funded out of the
Company's operating cash flows and, if necessary, from borrowings under the
revolving credit facility. Cash flow from investing activities in 1998 includes
$13.2 million of proceeds from the sale of the Company's vinyl extrusion
operation.
At September 30, 1999 and December 31, 1998, long-term debt primarily
consisted of $85.0 million of 10% Senior Notes, due 2001 and a $6.0 million note
with Hertford County, North Carolina for industrial revenue development bonds
due 2015, issued by Hertford County, North Carolina for the Company's Ahoskie
expansion. The Company has no scheduled principal amortization requirements
until the year 2001.
On September 15, 1999, as a result of the acquisition, the Company made
a Change of Control Offer to Purchase (the "Purchase Offer") for cash its Series
A and Series B Senior Notes due 2001 ("Notes") at 101% of the principal amount
as provided for in the trust indenture. The Purchase Offer expired on October
12, 1999 at which time Notes with a face amount of approximately $22 million had
been tendered for retirement.
The Company believes that its cash flow from operations and available
sources of borrowings will be sufficient to finance its anticipated cash
requirements in the foreseeable future.
RISK MANAGEMENT
In the normal course of business, the Company enters into forward fixed
price arrangements with certain of its customers. The aluminum cost component of
the forward sales contracts is typically fixed for the duration of the
contracts. In order to hedge its exposure to aluminum price volatility under
these forward sales contracts, the Company may enter into aluminum futures
contracts based on the scheduled deliveries of product. The Company is exposed
to losses in the event of non-performance by the counterparties to these
agreements. However, the Company only uses recognized brokerage firms for the
purchase of aluminum futures contracts and does not anticipate non-performance
by these counterparties. Gains and losses on aluminum futures contracts are
deferred and recognized as product is shipped in satisfaction of the hedged
sales contracts.
At September 30, 1999, the Company was a party to aluminum futures
contracts with a nominal value of $12.1 million. These aluminum futures
contracts cover approximately 23.3 million pounds of aluminum at prices expected
to be settled financially in cash as they reach their respective settlement
dates. As of September 30, 1999, the market value of the aluminum futures
contracts was approximately $1.0 million greater than nominal value.
YEAR 2000
The Company has been evaluating and adjusting all known date-sensitive
systems and equipment for Year 2000 compliance. The majority of the Company's
business processing applications operate on mainframe computer systems. The
assessment phase on these systems was completed during the first quarter of
1998. Over 98% of the required coding conversions on the business processing
applications have occurred to date. The Company has completed all known coding
conversions with the exception of an invoicing module at one facility. This
operation of this module is not a mission critical component of the Company's
overall operations and is scheduled to be converted early in the fourth quarter
of 1999. All of the compliance work was performed or is expected to be performed
by Company employees.
The testing phase of the Company's Year 2000 efforts was completed
during the third quarter of 1999 with the exception of the abovementioned module
which will be tested during the fourth quarter. Testing will continue for all
existing systems and ongoing new releases and enhancements to ensure readiness.
The total estimated cost of converting the Company's systems is less
than $500,000, which is being expensed as incurred. Substantially all of the
cost is related to reprogramming or replacement of software. As of September 30,
1999, the Company estimates approximately 75% of this amount has been incurred.
The Company has recently upgraded or replaced substantially all of its
hardware as part of an operational decision to improve its information system.
These hardware upgrades or replacements have been tested for Year 2000
compliance. All of the Year 2000 costs are being funded through operating cash
flow and are an immaterial
12
<PAGE> 13
part of the Company's information technology budget. The Company's information
systems group has deferred some minor information technology projects to address
the Year 2000 issue.
In addition to internal Year 2000 compliance activities, the Company is
communicating with others that interface with the Company's systems or that
support the uninterrupted operation of the systems, to determine the extent to
which those companies are addressing their Year 2000 compliance. Where possible,
the Company is testing such interfaces and intends to continue testing
throughout 1999. There can be no assurance that there will not be an adverse
effect on the Company if third parties, such as utility companies or scrap metal
suppliers, do not convert their systems in a timely manner. However, management
believes that ongoing communication with and assessment of these third parties
will minimize these risks.
Although the Company does not anticipate any material business
disruption will occur as a result of Year 2000 issues, potential risks include,
but are not limited to, loss of communications links with plant locations, loss
of electric or gas power and inability to perform normal business activities
such as customer invoicing and issuance of vendor purchase orders. To date, the
Company has not established a contingency plan for possible Year 2000 issues.
Where needed, the Company will develop contingency plans based on actual testing
and assessment of the inherent risks.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Proposals of stockholders not intended for inclusion in the Company's
2000 Proxy Statement must be received in writing by the Secretary of the Company
prior to March 10, 2000 in order to preclude the Company's use of its
discretionary proxy voting authority when the proposal is raised at the 2000
Annual Meeting of Stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
10.10 Agreement and Plan of Merger, dated as of July 28, 1999, by and among
Caradon Inc., E Acqco Inc. and Easco, Inc.*
10.11 Stockholder Agreement, dated as of July 28, 1999 by and among American
Industrial Partners Capital Fund, L.P., Caradon Inc. and E Acqco Inc.*
10.12 Form of Stockholder Agreement, dated as of July 28, 1999 by and among
Parent, Purchaser and directors and executive officers of the Company
who own Shares*
11.1 Computation of earnings per share for the three months ended June 30,
1999 and June 30, 1998.
----------------
* Incorporatedby reference to corresponding exhibit filed as an exhibit to
the Company's Solicitation/Recommendation Statement on Schedule 14D-9,
filed on August 3, 1999
(b) Reports on Form 8-K
None
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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.
November 29, 1999 /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)
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