1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12374
----------------
(LOGO) ALUMAX INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2762395
- -------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5655 Peachtree Parkway, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 246-6600
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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
----- -----
Number of shares of common stock of registrant outstanding at October 31, 1996:
44,998,680
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Part I. Financial Information
Item 1. Financial Statements
ALUMAX INC.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1996 1995 1996 1995
--------- --------- --------- ----------
(In Millions, Except Per Share Amounts)
NET SALES . . . . . . . . . . . . . . . . . . . . . . $ 809.1 $ 767.7 $ 2,463.1 $ 2,187.5
--------- --------- ---------- ----------
Cost and expenses:
Cost of goods sold . . . . . . . . . . . . . . . 657.9 592.4 1,970.2 1,714.0
Selling and general . . . . . . . . . . . . . . 70.1 56.6 203.4 168.6
Depreciation and amortization . . . . . . . . . 36.7 27.7 105.7 85.9
--------- --------- ---------- ----------
764.7 676.7 2,279.3 1,968.5
--------- --------- ---------- ----------
EARNINGS FROM OPERATIONS . . . . . . . . . . . . . . 44.4 91.0 183.8 219.0
Gain on sales of assets . . . . . . . . . . . . . . . 71.7 - 242.9 128.8
Other income (expense), net . . . . . . . . . . . . . (1.9) (2.2) 13.0 5.6
Interest expense, net . . . . . . . . . . . . . . . . (15.8) (15.1) (49.9) (52.0)
--------- --------- ---------- ----------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . 98.4 73.7 389.8 301.4
Income tax provision . . . . . . . . . . . . . . . . (46.0) (30.7) (158.9) (108.8)
--------- --------- ----------- ----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . 52.4 43.0 230.9 192.6
Preferred dividends . . . . . . . . . . . . . . . . . (2.3) (2.3) (7.0) (7.0)
--------- --------- ---------- ----------
EARNINGS APPLICABLE TO COMMON SHARES . . . . . . . . $ 50.1 $ 40.7 $ 223.9 $ 185.6
========= ========= ========== ==========
Primary earnings per common share . . . . . . . . . . $ 1.10 $ .90 $ 4.91 $ 4.11
========= ========= ========== ==========
Fully diluted earnings per common share . . . . . . . $ 0.95 $ .78 $ 4.18 $ 3.51
========= ========= ========== ==========
Weighted average primary shares outstanding . . . . . 45.6 45.4 45.6 45.2
========= ========= ========== ==========
Weighted average fully diluted shares outstanding . . 55.2 55.0 55.2 54.8
========= ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
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ALUMAX INC.
CONDENSED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
September 30, December 31,
1996 1995
------------- ------------
(Millions of Dollars,
Except per Share Amounts)
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 68.1 $ 205.9
Accounts receivable, less allowance for doubtful accounts
(1996-$17.8; 1995-$17.7) . . . . . . . . . . . . . . . . . . . . . 447.9 437.8
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524.1 558.3
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 124.5 89.0
--------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 1,164.6 1,291.0
--------- ----------
Noncurrent Assets:
Property, plant and equipment at cost, less accumulated
depreciation and amortization (1996-$1,015.7; 1995-$1,051.3) . . . 2,003.3 1,611.9
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175.5 232.1
--------- ----------
Total noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 2,178.8 1,844.0
--------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,343.4 $ 3,135.0
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145.2 $ 148.8
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 315.6 237.3
Current maturities of long-term debt . . . . . . . . . . . . . . . . . 38.5 137.0
--------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 499.3 523.1
--------- ----------
Noncurrent Liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673.7 708.9
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 540.5 503.7
--------- ----------
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . . 1,214.2 1,212.6
--------- ----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock of $1.00 par value . . . . . . . . . . . . . . . . . . 2.3 2.3
Common stock of $.01 par value . . . . . . . . . . . . . . . . . . . . .4 .4
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 915.7 909.5
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 707.5 483.6
Cumulative foreign currency translation adjustment . . . . . . . . . . 4.0 3.5
--------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 1,629.9 1,399.3
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . $ 3,343.4 $ 3,135.0
========= ==========
The accompanying notes are an integral part of these financial statements.
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ALUMAX INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
-------------------------------------
1996 1995
------------ -----------
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $ 230.9 $ 192.6
Reconciliation of net earnings to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 105.7 85.9
Provision for doubtful accounts . . . . . . . . . . . . . . . . 4.9 1.7
Gain on sales of assets . . . . . . . . . . . . . . . . . . . . (242.9) (132.7)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . (1.1) 18.3
Other noncash items . . . . . . . . . . . . . . . . . . . . . . 6.2 3.5
Changes in working capital, net of effects
of acquisition/disposition . . . . . . . . . . . . . . . . . 37.5 (33.6)
Net change in other noncurrent assets and liabilities . . . . . 14.2 1.9
--------- --------
Net cash provided by operating activities . . . . . . . . . . 155.4 137.6
--------- --------
INVESTING ACTIVITIES:
Dispositions, net of cash sold . . . . . . . . . . . . . . . . . . 497.0 148.3
Acquisition, net of cash acquired . . . . . . . . . . . . . . . . (436.5) -
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (171.1) (131.1)
--------- --------
Net cash provided by (used in) investing activities . . . . . (110.6) 17.2
--------- --------
FINANCING ACTIVITIES:
Repayments of long-term and short-term debt . . . . . . . . . . . (550.6) (62.0)
Proceeds from short-term debt . . . . . . . . . . . . . . . . . . 375.0 -
Dividends paid on preferred stock . . . . . . . . . . . . . . . . (7.0) (7.0)
--------- --------
Net cash used in financing activities . . . . . . . . . . . . (182.6) (69.0)
--------- --------
Net increase (decrease) in cash and equivalents . . . . . . . . . . . . (137.8) 85.8
Cash and equivalents at beginning of year . . . . . . . . . . . . . . . 205.9 93.0
--------- --------
Cash and equivalents at end of period . . . . . . . . . . . . . . . . . $ 68.1 $ 178.8
========= ========
Supplemental Cash Flow Information:
Income tax payments . . . . . . . . . . . . . . . . . . . . . . . $ 57.9 $ 60.6
Interest paid, net of amounts capitalized . . . . . . . . . . . . $ 53.1 $ 56.9
The accompanying notes are an integral part of these financial statements.
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ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1. PRESENTATION
These unaudited interim condensed financial statements of Alumax Inc. ("Alumax"
or the "Company") should be read in conjunction with the audited financial
statements for the year ended December 31, 1995. In management's opinion, all
adjustments necessary for a fair presentation are reflected in the interim
periods presented.
NOTE 2. STRATEGIC TRANSACTIONS
The Company periodically implements strategic actions which it believes afford
it the opportunity to redeploy resources to enhance profitability and growth.
During the nine months ended September 30, 1996 and 1995, the following has
occurred:
Dispositions
On September 25, 1996, the Company sold certain Fabricated Products businesses
in Western Europe and in the United States for $246.6 in cash, net of cash sold
of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax
provision, in the third quarter of 1996.
In June 1996, the Company sold its investment in mining interests for $160 in
cash. The Company recorded an after-tax gain of $55.1, net of a $37.7 tax
provision, in the second quarter of 1996.
In January 1996, the Company sold a 23 percent undivided interest in its Mt.
Holly primary aluminum reduction facility for $89.3, which the Company applied
to the early retirement of a $90.7 promissory note due in May 1996. The
Company recorded an after-tax gain of $48.6, net of a $29.8 tax provision, in
the first quarter of 1996. This transaction reduced the Company's ownership in
the Mt. Holly facility to 50.33 percent.
In March 1995, the Company sold a 14 percent undivided interest in each of the
Company's Intalco and Eastalco primary aluminum reduction facilities for cash
proceeds of $147.6, resulting in an after-tax gain of $81.3, net of a $47.5 tax
provision, recorded in the first quarter of 1995. This transaction reduced the
Company's ownership in each facility to 61 percent.
Acquisition
On January 31, 1996, the Company purchased all of the common shares of
privately held Cressona Aluminum Company ("Cressona") for a cash cost,
including expenses, of $436.5, net of $3.1 of cash acquired. In conjunction
with the acquisition, liabilities of $87.4 were acquired. Cressona is a leading
manufacturer of extruded aluminum products.
The transaction has been accounted for as a purchase and the results of
operations of Cressona have been included in the consolidated financial
statements since January 31, 1996. The acquisition was financed with cash on
hand and $375 of borrowings obtained under available credit facilities. All of
these borrowings have been repaid as of September 30, 1996.
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ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated net
sales, net earnings, and primary earnings per common share for the quarters and
nine months ended September 30, 1996 and 1995, respectively, as if the
acquisition of Cressona and the sale of the Fabricated Products businesses
each occurred on January 1, 1996 and 1995. The pro forma adjustments for the
nine months ended September 30, 1996 include the addition of Cressona's
operating results for the month of January 1996. Since the acquisition
occurred on January 31, 1996, the Company's actual results include Cressona
from February 1, 1996 through September 30, 1996.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net sales . . . . . . . . . . . . . . . . . . . . . $ 686.2 $ 762.8 $ 2,134.1 $ 2,181.5
Net earnings . . . . . . . . . . . . . . . . . . . . $ 46.2 $ 44.3 $ 220.2 $ 201.3
Primary earnings per common share . . . . . . . . . $ 0.96 $ 0.93 $ 4.67 $ 4.30
The pro forma results are based upon certain assumptions and estimates, which
the Company believes are reasonable. The pro forma results do not purport to
be indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 or 1995, nor are they intended to be a
projection of future results.
NOTE 3. INVENTORIES
Components of inventories at September 30, 1996 and December 31, 1995 are:
1996 1995
------- --------
Raw materials . . . . . . . . . . . . . . . . . . . . . $ 323.6 $ 361.6
Work in process . . . . . . . . . . . . . . . . . . . . 99.1 105.9
Finished products . . . . . . . . . . . . . . . . . . . 101.4 90.8
------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 524.1 $ 558.3
======= ========
Approximately 77 percent and 72 percent of inventory at September 30, 1996 and
December 31, 1995, respectively, have been determined on the LIFO cost basis.
The excess of replacement cost over the LIFO basis of such inventory is
approximately $62.6 and $101.2 at September 30, 1996 and December 31, 1995,
respectively.
NOTE 4. INCOME TAX PROVISION
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
Federal . . . . . . . . . . . . . . . . . . . . . . $ 36.3 $ 28.1 $ 111.6 $ 92.4
Foreign . . . . . . . . . . . . . . . . . . . . . . 7.4 (1.5) 35.0 5.7
State . . . . . . . . . . . . . . . . . . . . . . . 2.3 4.1 12.3 10.7
-------- ------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . $ 46.0 $ 30.7 $ 158.9 $ 108.8
======== ======= ======== ========
The effective tax rates for these periods differ from statutory rates because
of provisions for prior years and provisions for state and foreign taxes.
In the three months ended September 30, 1996, the repatriation of foreign
earnings associated with the sale of certain Fabricated Products businesses in
Western Europe also contributed to an effective tax rate higher than the
statutory rate. In the three months ended March 31, 1995, the
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ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Company also reversed a $13.4 federal income tax asset valuation allowance in
anticipation of utilization of the asset due to the significant level of 1995
first quarter earnings.
NOTE 5. OTHER INCOME
The nine months ended September 30, 1996 and 1995 include $18.7 and $7.9,
respectively, of dividend income received from investments in mining
operations.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company and its affiliates have been named as defendants in lawsuits in
various matters relating to both current and former operations. In addition,
the Company and certain of its subsidiaries have been named as defendants in
lawsuits or as potentially responsible parties in state and federal
administrative and judicial proceedings seeking contribution for costs
associated with the investigation, analysis, correction and remediation of
environmental conditions at various hazardous waste disposal sites. The
Company continues to monitor these actions and proceedings and to vigorously
defend both its own interests as well as the interests of its affiliates.
The Company's ultimate liability in connection with present and future
environmental claims will depend on many factors, including its volumetric
share of the waste at a given site, the remedial action required, the total
cost of remediation, and the financial viability and participation of the other
entities involved with the site. Once it becomes probable that the Company
will incur costs in connection with remediation of a site and such costs can be
reasonably estimated, the Company establishes or adjusts its reserve for its
projected share of these costs. Based upon current law and information known
to the Company concerning the size of the sites known to it, anticipated costs,
their years of operation and the number of other potentially responsible
parties, Management believes that it has adequate reserves for the Company's
potential share of the estimated aggregate liability for the costs of remedial
actions and related costs and expenses. In addition, the Company establishes
reserves for remedial measures required from time to time at its own
facilities. The Company's environmental reserves totalled $27.2 and $22.8 at
September 30, 1996, and December 31, 1995 ($27.2 with the inclusion of
Cressona), respectively. Management believes that the reasonably probable
outcomes of these matters will not materially exceed established reserves.
Although the Company believes it has coverage for some environmental claims
under certain insurance policies, insurance recoveries are not considered in
estimating the Company's share of remediation costs at a site unless an
insurance carrier has agreed to pay a portion of such costs. Insurance
recoveries were not considered in establishing reserves for any of these sites
absent an agreement between the carriers and the Company.
On September 30, 1996, the Company, through its subsidiary Alumax Mill
Products, Inc., exercised its option to purchase its leased Texarkana rolling
mill facility in November 1997 for approximately $97 in cash.
The Internal Revenue Service (the "IRS") has asserted that Alumax and certain
of its subsidiaries were improperly included in the 1984, 1985 and 1986
consolidated income tax returns of AMAX Inc. and on that basis has asserted a
federal income tax deficiency against Alumax of approximately $129. Interest
on the deficiency through September 30, 1996, would be approximately $265. In
response to the IRS' notice of deficiency, the Company filed a petition in the
United States Tax Court (the "Court") seeking a redetermination in respect of
the purported deficiency. The parties have waived their rights to a trial and
the matter has been submitted to the Court for decision based upon the
pleadings, stipulations, memoranda and other documents submitted, or to be
submitted, to the Court by the parties. Payment of the deficiency with
interest thereon would provide certain tax benefits to the Company that would
offset in part the cost of paying the deficiency and interest. The Company
believes that it has adequate reserves so that any unprovided for net
deficiency would not have a material adverse
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ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONCLUDED)
effect on the Company's financial condition. For information regarding
additional commitments and contingencies, see Note 12 to the Financial
Statements in the Company's 1995 Annual Report on Form 10-K.
NOTE 7. STOCKHOLDER RIGHTS AGREEMENT
On February 22, 1996, the Executive Committee of the Board of Directors of the
Company declared a dividend distribution of one right (a "Right") for each
outstanding share of the Company's Common Stock, par value $0.01 per share (the
"Common Stock"), held of record at the close of business on February 22, 1996.
The Rights attach automatically to each share of Common Stock outstanding as of
February 22, 1996, and to each share of Common Stock issued after February 22,
1996.
Each Right entitles the holder to purchase from the Company one one-hundredth
of a share of the Company's Participating Preferred Stock at an exercise price
of $130, subject to certain adjustments. The Rights will not be exercisable or
transferable apart from the Common Stock until either the tenth business day
after the announcement by a person or group of the commencement of a tender or
exchange offer for 15 percent or more of the Voting Stock or the first date of
announcement by the Company that a person or group has acquired beneficial
ownership of 15 percent or more of the Voting Stock (an "Acquiring Person").
"Voting Stock" means shares of capital stock of the Company entitled to vote
generally in the election of directors. If the Company is consolidated or
merged with another company or 50 percent or more of its consolidated assets or
earning power are sold and, at the time, an Acquiring Person controls the
Company's Board of Directors, each holder of a Right will have the right to
receive, upon exercise at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which have a market
value of twice the then current exercise price of the Right. If any person
becomes an Acquiring Person, each holder of a Right other than the Acquiring
Person (whose Rights will be void) will have the right to receive, upon
exercise at the then current exercise price of the Right, that number of shares
of Common Stock having a market value of twice the exercise price of the Right.
The Rights will expire on February 22, 2006 and may be redeemed for $.01 per
Right at any time prior to the time an Acquiring Person becomes such. Until a
Right is exercised, the record holder will have no rights as a stockholder of
the Company.
After the announcement that an Acquiring Person has become such and prior to
the acquisition by an Acquiring Person of 50 percent or more of the outstanding
Voting Stock, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such Acquiring Person) at an exchange ratio of one
share of Common Stock, or one one-hundredth of a share of the Company's
Participating Preferred Stock, per Right, subject to adjustment.
The Company's Board of Directors may amend the Rights Agreement, in any
respect, until the time an Acquiring Person becomes such. Thereafter, the
Company's Board of Directors may amend the Rights Agreement in any respect not
materially adverse to Rights holders generally.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited; millions of dollars, except per
share and per tonne amounts)
INTRODUCTION
Net earnings totalled $52.4 and $230.9, or $1.10 and $4.91 per common share,
for the three and nine months ended September 30, 1996, respectively, compared
to net earnings of $43.0 and $192.6, or $.90 and $4.11 per common share, in the
comparable 1995 periods. The 1996 results include after-tax gains of $36.7
($0.81 per common share; $0.67 fully diluted) in the third quarter on the sale
of certain Fabricated Products business, $55.1 ($1.21 per common share; $0.99
fully diluted) in the second quarter on the sale of mining interests and $48.6
($1.07 per common share; $0.88 fully diluted) in the first quarter on the sale
of a 23 percent interest in the Mt. Holly primary aluminum reduction facility.
The 1995 results include a first quarter after-tax gain of $81.3 ($1.81 per
common share; $1.49 fully diluted) on the sale of a 14 percent interest in each
of the Intalco and Eastalco primary aluminum reduction facilities.
RESULTS OF OPERATIONS
Earnings from operations for the three and nine months ended September 30, 1996
totalled $44.4 and $183.8, respectively, compared to operating earnings of
$91.0 and $219.0 for the three and nine months ended September 30, 1995,
respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1996 1995 1996 1995
------- -------- --------- ---------
(unaudited)
NET SALES
Primary aluminum products . . . . . . . . . . . . . . $ 140.2 $ 208.0 $ 501.8 $ 509.7
Semi-fabricated products . . . . . . . . . . . . . . . 418.0 316.5 1,237.1 944.0
Fabricated products . . . . . . . . . . . . . . . . . 250.9 243.2 724.2 733.8
-------- -------- --------- ---------
$ 809.1 $ 767.7 $ 2,463.1 $ 2,187.5
======== ======== ========= =========
EARNINGS FROM OPERATIONS
Aluminum processing . . . . . . . . . . . . . . . . . $ 55.1 $ 98.9 $ 215.0 $ 243.4
Corporate . . . . . . . . . . . . . . . . . . . . . . (10.7) (7.9) (31.2) (24.4)
-------- -------- --------- ---------
$ 44.4 $ 91.0 $ 183.8 $ 219.0
======== ======== ========= =========
PRODUCTION AND SHIPMENTS (THOUSANDS OF TONNES)
Sources of metal
Primary aluminum production . . . . . . . . . . . . . 162.9 156.9 506.1 487.0
Aluminum purchases . . . . . . . . . . . . . . . . . . 107.7 89.4 337.3 271.9
-------- -------- --------- ---------
270.6 246.3 843.4 758.9
======== ======== ========= =========
Metal shipments
Aluminum processing (including tolling)
Primary aluminum products . . . . . . . . . . . . . . 78.7 111.3 285.9 301.7
Semi-fabricated products(1) . . . . . . . . . . . . . 147.6 102.2 429.0 319.7
Fabricated products(1) (2) . . . . . . . . . . . . . . 35.6 35.7 104.6 110.4
-------- -------- --------- ---------
261.9 249.2 819.5 731.8
======== ======== ========= =========
(1) Net sales and shipments for the Company's Magnolia operation have been
reclassified from fabricated products to semi-fabricated products.
Magnolia manufactures shower and tub enclosures, stadium seating, and
other extruded products.
(2) Included in Fabricated products' metal shipments for the three and
nine months ended September 30, 1996, are billet shipments of 4.7 and
15.5 thousand tonnes, respectively, compared to 6.6 and 20.9 thousand
tonnes in the same 1995 periods.
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NET SALES AND SHIPMENTS
The Company generated quarterly sales of $809.1 on aluminum shipments of
261,900 tonnes in the third quarter of 1996 compared with sales of $767.7 on
aluminum shipments of 249,200 tonnes in the third quarter of 1995. For the
first nine months of 1996, the Company generated record sales of $2,463.1 on
record aluminum shipments of 819,500 tonnes, compared with sales of $2,187.5 on
aluminum shipments of 731,800 tonnes in the first nine months of 1995. As
further described below, increases in net sales are a result of a growth in
total shipments partially offset by lower realized selling prices.
The London Metals Exchange (the "LME") cash price averaged $1,440 and $1,530
per tonne during the three and nine months ended September 30, 1996, compared
to $1,840 and $1,850 per tonne in the same 1995 periods. The Company's net
sales are sensitive to changes in the world pricing of primary aluminum. This
price sensitivity impacts substantially all of the Company's products to
varying degrees, with less impact on the more specialized and value-added
products. As previously disclosed, during the first half of 1995, the Company
settled forward sales contracts on 110,000 tonnes entered into in late 1993 at
then prevailing market prices. The Company had not purchased call options to
cover these forward sales. Purchase of call options in late 1993 to cover
these forward sales would have favorably impacted the 1995 first half earnings
from operations by approximately $82.
The Company's shipments increased 5 percent and 12 percent in the three and
nine months ended September 30, 1996, respectively, as compared to the same
periods in 1995. The increases are substantially related to the Company's
primary and semi-fabricated extrusions operations. The January 31, 1996
acquisition of Cressona Aluminum Company ("Cressona") more than doubled the
capacity of the Company's extrusions business, creating the largest extrusions
company in the United States. These increases have been partially offset by a
decrease in external primary shipments, resulting from increased demand from
downstream operations.
COST AND EXPENSES
The Company's cost and expenses were $764.7 and $2,279.3 for the three and nine
months ended September 30, 1996, respectively, compared with cost and expenses
of $676.7 and $1,968.5 for the three and nine months ended September 30, 1995,
respectively. The increase is largely attributable to higher volumes combined
with increased raw material costs.
OTHER ITEMS AFFECTING NET EARNINGS
Other Income (Expense), Net
Other income, net for the three and nine months ended September 30, 1996 was
($1.9) and $13.0, respectively, compared with ($2.2) and $5.6 over the same
periods in 1995. The nine months ended September 30, 1996 and 1995 include
$18.7 and $7.9, respectively, of dividend income received from investments in
mining operations.
Interest Expense, Net
Gross interest expense of $18.2 and $58.6 for the three and nine months ended
September 30, 1996, respectively, decreased from $19.3 and $62.8 in the same
1995 periods as a result of lower average interest rates for the third quarter
and lower average borrowings year-to-date. Interest income was $0.6 and $3.0
for the three and nine months ended September 30, 1996 as compared to $2.6 and
$7.8 in the same 1995 periods. Capitalized interest was $1.8 and $5.7 for the
three and nine months ended September 30, 1996 as compared to $2.4 and $3.0 in
the same 1995 periods.
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Income Taxes
The income tax provision for the three and nine months ended September 30, 1996
was $46.0 and $158.9, respectively, compared to $30.7 and $108.8 for the same
1995 periods. The effective tax rates for these periods differ from statutory
rates because of provisions for prior years and provisions for state and
foreign taxes. In the three months ended September 30, 1996, the
repatriation of foreign earnings associated with the sale of certain
Fabricated Products businesses in Western Europe also contributed to an
effective tax rate higher than the statutory rate. In the three months
ended March 31, 1995, the Company also reversed a $13.4 federal income tax
asset valuation allowance in anticipation of utilization of the asset due to
the significant level of 1995 first quarter earnings.
STRATEGIC TRANSACTIONS
The Company periodically implements strategic actions which it believes afford
it the opportunity to redeploy resources to enhance profitability and growth.
During the nine months ended September 30, 1996 and 1995, the following has
occurred:
Dispositions
On September 25, 1996, the Company sold certain Fabricated Products businesses
in Western Europe and in the United States for $246.6 in cash, net of cash sold
of $5.4. The Company recorded an after-tax gain of $36.7 net of a $35.0 tax
provision, in the third quarter of 1996.
In June 1996, the Company sold its investment in mining interests for $160 in
cash. The Company recorded an after-tax gain of $55.1, net of a $37.7 tax
provision, in the second quarter of 1996.
In January 1996, the Company sold a 23 percent undivided interest in its Mt.
Holly primary aluminum reduction facility for $89.3, which the Company applied
to the early retirement of a $90.7 promissory note due in May 1996. The
Company recorded an after-tax gain of $48.6, net of a $29.8 tax provision, in
the first quarter of 1996. This transaction reduced the Company's ownership in
the Mt. Holly facility to 50.33 percent.
In March 1995, the Company sold a 14 percent undivided interest in each of the
Company's Intalco and Eastalco primary aluminum reduction facilities for cash
proceeds of $147.6, resulting in an after-tax gain of $81.3, net of a $47.5 tax
provision, recorded in the first quarter of 1995. This transaction reduced the
Company's ownership in each facility to 61 percent.
Acquisition
On January 31, 1996, the Company purchased all of the common shares of
privately held Cressona for a cash cost, including expenses, of $436.5, net of
$3.1 of cash acquired. In conjunction with the acquisition, liabilities of
$87.4 were acquired. Cressona is a leading manufacturer of extruded aluminum
products.
The transaction has been accounted for as a purchase and the results of
operations of Cressona have been included in the consolidated financial
statements since January 31, 1996. The acquisition was financed with cash on
hand and $375 of borrowings obtained under available credit facilities. All of
these borrowings have been repaid as of September 30, 1996.
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated net
sales, net earnings, and primary earnings per common share for the quarters and
nine months ended September 30, 1996 and 1995, respectively, as if the
acquisition of Cressona and the sale of the Fabricated Products businesses
each occurred on January 1, 1996 and 1995. The pro forma adjustments for the
nine months ended September 30, 1996 include the addition of Cressona's
operating results for the month of January 1996. Since the acquisition
occurred on January 31, 1996, the Company's actual results include Cressona
from February 1, 1996 through September 30, 1996.
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Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- ---------
Net sales . . . . . . . . . . . . . . . . . . . . . $ 686.2 $ 762.8 $ 2,134.1 $ 2,181.5
Net earnings . . . . . . . . . . . . . . . . . . . . $ 46.2 $ 44.3 $ 220.2 $ 201.3
Primary earnings per common share . . . . . . . . . $ 0.96 $ 0.93 $ 4.67 $ 4.30
The pro forma results are based upon certain assumptions and estimates, which
the Company believes are reasonable. The pro forma results do not purport to
be indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 or 1995, nor are they intended to be a
projection of future results.
The Company is currently in negotiations with Eduard Hueck GmbH & Co. KG
("Hueck") regarding the possible acquisition of privately held Hueck. Hueck is
based in Ludenscheid, Germany and is a leading manufacturer of aluminum
architectural products in Europe, with annual sales of approximately $230. The
negotiations are ongoing and any transaction is dependent upon the execution of
a mutually satisfactory definitive agreement, receipt of required governmental
and regulatory approvals, and the approvals of the board of directors of Alumax
and all selling parties.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Operations provided $155.4 and $137.6 of cash during the first nine months of
1996 and 1995, respectively. Higher cash flows are directly related to working
capital reductions (net of effects of the Cressona acquisition and the sale of
Fabricated Products) partially offset by lower earnings from operations.
Investing Activities
Cash used by investing activities was $110.6 for the nine months ended
September 30, 1996 compared to $17.2 of cash provided in the first nine months
of 1995. As described under "Strategic Transactions", the Company received net
cash of $60.5, in connection with strategic transactions during the first nine
months of 1996. In addition, during the second quarter of 1996, the Company
entered into a joint venture with Yunnan Aluminum Processing Factory in
Kunming, China for the annual production of 8,000 to 10,000 tonnes of light
gauge aluminum foil. Alumax will invest $38 of cash in the joint venture to
develop a continuous cast foil operation. As of September 30, 1996, the
Company has invested $4.0 in cash.
In the first quarter of 1995, the Company received $147.6 from the sale of a 14
percent interest in each of the Intalco and Eastalco primary aluminum reduction
facilities. Capital expenditures were $171.1 during the first nine months of
1996 compared to $131.1 in the first nine months of 1995.
On September 30, 1996, the Company, through its subsidiary Alumax Mill
Products, Inc., exercised an option to purchase its leased Texarkana rolling
mill facility in November 1997 for approximately $97 in cash.
Financing Activities
Cash used by financing activities was $182.6 and $69.0 in the first nine months
of 1996 and 1995, respectively. The Company borrowed $375 under available
credit facilities in January 1996 to finance the acquisition of Cressona.
During the first nine months of 1996, all of the Cressona acquisition borrowings
were repaid. Total debt repayments of $550.6 in the first nine months of 1996
also included the early retirements of $39.3 of Cressona debt acquired and a
$90.7 promissory note due in May 1996. At September 30, 1996, the Company's
total debt to capital ratio was 30.4 percent, down from 42.3 percent in the
first quarter, which is attributable to the aforementioned debt reduction
combined with a year-to-date increase in stockholders' equity of $230.6, a 16
percent stockholders' equity increase from December 31, 1995. (See Note 8 to
the Financial Statements in the Company's 1995 Annual Report on Form 10-K).
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Also, $7.0 in dividends were paid to holders of Alumax $4.00 Series A
Convertible Preferred Stock in the first nine months of both 1996 and 1995. In
April 1996, the Company withdrew its shelf registration with the Securities and
Exchange Commission covering the issuance of up to 9.2 million shares of common
stock (see Note 13 to the Financial Statements in the Company's 1995 Annual
Report on Form 10-K).
On November 4, 1996, the Company announced that it will redeem all outstanding
shares of the $4.00 Series A Convertible Preferred Stock ("Preferred Stock"),
par value $1.00 per share, on December 18, 1996. Each share of the Preferred
Stock will be redeemed at a price of $52.40 per share, plus an amount equal to
the quarterly dividend accrued on each share through the redemption date. As
an alternative to redemption, each share of the Preferred Stock may be
converted at the option of the holder into 4.11489 shares of the Company's
common stock until the close of business on December 4, 1996.
Based on the current market price of Alumax common stock, the Company expects
all holders to convert the Preferred Stock into Alumax common stock prior to
the close of business on December 4, 1996. As of September 30, 1996,
approximately 2.3 million shares of the Preferred Stock were outstanding, which
were convertible into 9.6 million common shares.
Risk Management
The Company utilizes certain financial instruments in connection with its risk
management. The risk of loss related to counterparty nonperformance under
financial instrument agreements at September 30, 1996 is not significant.
The Company enters into forward fixed price arrangements that are required by
certain customers and suppliers. The Company may utilize futures contracts
which effectively convert forward fixed price arrangements to market prices in
order to meet overall strategic objectives. Such contracts covered
approximately 105,600 tonnes at September 30, 1996 and mature at various dates
through 1999. Gains or losses with respect to these positions are reflected in
earnings concurrently with consummation of the underlying fixed price
transaction. Periodic value fluctuations of the futures contracts
approximately offset the value fluctuations of the underlying fixed price
transactions.
The Company also may, from time to time, establish a floor selling price for
varying quantities of future production, while preserving the opportunity to
participate in upward price movements. This may be accomplished by purchasing
put options, or by entering into forward sales of primary aluminum and
purchases of call options, which together provide the same price protection as
purchasing put options, in a manner which correlates with the Company's
production and sales of primary aluminum. The strategy may be modified from
time to time. At September 30, 1996, the Company's commitments with respect to
these financial instruments covered 334,875 tonnes of future production. The
Company would have received $9.7 to terminate these contracts at September 30,
1996.
Certain of the Company's foreign operating expenditures are denominated in
currencies other than the operations' functional currencies, which expose the
Company to exchange rate risks. In order to mitigate its exposure to exchange
rate risk where these conditions exist, the Company may utilize forward foreign
currency contracts. At September 30, 1996, the Company had outstanding $127.0
in forward foreign currency contracts which mature during the remainder of 1996
and 1997. The gains or losses related to these contracts are deferred and
included in the measurement of the related foreign currency denominated
transactions. If these contracts had been terminated at September 30, 1996,
the Company would have received approximately $0.9.
The Company's debt instruments and related interest rate hedges are susceptible
to market fluctuations based on changes in the cost of borrowing. At September
30, 1996, the fair value of total debt approximated book value. The Lauralco
credit facility, which has a variable interest rate, required the Company to
establish facilities to effectively limit the interest rate exposure of the
commitment. To meet this requirement, the Company has obtained interest rate
swaps with a notional amount of $400 through October 26, 2000 and a series of
interest rate caps having notional amounts of $75 and $150 through October 28,
1996 and October 29, 1998,
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respectively, which decline with projected loan balances. The Company would
have paid approximately $39.3 to terminate these agreements at September 30,
1996.
For further information regarding the Company's risk management, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 20 to the Financial Statements in the Company's 1995 Annual
Report on Form 10-K.
Income Taxes
The Internal Revenue Service (the "IRS") has asserted that Alumax and certain
of its subsidiaries were improperly included in the 1984, 1985 and 1986
consolidated income tax returns of AMAX Inc. and on that basis has asserted a
federal income tax deficiency against Alumax of approximately $129. Interest
on the deficiency through September 30, 1996, would be approximately $265. In
response to the IRS' notice of deficiency, the Company filed a petition in the
United States Tax Court (the "Court") seeking a redetermination in respect of
the purported deficiency. The parties have waived their rights to a trial and
the matter has been submitted to the Court for decision based upon the
pleadings, stipulations, memoranda and other documents submitted, or to be
submitted, to the Court by the parties. Payment of the deficiency with
interest thereon would provide certain tax benefits to the Company that would
offset in part the cost of paying the deficiency and interest. The Company
believes that it has adequate reserves so that any unprovided for net
deficiency would not have a material adverse effect on the Company's financial
condition.
Environmental Matters
The Company has been named as a defendant or identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws by governmental agencies
and private parties at 39 pending waste disposal sites which, in most
instances, were owned and operated by third parties. Management periodically
evaluates such matters and records or adjusts liability reserves for
remediation and other costs and potential damages when expenditures are
considered probable and can be reasonably estimated.
The Company's ultimate liability in connection with present and future
environmental claims will depend on many factors, including its volumetric
share of the waste at a given site, the remedial action required, the total
cost of remediation and the financial viability and participation of the other
entities involved with the site. Based upon current law and information known
to the Company concerning the size of the sites known to it, anticipated costs,
their years of operation, and the number of other potentially responsible
parties, management believes that it has adequate reserves for the Company's
probable share of the estimated aggregate liability for the costs of remedial
actions and related costs and expenses and that such liability and related
costs and expenses should not have a material adverse effect on the financial
condition or results of operations of the Company. In addition, the Company
establishes reserves for remedial measures required from time to time at its
own facilities. Any expenditures for remediation programs it may be required
to undertake, either individually or in the aggregate, are not expected to have
a material adverse effect on the financial condition or results of operations
of the Company. The Company's environmental reserves totaled $27.2 at
September 30, 1996 and $22.8 at December 31, 1995 ($27.2 with the inclusion of
Cressona).
Management does not anticipate that commitments, operating expenses or capital
expenditures for environmental compliance through and including the next fiscal
year will have a material adverse effect on the Company's financial condition
or results of operations. Based on historical trends toward stricter
environmental standards, however, it appears likely that the Company will incur
additional expenditures to remain in compliance with federal and state
environmental laws.
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Part II. Other Information
Item 1. Legal Proceedings
STRINGFELLOW
In 1983, the United States and the State of California commenced an action
under CERCLA in the United States District Court for the Central District of
California against the Company and 30 other potentially responsible parties in
connection with the Stringfellow disposal site located at Glen Avon,
California. In a proceeding in the United States District Court for the
Central District of California, it was determined that both the defendants and
the State of California are responsible for certain costs associated with the
cleanup of the Stringfellow site. The issue of the allocation of liability
among the defendants and the State was tried before a Special Master who filed
his Findings of Fact, Conclusions of Law and Report and Recommendation of the
Special Master Regarding the State Share Fact Finding Hearing on November 30,
1993. On January 23, 1995, the United States District Court entered an order
adopting the findings, conclusions and recommendations of the Special Master
with certain modifications, which do not adversely impact the Company. The
order allocates liability on the basis of two different legal claims, each of
which has a different legal standard of apportionment. As to CERCLA claims,
the order allocates liability as follows: 65 percent to the State, ten percent
to Stringfellow Quarry Company and 25 percent to all other parties (including
the Company). As to the claims asserted against the State under state law
theories such as negligence and breach of a mandatory duty, the order allocates
100 percent of the liability to the State. Reconsideration or appellate review
of the order may be sought by one or more of the parties and the State may
assert protection of the Eleventh Amendment to the United States Constitution,
which limits suits against states in federal courts.
On March 27, 1996, the United States Supreme Court issued its decision in
Seminole Tribe of Florida v. Florida, which reversed an earlier Supreme Court
decision that had held that Congress had the authority to abrogate protections
of the Eleventh Amendment barring certain suits against states in federal
courts, including under CERCLA. On July 16, 1996, the State of California
filed a motion for reconsideration of the District Court's liability rulings
against the State, based upon the Seminole Tribe decision. In that motion, the
State contends that the Eleventh Amendment is a jurisdictional bar which cannot
be waived through conduct in litigation and that the State has not expressly
waived its Eleventh Amendment immunity. Consequently, the State argues that
the liability rulings against the State must be reversed or the defendants'
counterclaims limited to defensive recoupment. The defendants filed an
opposition to that motion on August 2, 1996, which maintains that Seminole
Tribe does not alter prior law by recognizing the Eleventh Amendment as a
jurisdictional bar nor does the case address the doctrine of defensive
recoupment. The opposition also asserts that Seminole Tribe does not affect
the question of waiver of Eleventh Amendment immunity by conduct in litigation
or the District Court's prior finding that the State waived its Eleventh
Amendment immunity through its conduct of the lawsuit. The parties are
scheduled to present oral argument to the Special Master on the State's motion
on November 13, 1996. Oral argument to the Special Master also has been
scheduled for the same date on the defendants' motion that CERCLA liability
cannot be imposed on them retroactively, and on the United States' and the
defendants' joint motion for entry of a judgment which will permit the parties
to appeal rulings in the case to the United States Court of Appeals for the
Ninth Circuit. After hearing argument on such motions, the Special Master will
submit his recommendations to the District Court for rulings.
Based on the present circumstances, the Company does not believe that any
liability imposed in connection with the Stringfellow site will have a material
adverse effect on the Company's financial condition or results of operations
given the nature and extent of its involvement at the site and available
reserves. See "Legal Proceedings-- Stringfellow" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
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HAMMONS V. ALCAN, ET AL.
Alumax and four other producers of primary aluminum, together with The Aluminum
Association, an industry trade association, were served with a summons and
complaint in March 1996, alleging violations of California's State antitrust
act (the Cartwright Act). The suit was originally filed in the Superior Court
for Los Angeles County, but was removed by the defendants to the United States
District Court for the Central District of California. Plaintiff alleges that
the defendants conspired, together with the United States Government and the
governments of several other sovereign nations, to fix the prices of primary
aluminum by agreeing to reduce production. The allegations arise from the
Memorandum of Understanding Concerning the Aluminum Market ("MOU") negotiated
by the United States and other governments in 1993 and 1994, and executed by
them in Brussels in 1994, and the actions of the defendants alleged to have
been undertaken in accordance with the terms of the MOU.
The complaint was brought by a California bicycle manufacturer as a purported
class action on behalf of all direct and indirect purchasers of primary
aluminum and aluminum products produced during the period January 1, 1994 to
March 5, 1996. The complaint seeks injunctive relief and recovery of damages
that, when trebled, are alleged to be in excess of $26 billion. Following
removal of the action to the District Court, the defendants filed a motion to
dismiss. Upon considering that motion, plaintiff's opposition and the
defendants' reply, the court by order dated May 28, 1996, converted the motion
to dismiss to a motion for summary judgment by the defendant-aluminum
producers. In the same order, the court granted The Aluminum Association's
motion to dismiss for lack of personal jurisdiction. Following the filing of
briefs in support and in opposition to summary judgment, the court granted
summary judgment in favor of the defendant-aluminum producers and dismissed the
complaint with prejudice by order dated July 1, 1996. The court denied
plaintiff's subsequent motion for reconsideration by order entered on July 16,
1996.
On July 17, 1996, the plaintiff filed a notice of appeal to the United States
Court of Appeals for the Ninth Circuit from the United States District Court's
orders granting The Aluminum Association's motion to dismiss and the aluminum
producers' motion for summary judgment and the order denying the plaintiff's
motion for reconsideration. Plaintiff's appeal to the United States Court of
Appeals is currently in the process of being briefed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
3.01 Alumax Inc. Restated By-Laws (as amended on September 5, 1996).
10.01 Agreement, dated as of June 28, 1996, by and between Minas Penoles, S.A. de C.V. and
The Fresnillo Company.
11.01 Calculation of Earnings per Common Share.
27.01 Financial Data Schedule. (for SEC use only)
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(b) Information concerning the Current Report on Form 8-K filed by the
Company during the quarter ended September 30, 1996 is presented below.
Date of Report Matters Reported
- -------------- ----------------
September 25, 1996 The Company reported the sale on September 25, 1996 of certain of its
fabricated products businesses in Western Europe and the United States to
Euramax International, Ltd. (Items 2 and 7). In addition, the Company and
Eduard Hueck GmbH & Co. KG ("Hueck") announced on October 10, 1996 that they
have entered into negotiations regarding the possible acquisition of Hueck by
the Company (Item 5).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alumax Inc.
By /s/ Helen M. Feeney
---------------------------------------
Helen M. Feeney
Vice President and
Corporate Secretary
By /s/ Michael T. Vollkommer
---------------------------------------
Michael T. Vollkommer
Vice President and Controller
Date: November 12, 1996
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.01 Alumax Inc. Restated By-Laws (as amended on September 5, 1996).
10.01 Agreement, dated as of June 28, 1996, by and between Minas Penoles, S.A. de C.V.
and The Fresnillo Company.
11.01 Calculation of Earnings per Common Share.
27.01 Financial Data Schedule. (for SEC use only)
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