10-Q 1 0001.txt FORM 10-Q ================================================================================ 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, 2000 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 No. 0-25642 COMMONWEALTH INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 13-3245741 (State of incorporation) (I.R.S. Employer Identification No.) 500 West Jefferson Street 19th Floor Louisville, Kentucky 40202-2823 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502) 589-8100 ---------- 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 proceeding 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 ____ The registrant had 16,528,051 shares of common stock outstanding at November 2, 2000. ================================================================================ COMMONWEALTH INDUSTRIES, INC. FORM 10-Q For the Quarter Ended September 30, 2000 INDEX Part I - Financial Information Item 1. Financial Statements (unaudited) Page Number ----------- Condensed Consolidated Balance Sheet as of September 30, 2000 and December 31, 1999 3 Condensed Consolidated Statement of Income for the three months and nine months ended September 30, 2000 and 1999 4 Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6-15 Item 2. Management's Discussion and Analysis of Financial Condition 16-18 and Results of Operations Part II - Other Information Item 1. Legal Proceedings 19 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 COMMONWEALTH INDUSTRIES, INC. Condensed Consolidated Balance Sheet (in thousands except share data)
September 30, December 31, 2000 1999 -------------- ------------- Assets Current assets: Cash and cash equivalents $ 5,337 $ - Accounts receivable, net 153 118 Inventories 177,393 207,413 Prepayments and other current assets 68,743 53,821 -------------- ------------- Total current assets 251,626 261,352 Property, plant and equipment, net 267,312 275,531 Goodwill, net 161,253 164,610 Other noncurrent assets 3,801 4,829 -------------- ------------- Total assets $ 683,992 $ 706,322 ============== ============= Liabilities Current liabilities: Outstanding checks in excess of deposits $ - $ 1,188 Accounts payable 81,666 97,937 Accrued liabilities 34,264 39,160 -------------- ------------- Total current liabilities 115,930 138,285 Long-term debt 125,000 125,000 Other long-term liabilities 8,080 8,412 Accrued pension benefits 8,982 12,482 Accrued postretirement benefits 82,250 85,467 -------------- ------------- Total liabilities 340,242 369,646 -------------- ------------- Commitments and contingencies - - Stockholders' Equity Common stock, $0.01 par value, 50,000,000 shares authorized, 16,528,051and 16,606,000 shares outstanding at September 30, 2000 and December 31, 1999, respectively 165 166 Additional paid-in capital 408,505 409,062 Accumulated deficit (56,320) (61,866) Unearned compensation (18) (175) Notes receivable from sale of common stock (8,582) (10,511) -------------- ------------- Total stockholders' equity 343,750 336,676 -------------- ------------- Total liabilities and stockholders' equity $ 683,992 $ 706,322 ============== ============= See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC. Condensed Consolidated Statement of Income (in thousands except per share data)
Three months ended Nine months ended September 30, September 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 ------------ ------------- ------------ ------------ Net sales $ 268,145 $ 275,083 $ 877,121 $ 785,358 Cost of goods sold 250,463 256,729 811,197 718,935 ------------ ------------- ------------ ------------ Gross profit 17,682 18,354 65,924 66,423 Selling, general and administrative expenses 10,702 13,007 39,146 37,982 Amortization of goodwill 1,119 1,119 3,357 3,357 ------------ ------------- ------------ ------------ Operating income 5,861 4,228 23,421 25,084 Other income (expense), net 346 278 1,011 731 Interest expense, net (4,921) (4,663) (15,499) (14,708) ------------ ------------- ------------ ------------ Income (loss) before income taxes 1,286 (157) 8,933 11,107 Income tax expense (benefit) (1,088) (1,039) 900 1,488 ------------ ------------- ------------ ------------ Net income $ 2,374 $ 882 $ 8,033 $ 9,619 ============ ============= ============ ============ Basic and diluted net income per share $ 0.14 $ 0.05 $ 0.48 $ 0.60 ============ ============= ============ ============ Weighted average shares outstanding Basic 16,528 16,373 16,580 16,092 Diluted 16,528 16,471 16,589 16,148 Dividends paid per share $ 0.05 $ 0.05 $ 0.15 $ 0.15 See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC. Condensed Consolidated Statement of Cash Flows (in thousands)
Nine months ended September 30, ------------------------------------- 2000 1999 ------------ ------------- Cash flows from operating activities: Net income $ 8,033 $ 9,619 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 29,465 26,619 Loss on disposal of property, plant and equipment 1,245 7 Issuance of common stock in connection with stock awards 121 44 Changes in assets and liabilities: (Increase) in accounts receivable, net (35) (321) Decrease (increase) in inventories 30,020 (1,058) (Increase) in prepayments and other current assets (14,922) (47,054) Decrease (increase) in other noncurrent assets 128 (85) (Decrease) increase in accounts payable (16,271) 29,822 (Decrease) increase in accrued liabilities (4,896) 8,005 (Decrease) increase in other liabilities (7,049) 581 ------------ ------------- Net cash provided by operating activities 25,839 26,179 ------------ ------------- Cash flows from investing activities: Purchases of property, plant and equipment (18,257) (27,441) Proceeds from sale of property, plant and equipment 4 7 ------------ ------------- Net cash (used in) investing activities (18,253) (27,434) ------------ ------------- Cash flows from financing activities: (Decrease) increase in outstanding checks in excess of deposits (1,188) 3,674 Proceeds from long-term debt 48,800 43,800 Repayments of long-term debt (48,800) 43,800) Repayments of notes receivable from sale of common stock 1,426 - Cash dividends paid (2,487) (2,425) ------------ ------------- Net cash (used in) provided by financing activities (2,249) 1,249 ------------ ------------- Net increase (decrease) in cash and cash equivalents 5,337 (6) Cash and cash equivalents at beginning of period - 6 ------------ ------------- Cash and cash equivalents at end of period $ 5,337 $ - ============ ============= Supplemental disclosures: Interest paid $12,829 $ 11,397 Income taxes paid 917 2,338 Non-cash activities: Issuance of common stock for notes receivable - 10,511 Repayment of notes receivable from sale of common stock with common stock and subsequent retirement of common stock 503 - See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC. Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures normally required by generally accepted accounting principles. The condensed consolidated financial statements have been prepared in accordance with Commonwealth Industries, Inc.'s (the "Company's") customary accounting practices and have not been audited. In the opinion of management, all adjustments necessary to fairly present the results of operations for the reporting interim periods have been made and were of a normal recurring nature. 2. Inventories The Company uses the last-in, first-out (LIFO), first-in, first-out (FIFO) and average-cost accounting methods for valuing its inventories. (in thousands) September 30, 2000 December 31, 1999 -------------- ------------------ ----------------- Raw materials $ 58,816 $ 63,510 Work in process 68,076 80,210 Finished goods 51,029 62,278 Expendable parts and supplies 16,248 15,895 --------- --------- 194,169 221,893 LIFO reserve (16,776) (14,480) --------- --------- $ 177,393 $ 207,413 ========= ========= Inventories of approximately $157.2 million and $183.3 million, included in the above totals (before the LIFO reserve) at September 30, 2000 and December 31, 1999, respectively, are accounted for under the LIFO method of accounting while the remainder of the inventories are accounted for under the FIFO and average-cost methods. On September 30, 2000, the Company had no deferred realized gains or losses on closed futures contracts which would have been recorded as a decrease or increase to the carrying value of inventory. The Company had deferred realized losses of $0.7 million at December 31, 1999. 3. Provision for Income Taxes The Company recognized an income tax benefit of $1.1 million and an income tax expense of $0.9 million for the three months and nine months ended September 30, 2000, respectively, compared to an income tax benefit of $1.0 million and an income tax expense of $1.5 million for the three months and nine months ended September 30, 1999, respectively. 4. Net Income Per Share Computations The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations:
Three months ended September 30, 2000 1999 ---- ---- Income (numerator) amounts used for basic and diluted per share computations: Net income $2,374 $882 ====== ==== Shares (denominator) used for basic per share computations: Weighted average shares of common stock outstanding 16,528 16,373 ====== ====== Shares (denominator) used for diluted per share computations: Weighted average shares of common stock outstanding 16,528 16,373 Plus: dilutive effect of stock options - 98 ------ ------ Adjusted weighted average shares 16,528 16,471 ====== ====== Net income per share data: Basic and diluted $0.14 $0.05 ===== =====
Nine months ended September 30, 2000 1999 ---- ---- Income (numerator) amounts used for basic and diluted per share computations: Net income $ 8,033 $ 9,619 ======= ======= Shares (denominator) used for basic per share computations: Weighted average shares of common stock outstanding 16,580 16,092 ====== ====== Shares (denominator) used for diluted per share computations: Weighted average shares of common stock outstanding 16,580 16,092 Plus: dilutive effect of stock options 9 56 ------ ------ Adjusted weighted average shares 16,589 16,148 ====== ====== Net income per share data: Basic and diluted $0.48 $0.60 ===== ===== Options to purchase 939,500 and 934,500 common shares for the three months and nine months ended September 30, 2000, respectively, and 274,000 and 529,500 for the three months and nine months ended September 30, 1999, respectively, were excluded from the calculations above because the exercise prices on the options were greater than the average market price for the periods.
5. Information Concerning Business Segments The Company has determined it has two reportable segments: aluminum and electrical products. The aluminum segment manufactures aluminum sheet for distributors and the transportation, construction, and consumer durables end-use markets. The electrical products segment manufactures flexible electrical wiring products for the commercial and do-it-yourself markets. The accounting policies of the reportable segments are the same as those described in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in the Company's annual report to stockholders for the year ended December 31, 1999. All intersegment sales prices are market based. The Company evaluates the performance of its operating segments based upon operating income. The Company's reportable segments are strategic business units that offer different products to different customer groups. They are managed separately because each business requires different technology and marketing strategies. Summarized financial information concerning the Company's reportable segments is shown in the following table for the three months and nine months ended September 30, 2000 and 1999. The "Other" column includes corporate related items, including elimination of intersegment transactions, and as it relates to segment operating income, income and expense not allocated to reportable segments.
Electrical Aluminum Products Other Total --------- ---------- --------- --------- Three months ended September 30, 2000 ------------------------------------- Net sales to external customers $233,762 $34,383 $ -- $268,145 Intersegment net sales 6,595 -- (6,595) -- Operating income (loss) 9,716 (1,183) (2,672) 5,861 Depreciation and amortization 8,836 1,022 10 9,868 Total assets 590,306 90,810 2,876 683,992 Capital expenditures 5,219 -- -- 5,219 Three months ended September 30, 1999 ------------------------------------- Net sales to external customers $243,327 $31,756 $ -- $275,083 Intersegment net sales 8,137 -- (8,137) -- Operating income 4,853 2,449 (3,074) 4,228 Depreciation and amortization 8,090 751 118 8,959 Total assets 584,176 113,774 69 698,019 Capital expenditures 5,310 1,702 -- 7,012 Nine months ended September 30, 2000 ------------------------------------ Net sales to external customers $778,437 $98,684 $ -- $877,121 Intersegment net sales 20,710 -- (20,710) -- Operating income (loss) 37,262 (2,815) (11,026) 23,421 Depreciation and amortization 26,419 3,065 (19) 29,465 Total assets 590,306 90,810 2,876 683,992 Capital expenditures 18,107 150 -- 18,257 Nine months ended September 30, 1999 ------------------------------------ Net sales to external customers $692,453 $92,905 $ -- $785,358 Intersegment net sales 21,478 -- (21,478) -- Operating income 25,665 7,368 (7,949) 25,084 Depreciation and amortization 23,783 2,536 300 26,619 Total assets 584,176 113,774 69 698,019 Capital expenditures 17,992 9,449 -- 27,441
6. Guarantor Financial Statements The $125 million of 10.75% senior subordinated notes due 2006 issued by the Company, and the $100 million revolving credit facility are guaranteed by the Company's wholly-owned subsidiaries (collectively the "Subsidiary Guarantors"), other than Commonwealth Financing Corp. ("CFC"), a Securitization Subsidiary (as defined in the Indenture with respect to such debt) and certain subsidiaries of the Company without substantial assets or operations. Such guarantees are full, unconditional and joint and several. Separate financial statements of the Subsidiary Guarantors are not presented because management has determined that they would not be material to investors. The following supplemental financial information sets forth on a condensed combined basis for the Parent Company Only, Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company, combining balance sheet as of September 30, 2000 and December 31, 1999, statement of income for the three months and nine months ended September 30, 2000 and 1999 and statement of cash flows for the nine months ended September 30, 2000 and 1999. Combining Balance Sheet at September 30, 2000 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ----------- ----------- ------------ -------- Assets Current assets: Cash and cash equivalents $ -- $ 5,337 $ -- $ -- $ 5,337 Accounts receivable, net -- 222,628 -- (222,475) 153 Inventories -- 177,393 -- -- 177,393 Prepayments and other current assets 699 5,355 62,689 -- 68,743 --------- --------- --------- --------- --------- Total current assets 699 410,713 62,689 (222,475) 251,626 Property, plant and equipment, net -- 267,312 -- -- 267,312 Goodwill, net -- 161,253 -- -- 161,253 Other noncurrent assets 606,177 1,624 -- (604,000) 3,801 --------- --------- --------- --------- --------- Total assets $ 606,876 $ 840,902 $ 62,689 $(826,475) $ 683,992 ========= ========= ========= ========= ========= Liabilities Current liabilities: Outstanding checks in excess of deposits $ -- $ -- $ -- $ -- $ -- Accounts payable 130,786 81,666 91,689 (222,475) 81,666 Accrued liabilities 7,340 27,083 (159) -- 34,264 --------- --------- --------- --------- --------- Total current liabilities 138,126 108,749 91,530 (222,475) 115,930 Long-term debt 125,000 -- -- -- 125,000 Other long-term liabilities -- 8,080 -- -- 8,080 Accrued pension benefits -- 8,982 -- -- 8,982 Accrued postretirement benefits -- 82,250 -- -- 82,250 --------- --------- --------- --------- --------- Total liabilities 263,126 208,061 91,530 (222,475) 340,242 --------- --------- --------- --------- --------- Commitments and contingencies -- -- -- -- -- Stockholders' Equity Common stock 165 1 -- (1) 165 Additional paid-in capital 408,505 486,727 5,000 (491,727) 408,505 Accumulated deficit (56,320) 146,113 (33,841) (112,272) (56,320) Unearned compensation (18) -- -- -- (18) Notes receivable from sale of common stock (8,582) -- -- -- (8,582) --------- --------- --------- --------- --------- Total stockholders' equity 343,750 632,841 (25,372) (604,000) 343,750 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 606,876 $ 840,902 $ 60,077 $(826,475) $ 683,992 ========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 1999 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ----------- ----------- ------------ -------- Assets Current assets: Cash and cash equivalents $ -- $ -- $ -- $ -- $ -- Accounts receivable, net 172,266 59,526 -- (231,674) 118 Inventories -- 207,413 -- -- 207,413 Prepayments and other current assets 627 13,214 39,980 -- 53,821 --------- --------- --------- --------- --------- Total current assets 172,893 280,153 39,980 (231,674) 261,352 Property, plant and equipment, net -- 275,531 -- -- 275,531 Goodwill, net -- 164,610 -- -- 164,610 Other noncurrent assets 289,196 2,668 -- (287,035) 4,829 --------- --------- --------- --------- --------- Total assets $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322 ========= ========= ========= ========= ========= Liabilities Current liabilities: Outstanding checks in excess of deposits $ -- $ 1,188 $ -- $ -- $ 1,188 Accounts payable -- 270,203 59,408 (231,674) 97,937 Accrued liabilities 413 38,928 (181) -- 39,160 --------- --------- --------- --------- --------- Total current liabilities 413 310,319 59,227 (231,674) 138,285 Long-term debt 125,000 -- -- -- 125,000 Other long-term liabilities -- 8,412 -- -- 8,412 Accrued pension benefits -- 12,482 -- -- 12,482 Accrued postretirement benefits -- 85,467 -- -- 85,467 --------- --------- --------- --------- --------- Total liabilities 125,413 416,680 59,227 (231,674) 369,646 --------- --------- --------- --------- --------- Commitments and contingencies -- -- -- -- -- Stockholders' Equity Common stock 166 1 -- (1) 166 Additional paid-in capital 409,062 273,774 5,000 (278,774) 409,062 Accumulated deficit (61,866) 32,507 (24,247) (8,260) (61,866) Unearned compensation (175) -- -- -- (175) Notes receivable from sale of common stock (10,511) -- -- -- (10,511) --------- --------- --------- --------- --------- Total stockholders' equity 336,676 306,282 (19,247) (287,035) 336,676 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322 ========= ========= ========= ========= =========
Combining Statement of Income for the three months ended September 30, 2000 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 268,145 $ -- $ -- $ 268,145 Cost of goods sold -- 250,463 -- -- 250,463 --------- --------- --------- --------- --------- Gross profit -- 17,682 -- -- 17,682 Selling, general and administrative expenses 53 10,649 -- -- 10,702 Amortization of goodwill -- 1,119 -- -- 1,119 --------- --------- --------- --------- --------- Operating income (loss) (53) 5,914 -- -- 5,861 Other income (expense), net 5,767 346 -- (5,767) 346 Interest income (expense), net (3,340) 1,888 (3,469) -- (4,921) --------- --------- --------- --------- --------- Income (loss) before income taxes 2,374 8,148 (3,469) (5,767) 1,286 Income tax expense -- (1,088) -- -- (1,088) --------- --------- --------- --------- --------- Net income (loss) $ 2,374 $ 9,236 $ (3,469) $ (5,767) $ 2,374 ========= ========= ========= ========= =========
Combining Statement of Income for the three months ended September 30, 1999 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 275,083 $ -- $ -- $ 275,083 Cost of goods sold -- 256,729 -- -- 256,729 --------- --------- --------- --------- --------- Gross profit -- 18,354 -- -- 18,354 Selling, general and administrative expenses 156 12,851 -- -- 13,007 Amortization of goodwill -- 1,119 -- -- 1,119 --------- --------- --------- --------- --------- Operating income (loss) (156) 4,384 -- -- 4,228 Other income (expense), net 4,395 278 -- (4,395) 278 Interest income (expense), net (3,364) 1,344 (2,643) -- (4,663) --------- --------- --------- --------- --------- Income (loss) before income taxes 875 6,006 (2,643) (4,395) (157) Income tax expense (7) (1,032) -- -- (1,039) --------- --------- --------- --------- --------- Net income (loss) $ 882 $ 7,038 $ (2,643) $ (4,395) $ 882 ========= ========= ========= ========= =========
Combining Statement of Income for the nine months ended September 30, 2000 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 877,121 $ -- $ -- $ 877,121 Cost of goods sold -- 811,197 -- -- 811,197 --------- --------- --------- --------- --------- Gross profit -- 65,924 -- -- 65,924 Selling, general and administrative expenses 195 38,951 -- -- 39,146 Amortization of goodwill -- 3,357 -- -- 3,357 --------- --------- --------- --------- --------- Operating income (loss) (195) 23,616 -- -- 23,421 Other income (expense), net 18,210 1,011 -- (18,210) 1,011 Interest income (expense), net (9,982) 4,076 (9,593) -- (15,499) --------- --------- --------- --------- --------- Income (loss) before income taxes 8,033 28,703 (9,593) (18,210) 8,933 Income tax expense -- 900 -- -- 900 --------- --------- --------- --------- --------- Net income (loss) $ 8,033 $ 27,803 $ (9,593) $ (18,210) $ 8,033 ========= ========= ========= ========= =========
Combining Statement of Income for the nine months ended September 30, 1999 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 785,358 $ -- $ -- $ 785,358 Cost of goods sold -- 718,935 -- -- 718,935 --------- --------- --------- --------- --------- Gross profit -- 66,423 -- -- 66,423 Selling, general and administrative expenses 465 37,517 -- -- 37,982 Amortization of goodwill -- 3,357 -- -- 3,357 --------- --------- --------- --------- --------- Operating income (loss) (465) 25,549 -- -- 25,084 Other income (expense), net 20,362 731 -- (20,362) 731 Interest income (expense), net (10,285) 2,794 (7,217) -- (14,708) --------- --------- --------- --------- --------- Income (loss) before income taxes 9,612 29,074 (7,217) (20,362) 11,107 Income tax expense -- 1,495 -- -- 1,488 --------- --------- --------- --------- --------- Net income (loss) $ 9,612 $ 27,579 $ (7,217) $ (20,362) $ 9,619 ========= ========= ========= ========= =========
Combining Statement of Cash Flows for the nine months ended September 30, 2000 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ---------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $ 8,033 $ 27,803 $ (9,593) $(18,210) $ 8,033 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization (19) 29,484 -- -- 29,465 Loss on disposal of property, plant and equipment -- 1,245 -- -- 1,245 Issuance of common stock in connection with stock awards 121 -- -- -- 121 Equity in undistributed net income of subsidiaries -- (18,210) -- 18,210 -- Changes in assets and liabilities: Decrease (increase) in accounts receivable, net 172,266 (163,102) -- (9,199) (35) Decrease in inventories -- 30,020 -- -- 30,020 (Increase) decrease in prepayments and other current assets (72) 7,859 (22,709) -- (14,922) (Increase) decrease in other noncurrent assets (316,981) 317,109 -- -- 128 Increase (decrease) in accounts payable 130,786 (188,537) 32,281 9,199 (16,271) Increase (decrease) in accrued liabilities 6,927 (11,844) 21 -- (4,896) (Decrease) in other liabilities -- (7,049) -- -- (7,049) -------- -------- -------- -------- -------- Net cash provided by operating activities 1,061 24,778 -- -- 25,839 -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment -- (18,257) -- -- (18,257) Proceeds from sale of property, plant and equipment -- 4 -- -- 4 -------- -------- -------- -------- -------- Net cash (used in) investing activities -- (18,253) -- -- (18,253) -------- -------- -------- -------- -------- Cash flows from financing activities: (Decrease) in outstanding checks in excess of deposits -- (1,188) -- -- (1,188) Proceeds from long-term debt -- 48,800 -- -- 48,800 Repayments of long-term debt -- (48,800) -- -- (48,800) Repayments of notes receivable from sale of common stock 1,426 -- -- -- 1,426 Cash dividends paid (2,487) -- -- -- (2,487) -------- -------- -------- -------- -------- Net cash (used in) financing activities (1,061) (1,188) -- -- (2,249) -------- -------- -------- -------- -------- Net increase in cash and cash equivalents -- 5,337 -- -- 5,337 Cash and cash equivalents at beginning of period -- -- -- -- -- -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ 5,337 $ -- $ -- $ 5,337 ======== ======== ======== ======== ========
Combining Statement of Cash Flows for the nine months ended September 30, 1999 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ---------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $ 9,619 $ 27,579 $ (7,217) $(20,362) $ 9,619 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization 627 25,992 -- -- 26,619 Loss on disposal of property, plant and equipment -- 7 -- -- 7 Issuance of common stock in connection with stock awards 44 -- -- -- 44 Equity in undistributed net income of subsidiaries -- (20,362) -- 20,362 -- Changes in assets and liabilities: Decrease (increase) in accounts receivable, net 11,552 (56,009) -- 44,136 (321) Decrease in inventories -- (1,058) -- -- (1,058) Decrease (increase) in prepayments and other current assets (67) 1,508 (48,495) -- (47,054) (Increase) decrease in other noncurrent assets (17,972) 17,887 -- -- (85) Increase (decrease) in accounts payable -- 18,420 55,538 (44,136) 29,822 (Decrease) increase in accrued liabilities (1,378) 9,209 174 -- 8,005 Increase in other liabilities -- 581 -- -- 581 -------- -------- -------- -------- -------- Net cash provided by operating activities 2,425 23,754 -- -- 26,179 -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment -- (27,441) -- -- (27,441) Proceeds from sale of property, plant and equipment -- 7 -- -- 7 -------- -------- -------- -------- -------- Net cash (used in) investing activities -- (27,434) -- -- (27,434) -------- -------- -------- -------- -------- Cash flows from financing activities: Increase in outstanding checks in excess of deposits -- 3,674 -- -- 3,674 Proceeds from long-term debt -- 43,800 -- -- 43,800 Repayments of long-term debt -- (43,800) -- -- (43,800) Cash dividends paid (2,425) -- -- -- (2,425) -------- -------- -------- -------- -------- Net cash (used in) provided by financing activities (2,425) 3,674 -- -- 1,249 -------- -------- -------- -------- -------- Net (decrease) in cash and cash equivalents -- (6) -- -- (6) Cash and cash equivalents at beginning of period -- 6 -- -- 6 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains statements which are forward-looking rather than historical fact. These forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act, as amended and involve risks and uncertainties that could render them materially different, including, but not limited to, the effect of global economic conditions, the impact of competitive products and pricing, product development and commercialization, availability and cost of critical raw materials, the rate of technological change, product demand and market acceptance risks, capacity and supply constraints or difficulties, the success of the Company in implementing its business strategy, and other risks as detailed in the Company's various Securities and Exchange Commission filings. Overview The Company manufactures non-heat treat coiled aluminum sheet for distributors and the transportation, construction and consumer durables end use markets and electrical flexible conduit and prewired armored cable for the non-residential construction and renovation markets. The Company's principal raw materials are aluminum scrap, primary aluminum, copper and steel. Trends in the demand for aluminum sheet products in the United States and in the prices of aluminum primary metal, aluminum scrap and copper commodities affect the business of the Company. The Company's operating results also are affected by factors specific to the Company, such as the margins between selling prices for its products and its cost of raw material ("material margins") and its unit cost of converting raw material into its products ("conversion cost"). While changes in aluminum and copper prices can cause the Company's net sales to change significantly from period to period, net income is more directly impacted by the fluctuation in material margins. The Company announced during October 2000 that it had signed a 10-year guaranteed supply agreement with Glencore Ltd., a leading diversified trading and industrial company, for the purchase of primary aluminum. Under the agreement, the Company committed to purchase a minimum of 1.2 billion of P1020/99.7% aluminum from Glencore beginning in January 2001. As noted in the previous paragraph, primary aluminum is one of the Company's principal raw materials, however, the Company's main raw material is recycled aluminum scrap which makes up more than one-half of the Company's raw material requirements. Demand for the Company's aluminum sheet products decreased in the third quarter of 2000 due to the Company's customers reducing inventories, the dampening effect of higher interest rates and a softening of the Truck Trailer and Distribution markets. Despite the softness in demand, material margins increased in the third quarter and first nine months of 2000 compared to the fourth quarter of 1999. Part of the increase in the material margins is due to improvements in product mix and the Company's ability to utilize lower-cost raw materials. Shipments for the Company's electrical products in the third quarter of 2000 were up 9% versus the third quarter of 1999 as well as up 9% for the first nine months of 2000 over the comparable period in 1999. Material margins on the Company's electrical products continues to be under pressure and are below the levels achieved in 1999 due to expansions of existing production by competitors and the entry of new participants into the market as well as the effects of higher material costs for aluminum and copper wire. Results of Operations for the three months and nine months ended September 30, 2000 and 1999 Net Sales. Net sales for the quarter ended September 30, 2000, decreased 3% to $268 million (including $34.4 million from Alflex) from $275 million (including $31.8 million from Alflex) for the same period in 1999. The decrease is due primarily to a decline in shipments for aluminum products which more than offset higher prices for the Company's aluminum products, while volume increased and price remained flat for the Company's electrical products compared with the same period last year. Unit sales volume of aluminum decreased 13% to 233.9 million pounds for the third quarter of 2000 from 267.9 million pounds for the third quarter of 1999. Alflex unit sales volume was 161.5 million feet for the third quarter of 2000, an increase of 9% versus 148.3 million feet for the comparable period in 1999. Net sales for the nine-month period ended September 30, 2000, were $877 million (including $98.7 million from Alflex), a 12% increase from the $785 million recorded in the first nine months of 1999 (including $92.9 million from Alflex). The increase is due primarily to higher prices which more than offset a slight decline in shipments for the Company's aluminum products, and to higher shipments of electrical products which more than offset a decline in prices for electrical products. Unit sales volume of aluminum was 772.3 million pounds for the first nine months of 2000, a decrease of 1% from the 780.6 million pounds for the comparable period in 1999. Alflex unit sales volume was 470.6 million feet for the first nine months of 2000, an increase of 9%, versus 430.7 million feet for the comparable period in 1999. Gross Profit. Gross profit for the quarter ended September 30, 2000, decreased to $17.7 million from $18.4 million for the same period in 1999. Gross profit for the nine months ended September 30, 2000 was $65.9 million versus $66.4 million for the comparable period in 1999. These decreases were due primarily to the impact of lower material margins and higher unit manufacturing costs in the Company's electrical products business and higher unit manufacturing costs in the Company's aluminum products business. These factors more than offset higher material margins in the Company's aluminum products business. Operating Income. The Company produced operating income of $5.9 million for the third quarter of 2000 compared with $4.2 million for the third quarter of 1999. For the nine-month period ended September 30, 2000, operating income was $23.4 million, down from $25.1 million for the first nine months of 1999. Selling, general and administrative expenses during the third quarter of 2000 were $10.7 million, compared with $13.0 million for the same period in 1999 and were $39.1 million for the nine months ended September 30, 2000, compared with $38.0 million for the same period in 1999. The third quarter decrease was due primarily to lower incentive compensation expenses and a net credit of approximately $0.3 million related to employee workforce reductions. The credit consists of $3.4 million of employee severance costs offset by a $3.7 million reduction in pension and postretirement benefits expense. Factors contributing to the nine-month period increase in selling, general and administrative expenses were a new variable compensation plan, additional depreciation due to Y2K related projects, a net charge related to employee workforce reductions and an increase at Alflex associated with higher sales volume. Net Income. Net income was $2.4 million for the quarter ended September 30, 2000, compared with net income of $0.9 million for the same period in 1999. Net income for the nine months ended September 30, 2000 was $8.0 million compared with $9.6 million for the first nine months of 1999. Interest expense was $4.9 million for the quarter ended September 30, 2000, compared to $4.7 million for the same period in 1999 and $15.5 million for the nine months ended September 30, 2000, compared with $14.7 million for the comparable period in 1999. These increases in the Company's interest expense are primarily due to the higher interest rates under the Company's accounts receivable securitization facility. There was an income tax benefit of $1.1 million in the third quarter of 2000 compared to an income tax benefit of $1.0 million for the same period in 1999 and an income tax expense of $0.9 million for the nine months ended September 30, 2000, compared to income tax expense of $1.5 million for the same period in 1999. Liquidity and Capital Resources The Company's sources of liquidity are cash flows from operations, the Company's accounts receivable securitization facility described below and borrowings under its $100 million revolving credit facility. The Company believes these sources will be sufficient to fund its working capital requirements, capital expenditures, debt service and dividend payments at least through 2000. On September 26, 1997, the Company sold all of its trade accounts receivables to a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously, CFC entered into a three-year accounts receivable securitization facility with a financial institution and its affiliate, whereby CFC sells, on a revolving basis, an undivided interest in certain of its receivables and receives up to $150.0 million from an unrelated third party purchaser at a cost of funds linked to commercial paper rates plus a charge for administrative and credit support services. During September 2000, the Company and the financial institution extended the accounts receivable securitization facility for an additional three-year period ending in September 2003. At September 30, 2000, the Company had outstanding $93.0 million under the agreement and had $62.7 million of net residual interest in the securitized receivables. The net residual interest in the securitized receivables is included in other current assets in the Company's consolidated financial statements. Capital expenditures were $5.2 million during the quarter ended September 30, 2000 and $18.3 million for the nine months ended September 30, 2000. At September 30, 2000, the Company had commitments of $10.2 million for the purchase or construction of capital assets. Total capital expenditures for the year 2000 are expected to be approximately $25 million, all generally related to upgrading and expanding the Company's manufacturing and other facilities and meeting environmental requirements. Risk Management The price of aluminum is subject to fluctuations due to unpredictable factors on the worldwide market. To reduce this market risk, the Company follows the policy of hedging its anticipated raw material requirements based on firm-priced sales and purchase orders. The Company purchases and sells futures contracts and options on the London Metal Exchange ("LME") based on its net metal position. The Company's metal position consists of inventories, purchase commitments, committed and anticipated sales, and is hedged using LME futures contracts and options. At September 30, 2000, the Company held purchase and sales commitments through 2000 totaling $65 million and $175 million, respectively. The Company also uses futures contracts to manage risks associated with its natural gas requirements. The Company held open aluminum futures contracts and options and natural gas futures, marked-to-market at September 30, 2000, with a net unrealized gain of $2.6 million. Before entering into futures contracts and options, the Company reviews the credit rating of the counterparty and assesses any possible credit risk. While the Company is exposed to certain losses in the event of non-performance by the counterparties to these agreements, the Company does not anticipate non-performance by such counterparties. The Company has an interest rate swap agreement with a notional amount of $5 million which extends until September 2001. With respect to this agreement, the Company pays a fixed rate of interest and receives a LIBOR-based floating rate. Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in net income unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company currently expects to adopt SFAS No. 133 in the Company's first quarter 2001 reporting, as required by the Financial Accounting Standards Board's Statement of Financial Accounting Standard No. 137, issued in June 1999, which defers SFAS No. 133's effective date to the first quarter of 2001. Management is currently evaluating the impact of SFAS No. 133, including Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133" which was issued in June 2000, on the Company's future financial reporting. PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is a party to non-environmental legal proceedings and administrative actions all of which are of an ordinary routine nature incidental to the operations of the Company. Although it is impossible to predict the outcome of any legal proceeding, in the opinion of management such proceedings and actions should not, individually or in aggregate, have a material adverse effect on the Company's financial condition, results of operations or cash flows, although resolution in any year or quarter could be material to the results of operation for that period. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 First Amendment, dated May 12 1998, to Receivables Purchase Agreement among Commonwealth Financing Corp., the Company, Market Street Funding Corporation and PNC Bank, National Association, dated as of September 29, 1997. 10.2 Second Amendment, dated September 25, 2000, to Receivables Purchase Agreement among Commonwealth Financing Corp., the Company, Market Street Funding Corporation and PNC Bank, National Association, dated as of September 29, 1997. 27 Financial Data Schedule. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended September 30, 2000. 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. COMMONWEALTH INDUSTRIES, INC. By: /s/ Donald L. Marsh, Jr. ------------------------ Donald L. Marsh, Jr. Executive Vice President, Chief Financial Officer and Secretary Date: November 2, 2000 Exhibit Index Exhibit Number Description 10.1 First Amendment, dated May 12, 1998, to Receivables Purchase Agreement among Commonwealth Financing Corp., the Company, Market Street Funding Corporation and PNC Bank, National Association, dated as of September 29, 1997. 10.2 Second Amendment, dated September 25, 2000, to Receivables Purchase Agreement among Commonwealth Financing Corp., the Company, Market Street Funding Corporation and PNC Bank, National Association, dated as of September 29, 1997. 27 Financial Data Schedule.