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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, 2002March 31, 2003
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 proceedingpreceding 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|X| No ____
-----|_|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No
|-|
The registrant had 15,997,65116,010,971 shares of common stock outstanding at October 29,
2002.May
1, 2003.
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COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended September 30, 2002March 31, 2003
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
-----------
Condensed Consolidated Balance Sheet as of September 30, 2002March 31, 2003
and December 31, 20012002 3
Condensed Consolidated Statement of Operations for the three
months ended March 31, 2003 and nine months ended September 30, 2002 and 2001 4
Condensed Consolidated Statement of Comprehensive Income
for the three months ended March 31, 2003 and nine months ended
September 30, 2002 and 2001 5
Condensed Consolidated Statement of Cash Flows for the ninethree
months ended September 30,March 31, 2003 and 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements 7-197-16
Item 2. Management's Discussion and Analysis of Financial Condition 20-2517-22
and Results of Operations
Item 4. Controls and Procedures 2522
Part II - Other Information
Item 1. Legal Proceedings 2623
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 2623
Signatures 2724
Certifications 28-2925-26
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
September 30,March 31, December 31,
2003 2002
2001
------------- --------------------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ - $ 6,39313,211
Accounts receivable, net 137 81209 66
Inventories 116,369 119,038140,555 125,348
Net residual interest in receivables sold 100,185 82,31059,995 81,195
Prepayments and other current assets 4,036 3,230
------------- -------------7,423 7,133
-------------- -----------------
Total current assets 220,727 211,052208,182 226,953
Property, plant and equipment, net 146,067 152,137146,408 146,968
Goodwill, net 48,872 74,19948,872
Other noncurrent assets 3,901 2,244
------------- -------------5,867 6,111
-------------- -----------------
Total assets $ 419,567409,329 $ 439,632
============= =============428,904
============== =================
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ 351418 $ -
Accounts payable 54,264 50,69345,833 59,594
Accrued liabilities 36,564 38,876
------------- -------------28,225 28,527
-------------- -----------------
Total current liabilities 91,179 89,56974,476 88,121
Long-term debt 125,000 125,000
Other long-term liabilities 5,511 6,8995,076 5,183
Accrued pension benefits 3,529 4,57628,136 26,743
Accrued postretirement benefits 77,121 79,422
------------- -------------76,075 76,670
-------------- -----------------
Total liabilities 302,340 305,466
------------- -------------308,763 321,717
-------------- -----------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
15,997,65116,010,971 and 16,459,46815,997,651 shares outstanding at
June 30, 2002March 31, 2003 and December 31, 2001,2002, respectively 160 160
Additional paid-in capital 405,703 405,613 405,443
Accumulated deficit (283,507) (258,532)
Notes receivable from sale of common stock - (1,561)(285,236) (277,942)
Accumulated other comprehensive income:
Minimum pension liability adjustment (21,391) (21,391)
Effects of cash flow hedges (5,039) (11,344)
------------- -------------1,330 747
-------------- -----------------
Total stockholders' equity 117,227 134,166
------------- -------------100,566 107,187
-------------- -----------------
Total liabilities and stockholders' equity $ 419,567409,329 $ 439,632
============= =============428,904
============== =================
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Operations
(in thousands except per share data)
Three months ended Nine months ended
September 30, September 30,
---------------------------- -----------------------------March 31,
-------------------------------------
2003 2002
2001 2002 2001
----------- ----------- ------------ ------------------------ --------------
Net sales $ 253,933211,968 $ 249,914 $ 727,519 $ 715,610221,858
Cost of goods sold 234,571 235,366 681,933 678,890
----------- ----------- ------------ -----------202,650 211,318
------------- --------------
Gross profit 19,362 14,548 45,586 36,7209,318 10,540
Selling, general and administrative expenses 12,524 11,326 34,779 34,154
Amortization of goodwill - 1,119 - 3,357
----------- ----------- ------------ -----------11,260
------------- --------------
Operating income (loss) 6,838 2,103 10,807 (791)(3,206) (720)
Other income (expense), net 332 289 818 647494 273
Interest expense, net (3,704) (3,745) (11,406) (11,764)
----------- ----------- ------------ -----------(3,701) (3,851)
------------- --------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 3,466 (1,353) 219 (11,908)(6,413) (4,298)
Income tax expense (benefit) (2,610) 200 (2,532) 600
----------- ----------- ------------ -----------80 125
------------- --------------
Income (loss) before cumulative effect of
change in accounting principle 6,076 (1,553) 2,751 (12,508)(6,493) (4,423)
Cumulative effect of change in accounting principle - - (25,327)
-
----------- ----------- ------------ ------------------------ --------------
Net income (loss) $ 6,076(6,493) $ (1,553) $ (22,576) $ (12,508)
=========== =========== ============ ===========(29,750)
============= ==============
Basic and diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle $ 0.38(0.41) $ (0.09) $ 0.17 $ (0.76)(0.28)
Cumulative effect of change in accounting principle - - (1.58)
-
----------- ----------- ------------ ------------------------ --------------
Net income (loss) $ 0.38(0.41) $ (0.09) $ (1.41) $ (0.76)
=========== =========== ============ ===========
Diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle $ 0.38 $ (0.09) $ 0.17 $ (0.76)
Cumulative effect of change in accounting principle - - (1.57) -
----------- ----------- ------------ -----------
Net income (loss) $ 0.38 $ (0.09) $ (1.40) $ (0.76)
=========== =========== ============ ===========(1.86)
============= ==============
Weighted average shares outstanding
Basic 15,998 16,459 15,992 16,45716,011 15,984
Diluted 16,092 16,459 16,100 16,45716,011 15,984
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 Comprehensive Income (Loss)
(in thousands)
Three months ended Nine months ended
September 30, September 30,
--------------------------- ------------------------March 31,
-----------------------------
2003 2002
2001 2002 2001
----------- ------------ ---------- ----------------------
Net income (loss) $ 6,076(6,493) $ (1,553) $ (22,576) $ (12,508)(29,750)
Other comprehensive income, net of tax:
Minimum pension liability adjustment - -
Net change related to cash flow hedges:
Cumulative effect of accounting change - - - 6,619
Increase (decrease) in fair value of cash flow hedges (6,313) (15,866) (3,174) (30,621)3,276 6,236
Reclassification adjustment for (gains) losses included in net income 4,267 8,297 9,479 6,159
-----------(2,693) 1,910
------------ ---------- ----------------------
Net change related to cash flow hedges (2,046) (7,569) 6,305 (17,843)
-----------583 8,146
------------ ---------- ----------------------
Comprehensive income (loss) $ 4,030(5,910) $ (9,122) $ (16,271) $ (30,351)
===========(21,604)
============ ========== ======================
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
NineThree months ended September 30,
----------------------------------March 31,
-----------------------------
2003 2002
2001
----------- ----------------------- ----------
Cash flows from operating activities:
Net income (loss) $ (22,576) $ (12,508)$(6,493) $(29,750)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operations:
Depreciation 15,940 24,6455,143 5,315
Amortization 762 4,305222 319
Goodwill inpairment chargeimpairment charges - 25,327 -
Loss on disposal of property, plant and equipment 196 35912 2
Issuance of common stock in connection with stock awards 170 10690 75
Changes in assets and liabilities:
(Increase) in accounts receivable, net (56) (748)
Decrease(143) (148)
(Increase) in inventories 2,669 23,724
(Increase)(15,207) (8,563)
Decrease (increase) in net residual interest in receivables sold (17,875) (54,492)21,200 (4,188)
(Increase) decrease in prepayments and other current assets (806) 8,316
(Increase)(1,011) 1,058
Decrease (increase) in other noncurrent assets (2,419) (445)
Increase22 (697)
(Decrease) increase in accounts payable 3,571 7,550(13,761) 8,573
Increase in accrued liabilities 1,002 5,114
Increase (decrease) in accrued liabilities 3,993 (5,667)
(Decrease) in other liabilities (4,736) (5,618)
----------- -------------691 (1,374)
---------- ----------
Net cash (used in) provided by (used in) operating activities 4,160 (10,473)
----------- -------------(8,233) 1,063
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (10,089) (7,217)(4,598) (1,429)
Proceeds from sale of property, plant and equipment 23 90
----------- -------------3 -
---------- ----------
Net cash (used in) investing activities (10,066) (7,127)
----------- -------------(4,595) (1,429)
---------- ----------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits 351 6,942418 -
Proceeds from long-term debt 55,700 48,06033,707 34,000
Repayments of long-term debt (55,700) (48,060)
Repayments of notes receivable from sale of common stock 1,561 1,613(33,707) (34,000)
Cash dividends paid (2,399) (2,469)
----------- -------------(801) (799)
---------- ----------
Net cash (used in) provided by financing activities (487) 6,086
----------- -------------(383) (799)
---------- ----------
Net (decrease) in cash and cash equivalents (6,393) (11,514)(13,211) (1,165)
Cash and cash equivalents at beginning of period 13,211 6,393
11,514
----------- ----------------------- ----------
Cash and cash equivalents at end of period $ - $ -
=========== =============5,228
========== ==========
Supplemental disclosures:
Interest paid $ 7,551215 $ 8,630212
Income taxes paid (refunds received) (492) 157
Non-cash activities:
Repayment of notes receivable from sale of common stock with
common stock and subsequent retirement of common stock - 45078 (681)
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. Stock-Based Compensation
At March 31, 2003, the Company had stock-based compensation plans which are
described more fully in note 14 to the consolidated financial statements
included in the Company's annual report to stockholders for the year ended
December 31, 2002. As permitted by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company
follows the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its stock option plans under the intrinsic value based method.
Accordingly, no stock-based compensation expense has been recognized for stock
options issued under the plans as all stock options granted under the plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. Had compensation expense been determined based on the fair
value of the stock options at the grant date consistent with the provisions of
SFAS No. 123, the Company's net loss and basic and diluted net loss per share
would have been increased for the three months ended March 31, 2003 and 2002 to
the pro forma amounts which follow (in thousands except per share data):
Three months ended
March 31,
2003 2002
---- ----
Net income (loss) as reported $(6,493) $(29,750)
Less total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects 80 71
-------- ---------
Pro forma net income (loss) $(6,573) $(29,821)
======== =========
Basic net income (loss) per share
As reported $(0.41) $(1.86)
Pro forma (0.41) (1.87)
Diluted net income (loss) per share
As reported $(0.41) $(1.86)
Pro forma (0.41) (1.87)
3. Receivables Purchase Agreement
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 receivables purchase agreement with a financial
institution and its affiliate whereby CFC can sell, on a revolving basis, an
undivided interest in certain of its receivables and receive 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. The Company services the receivables for a fee in accordance with the
receivables purchase agreement. In addition, under the agreement, the
receivables are sold with no recourse to the Company and the Company records no
discount on the sale of the receivables. During September 2000, the Company and
the financial institution extended the receivables purchase agreement for an
additional three-year period ending in September 2003 and in October 2002,
extended the agreement for an additional year ending in September 2004. In
addition during September 2001, the Company and the financial institution agreed
to reduce the maximum amount which can be outstanding under the agreement to
$95.0 million. At September 30,March 31, 2003 and 2002, and 2001, the Company had outstanding under the
agreement $20.0$55.0 million and $17.5$47.0 million, respectively, and had $100.2$60.0 million
and $126.9$86.5 million, respectively, of net residual interest in the receivables
sold. The fair value of the net residual interest is measured at the time of the
sale and is based on the sale of similar assets. In the first ninethree months of
20022003 and 2001,2002, the Company received gross proceeds of $37.0$42.0 million and $30.0$27.0
million, respectively, from the sale of receivables and made gross payments of
$37.0 and $81.5$11.0 million respectively,in the first three months of 2003 under the agreement. 3.The Company
made no gross payments in the first three months of 2002.
4. Inventories
Inventories consist of the following (in thousands):
September 30, 2002March 31, 2003 December 31, 2001
------------------2002
-------------- -----------------
Raw materials $ 19,13725,807 $ 21,20322,718
Work in process 42,973 45,83049,804 46,676
Finished goods 39,499 35,97855,894 43,780
Expendable parts and supplies 14,207 14,22314,591 14,320
---------- -----------
115,816 117,234146,096 127,494
LIFO reserve 553 1,804(5,541) (2,146)
---------- -----------
$ 116,369140,555 $ 119,038125,348
========== ===========
The Company usesCompany's raw materials, work in process and finished goods inventories are
valued using the last-in, first-out (LIFO), accounting method in the Company's
aluminum segment and the first-in, first-out (FIFO) and average-cost accounting
methods in the Company's electrical products segment. The FIFO accounting method
is used throughout the entire Company for valuing its inventories.expendable parts and
supplies inventory. Inventories of approximately $86.5$116.3 million and $87.9$98.2
million, included in the above totals (before the LIFO reserve) at September 30, 2002March 31,
2003 and December 31, 2001,2002, 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.
4.5. Provision for Income Taxes
The Company recognized an income tax benefit of $2.6 million and $2.5 million
for the three months and nine months ended September 30, 2002, respectively,
compared to an income tax expense of $0.2 million and $0.6$0.1 million for the three
months and nine months ended September 30, 2001, respectively. The Company
recorded an adjustment of $2.7 million inboth the three
months ended September 30,
2002 to reduce prior year's income tax accruals.
5.March 31, 2003 and 2002.
6. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations (in thousands except per share data):
Three months ended
September 30,March 31,
2003 2002 2001
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Income (loss) before cumulative effect of change in accounting principle $6,076 $(1,553)$(6,493) $ (4,423)
Cumulative effect of change in accounting principle - -
------ -------(25,327)
-------- --------
Net income (loss) $6,076 $(1,553)
====== =======$(6,493) $(29,750)
======== ========
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 15,998 16,45916,011 15,984
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 15,998 16,45916,011 15,984
Plus: dilutive effect of stock options 94- -
------ ------
Adjusted weighted average shares 16,092 16,45916,011 15,984
====== ======
Basic and diluted per share data:
Income (loss) before cumulative effect of change in accounting principle $0.38 $ (0.09)$(0.41) $(0.28)
Cumulative effect of change in accounting principle - -
----- -------
Net income (loss) $0.38 $ (0.09)
===== =======
Nine months ended
September 30,
2002 2001
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Income (loss) before cumulative effect of change in accounting principle $ 2,751 $(12,508)
Cumulative effect of change in accounting principle (25,327) -
-------- ---------
Net income (loss) $(22,576) $(12,508)
========= =========
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 15,992 16,457
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 15,992 16,457
Plus: dilutive effect of stock options 108 -(1.58)
------ ------
Adjusted weighted average shares 16,100 16,457
====== ======
Basic per share data:
Income (loss) before cumulative effect of change in accounting principle $ 0.17 $(0.76)
Cumulative effect of change in accounting principle (1.58) -
------- ------
Net income (loss) $(1.41) $(0.76)
=======$(0.41) $(1.86)
====== Diluted per share data:
Income (loss) before cumulative effect of change in accounting principle $ 0.17 $(0.76)
Cumulative effect of change in accounting principle (1.57) -
------- -------
Net income (loss) $(1.40) $(0.76)
======= =============
Options to purchase 305,500583,000 and 600,000 common shares, for both the three months and nine
months ended September 30, 2001, which equate to 43,14177,089
and 42,57185,025 incremental common equivalent shares, respectively, were excluded from the
diluted
calculation above for the three months ended March 31, 2003 and 2002,
respectively, as their effect would have been antidilutive. In addition, options
to purchase 794,0001,113,000 and 755,000 common shares for both the three months ended March
31, 2003 and nine
months ended September 30, 2002, and 799,500 common shares for both the three
months and nine months ended September 30, 2001respectively, were excluded from the diluted calculations above
because the exercise prices on the options were greater than the average market
price for the periods.
6.7. Financial Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", including Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133" ("SFAS No. 133"). The Company recorded a
cumulative-effect-type net gain transition adjustment of $6.6 million in
accumulated other comprehensive income to recognize at fair value all
derivatives that were designated as cash-flow hedging instruments upon adoption
of SFAS No. 133 on January 1, 2001. This entire amount was reclassified from
accumulated other comprehensive income into cost of goods sold during 2001.
The Company enters into futures contracts, forward contracts and options to
manage exposures to price risk related to aluminum and natural gas purchases.
The Company has designated the futures contracts and forward contracts as cash
flow hedges of anticipated aluminum raw material and natural gas requirements,
respectively.
As of September 30, 2002, approximately $4.9 million ofMarch 31, 2003, the $5.0Company had $1.3 million of deferred net lossesgains
recorded in accumulated other comprehensive income. Over the next twelve months,
approximately $1.6 million of deferred net gains are expected to be reclassified
from other comprehensive income into net income as a reduction of cost of goods
sold over the next twelve months. A net
loss of $0.05 million and $0.16 million was recognized in cost of goods sold
during the three months and nine months ended September 30, 2002, respectively,
and a net loss of $0.13 million and $0.16 million was recognized in cost of
goods sold during the three months and nine months ended September 30, 2001,
respectively, representing the amount of the hedges' ineffectiveness.sold. As of September 30, 2002,March 31, 2003, the Company held open aluminum and natural gas
futures and forward contracts having maturity dates extending through March 2004.
In order to hedge a portionDecember
2005. A net loss of its interest rate risk, the Company$0.2 million and $0.1 million was a party
to an interest rate swap agreement with a notional amountrecognized in cost of
$5 million under
which the Company paid a fixed rate of interest and received a LIBOR-based
floating rate. The interest rate swap agreement expiredgoods sold during September 2001
and as of September 30, 2002 the Company has no interest rate swap agreements in
effect. The Company's interest rate swap agreement which expired during
September 2001 did not qualify for hedge accounting under SFAS 133 and as such
the change in the fair value of the interest rate swap agreement had been
recognized currently as interest expense, net in the Company's consolidated
statement of operations. The amount of such change in the fair value of the
interest rate swap agreement was immaterial for the three months ended March 31, 2003 and nine months
ended September 30, 2001.
7.2002, respectively,
representing the amount of the hedges' ineffectiveness.
8. Goodwill
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). The Statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes Accounting Principles Board
Opinion No. 17, "Intangible Assets" and amends Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"), to exclude from its scope
goodwill and intangible assets that are not amortized. SFAS No. 121 haswas
subsequently been
supercededsuperseded by Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144").
SFAS No. 142 addresses how intangible assets that are acquired individually or with a
group of other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition. This Statement
also addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. Under SFAS No. 142, goodwill is no longer to be amortized but
reviewed for impairment annually or more frequently if certain indicators arise,
using a two-step approach. SFAS No. 142 iswas effective January 1, 2002 and the
Company was required to complete step one of a transitional impairment test by
June 30, 2002 and to complete step two of the transitional impairment test, if
step one indicates that the reporting unit's carrying value exceeds its fair
value, by December 31, 2002. Any impairment loss resulting from the transitional
impairment test was required to be recorded as a cumulative effect of a change
in accounting principle in the quarter ended March 31, 2002. Any subsequent
impairment losses will be reflected in operating income in the consolidated
statement of operations. The net goodwill balances attributable to each of the
Company's reporting units were tested for impairment by comparing the fair value
of each reporting unit to its carrying value. Fair value was determined by using
the valuation technique of calculating the present value of estimated expected
future cash flows (using a discount rate commensurate with the risks involved).
Based upon the transitional impairment test performed upon adoption of SFAS No.
142, the Company has recorded a goodwill impairment loss of $25.3 million ($13.5
million in its aluminum products segment and $11.8 million in its electrical products
segment). This non-cash goodwill impairment charge has no impact on the
calculation of financial covenants under the Company's revolving credit
facility. As required by SFAS No.142No. 142 and previously described, the Company
recorded the goodwill write-down as a cumulative effect of a change in
accounting principle as of January 1, 2002 and restated the Company's first
quarter 2002 financial results. The following displays the changes in the
carrying amount of goodwill in each of the Company's reportable business segments for the
ninethree months ended September
30,March 31, 2002 (in thousands):. There have been no further
changes in the carrying amount of goodwill since March 31, 2002:
Electrical
Aluminum Products Total
-------- ---------- --------
Balance December 31, 2001 $13,470 $60,729 $74,199
Goodwill impairment loss as a result of transitional
impairment test related to adoption of SFAS No. 142 (13,470) (11,857) (25,327)
-------- -------- --------------- ------- -------
Balance September 30,March 31, 2002 $ - $48,872 $48,872
======== ======== ========
The following represents transitional disclosures relating to goodwill
amortization (in thousands except per share data):
Three months ended
September 30,
2002 2001
---- ----
Reported net income (loss) $6,076 $(1,553)
Add back: goodwill amortization - 1,119
------ ------
Adjusted net income (loss) $6,076 $ (434)
====== ======
Reported basic and diluted net income (loss) per share $0.38 $(0.09)
Goodwill amortization per basic and diluted per share - 0.06
----- ------
Adjusted basic and diluted net income (loss) per share $0.38 $(0.03)
===== ======
Weighted average shares outstanding
Basic 15,998 16,459
Diluted 16,092 16,459
Nine months ended
September 30,
2002 2001
---- ----
Reported income (loss) before cumulative effect of change in accounting principle $2,751 $(12,508)
Cumulative effect of change in accounting principle (25,327) -
-------- -------
Reported net income (loss) $(22,576) $(12,508)
Add back: goodwill amortization - 3,357
-------- -------
Adjusted net income (loss) $(22,576) $(9,151)
======== ======= Basic net income (loss) per share:
Reported income (loss) before cumulative effect of change in accounting principle $ 0.17 $(0.76)
Cumulative effect of change in accounting principle (1.58) -
------ ------
Reported net income (loss) $(1.41) $(0.76)
Goodwill amortization - 0.20
------ ------
Adjusted net income (loss) $(1.41) $(0.56)
====== ======
Diluted net income (loss) per share:
Reported income (loss) before cumulative effect of change in accounting principle $0.17 $(0.76)
Cumulative effect of change in accounting principle (1.57) -
------ ------
Reported net income (loss) $(1.40) $(0.76)
Goodwill amortization - 0.20
------ ------
Adjusted net income (loss) $(1.40) $(0.56)
====== ======
Weighted average shares outstanding
Basic 15,992 16,457
Diluted 16,100 16,457======= =======
The Company has no other intangible assets other than the goodwill discussed
above.
8.9. 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 construction and do-it-yourself markets.
The accounting policies of the reportable segments are the same as those
described in Notenote 1, "Basis of Presentation and Summary of Significant
Accounting Policies" in the Company's annual report to stockholders for the year
ended December 31, 2001.2002. 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 businesses 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 ended March 31, 2003 and nine months ended
September 30, 2002 and 2001 (in thousands).2002.
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. TotalCertain expenses and assets
at September 30, 2002 includerelating to information technology which prior to the effects of
the $167.3 million non-cash asset impairment charges recorded in the fourthfirst quarter of 2001 and the $25.3 million non-cash goodwill impairment charges
($13.5 million relating2003 had
been allocated to the aluminum products segment and $11.8 million
relatingreportable segments are no longer being allocated. Prior
period amounts have been reclassified to the electrical products segment) recorded as a cumulative effect of
a change in accounting principle as of January 1, 2002 during the second quarter
of 2002. The $167.3 million non-cash asset impairment charges were all related
to the aluminum products segment and composed of $85.4 million of property,
plant and equipment write-downs ($1.8 million of net land and improvements,
$15.7 million of net building improvements, $59.0 million of net machinery and
equipment and $8.9 million of construction in progress) and $81.9 million of
goodwill write-downs. See note 2 in the Company's annual report to stockholders
for the year ended December 31, 2001 for additional information on the asset
impairment charges and note 7 in this report for additional information on the
goodwill impairment charges.conform with current classifications.
Electrical
Aluminum Products Other Total
-------- ---------- ------------------- ----------
Three months ended September 30, 2002March 31, 2003
- ----------------------------------------------------------------------
Net sales to external customers $224,124 $29,809$187,286 $24,682 $ -- $253,933$211,968
Intersegment net sales 7,5225,647 -- (7,522)(5,647) --
Operating income (loss) 10,840 1,137 (5,139) 6,8384,454 (1,019) (6,641) (3,206)
Depreciation and amortization 4,950 5714,584 559 -- 5,5215,143
Amortization -- -- 222 222
Total assets 324,589 93,236 1,742 419,567315,242 85,245 8,842 409,329
Capital expenditures 6,884 11 -- 6,8952,559 2 2,037 4,598
Three months ended September 30, 2001March 31, 2002
- ----------------------------------------------------------------------
Net sales to external customers $220,028 $29,886$192,958 $28,900 $ -- $249,914$221,858
Intersegment net sales 5,4437,233 -- (5,443)(7,233) --
Operating income (loss) 4,335 1,680 (3,912) 2,1032,214 1,963 (4,897) (720)
Depreciation and amortization 8,632 9774,745 570 -- 9,6095,315
Amortization -- -- 319 319
Total assets 540,007 102,998 2,291 645,296332,129 87,383 1,959 421,471
Capital expenditures 3,042 141,196 233 -- 3,056
Nine months ended September 30, 2002
- ------------------------------------
Net sales to external customers $641,081 $86,438 $ -- $727,519
Intersegment net sales 21,650 -- (21,650) --
Operating income (loss) 18,759 5,069 (13,021) 10,807
Depreciation and amortization 14,990 1,712 -- 16,702
Total assets 324,589 93,236 1,742 419,567
Capital expenditures 9,835 254 -- 10,089
Nine months ended September 30, 2001
- ------------------------------------
Net sales to external customers $623,252 $92,358 $ -- $715,610
Intersegment net sales 19,876 -- (19,876) --
Operating income (loss) 6,062 4,343 (11,196) (791)
Depreciation and amortization 26,012 2,931 7 28,950
Total assets 540,007 102,998 2,291 645,296
Capital expenditures 7,017 200 -- 7,2171,429
9.10. Guarantor Financial Statements
The $125 million of 10.75% senior subordinated notes due 2006 issued by the
Company, and the $30 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, a
combining balance sheet as of September 30, 2002March 31, 2003 and December 31, 2001,2002 and a
statement of operations for the three months and nine months ended September 30,
2002 and 2001 and statement of cash flows for the ninethree months ended
September
30, 2002March 31, 2003 and 2001.2002.
Combining Balance Sheet at September 30, 2002March 31, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ -- $ -- $ -- $ --
Accounts receivable, net -- 299,349267,179 -- (299,212) 137(266,970) 209
Inventories -- 116,369140,555 -- -- 116,369140,555
Net residual interest in receivables sold -- -- 100,18559,995 -- 100,18559,995
Prepayments and other current assets 435 3,6016,988 -- -- 4,0367,423
--------- --------- --------- --------- ---------
Total current assets 435 419,319 100,185 (299,212) 220,727414,722 59,995 (266,970) 208,182
Property, plant and equipment, net -- 146,067146,408 -- -- 146,067146,408
Goodwill, net -- 48,872 -- -- 48,872
Other noncurrent assets 409,862 2,594416,907 4,778 -- (408,555) 3,901(415,818) 5,867
--------- --------- --------- --------- ---------
Total assets $ 410,297417,342 $ 616,852614,780 $ 100,185 $(707,767)59,995 $(682,788) $ 419,567409,329
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ 351418 $ -- $ -- $ 351418
Accounts payable 156,156 54,264 143,056 (299,212) 54,264162,405 45,833 104,565 (266,970) 45,833
Accrued liabilities 6,875 30,446 (757)9,310 19,696 (781) -- 36,56428,225
--------- --------- --------- --------- ---------
Total current liabilities 163,031 85,061 142,299 (299,212) 91,179171,715 65,947 103,784 (266,970) 74,476
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 5,5115,076 -- -- 5,5115,076
Accrued pension benefits -- 3,52928,136 -- -- 3,52928,136
Accrued postretirement benefits -- 77,12176,075 -- -- 77,12176,075
--------- --------- --------- --------- ---------
Total liabilities 288,031 171,222 142,299 (299,212) 302,340296,715 175,234 103,784 (266,970) 308,763
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 160 1 -- (1) 160
Additional paid-in capital 405,613405,703 486,727 5,000 (491,727) 405,613405,703
Accumulated deficit (283,507) (36,059) (47,114) 83,173 (283,507)(285,236) (27,121) (48,789) 75,910 (285,236)
Accumulated other comprehensive income:
Minimum pension liability adjustment -- (21,391) -- -- (21,391)
Effects of cash flow hedges -- (5,039)1,330 -- -- (5,039)1,330
--------- --------- --------- --------- ---------
Total stockholders' equity 122,266 445,630 (42,114) (408,555) 117,227120,627 439,546 (43,789) (415,818) 100,566
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 410,297417,342 $ 616,852614,780 $ 100,185 $(707,767)59,995 $(682,788) $ 419,567409,329
========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 20012002
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 6,39313,211 $ -- $ -- $ 6,39313,211
Accounts receivable, net -- 271,074286,847 -- (270,993) 81(286,781) 66
Inventories -- 119,038125,348 -- -- 119,038125,348
Net residual interest in receivables sold -- -- 82,31081,195 -- 82,31081,195
Prepayments and other current assets 435 2,7956,698 -- -- 3,2307,133
--------- --------- --------- --------- ---------
Total current assets 435 399,300 82,310 (270,993) 211,052432,104 81,195 (286,781) 226,953
Property, plant and equipment, net -- 152,137146,968 -- -- 152,137146,968
Goodwill, net -- 74,19948,872 -- -- 74,19948,872
Other noncurrent assets 424,830 611419,913 4,913 -- (423,197) 2,244(418,715) 6,111
--------- --------- --------- --------- ---------
Total assets $ 425,265420,348 $ 626,247632,857 $ 82,310 $(694,190)81,195 $(705,496) $ 439,632428,904
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Accounts payable $ 148,971161,658 $ 50,69359,594 $ 122,022 $(270,993)125,123 $(286,781) $ 50,69359,594
Accrued liabilities 5,784 33,997 (905)5,859 23,515 (847) -- 38,87628,527
--------- --------- --------- --------- ---------
Total current liabilities 154,755 84,690 121,117 (270,993) 89,569167,517 83,109 124,276 (286,781) 88,121
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 6,8995,183 -- -- 6,8995,183
Accrued pension benefits -- 4,57626,743 -- -- 4,57626,743
Accrued postretirement benefits -- 79,42276,670 -- -- 79,42276,670
--------- --------- --------- --------- ---------
Total liabilities 279,755 175,587 121,117 (270,993) 305,466292,517 191,705 124,276 (286,781) 321,717
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 160 1 -- (1) 160
Additional paid-in capital 405,443405,613 486,727 5,000 (491,727) 405,443405,613
Accumulated deficit (258,532) (24,724) (43,807) 68,531 (258,532)
Notes receivable from sale of common stock (1,561) -- -- -- (1,561)(277,942) (24,932) (48,081) 73,013 (277,942)
Accumulated other comprehensive income:
Minimum pension liability adjustment -- (21,391) -- -- (21,391)
Effects of cash flow hedges -- (11,344)747 -- -- (11,344)747
--------- --------- --------- --------- ---------
Total stockholders' equity 145,510 450,660 (38,807) (423,197) 134,166127,831 441,152 (43,081) (418,715) 107,187
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 425,265420,348 $ 626,247632,857 $ 82,310 $(694,190)81,195 $(705,496) $ 439,632428,904
========= ========= ========= ========= =========
Combining Statement of IncomeOperations for the three months ended September 30,March 31, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 211,968 $ -- $ -- $ 211,968
Cost of goods sold -- 202,650 -- -- 202,650
--------- --------- --------- --------- ---------
Gross profit -- 9,318 -- -- 9,318
Selling, general and administrative expenses 128 12,396 -- -- 12,524
--------- --------- --------- --------- ---------
Operating income (loss) (128) (3,078) -- -- (3,206)
Other income (expense), net (2,897) 494 -- 2,897 494
Interest income (expense), net (3,468) 475 (708) -- (3,701)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (6,493) (2,109) (708) 2,897 (6,413)
Income tax expense -- 80 -- -- 80
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle (6,493) (2,189) (708) 2,897 (6,493)
Cumulative effect of change in accounting principle -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (6,493) $ (2,189) $ (708) $ 2,897 $ (6,493)
========= ========= ========= ========= =========
Combining Statement of Operations for the three months ended March 31, 2002
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 253,933221,858 $ -- $ -- $ 253,933221,858
Cost of goods sold -- 234,571211,318 -- -- 234,571211,318
--------- --------- --------- --------- ---------
Gross profit -- 19,36210,540 -- -- 19,36210,540
Selling, general and administrative expenses 51 12,473116 11,144 -- -- 12,524
Amortization of goodwill -- -- -- -- --11,260
--------- --------- --------- --------- ---------
Operating income (loss) (51) 6,889(116) (604) -- -- 6,838(720)
Other income (expense), net 6,904 332(841) 273 -- (6,904) 332841 273
Interest income (expense), net (3,469) 807 (1,042)(3,466) 548 (933) -- (3,704)(3,851)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 3,384 8,028 (1,042) (6,904) 3,466(4,423) 217 (933) 841 (4,298)
Income tax expense (benefit) (2,692) 82-- 125 -- -- (2,610)125
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle 6,076 7,946 (1,042) (6,904) 6,076
Cumulative effect of change in accounting principle -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 6,076 $ 7,946 $ (1,042) $ (6,904) $ 6,076
========= ========= ========= ========= =========
Combining Statement of Income for the three months ended September 30, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 249,914 $ -- $ -- $ 249,914
Cost of goods sold -- 235,366 -- -- 235,366
--------- --------- --------- --------- ---------
Gross profit -- 14,548 -- -- 14,548
Selling, general and administrative expenses 49 11,277 -- -- 11,326
Amortization of goodwill -- 1,119 -- -- 1,119
--------- --------- --------- --------- ---------
Operating income (loss) (49) 2,152 -- -- 2,103
Other income (expense), net 1,863 289 -- (1,863) 289
Interest income (expense), net (3,367) 1,214 (1,592) -- (3,745)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (1,553) 3,655 (1,592) (1,863) (1,353)
Income tax expense -- 200 -- -- 200
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle (1,553) 3,455 (1,592) (1,863) (1,553)
Cumulative effect of change in accounting principle -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (1,553) $ 3,455 $ (1,592) $ (1,863) $ (1,553)
========= ========= ========= ========= =========
Combining Statement of Income for the nine months ended September 30, 2002
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 727,519 $ -- $ -- $ 727,519
Cost of goods sold -- 681,933 -- -- 681,933
--------- --------- --------- --------- ---------
Gross profit -- 45,586 -- -- 45,586
Selling, general and administrative expenses 224 34,555 -- -- 34,779
Amortization of goodwill -- -- -- -- --
--------- --------- --------- --------- ---------
Operating income (loss) (224) 11,031 -- -- 10,807
Other income (expense), net 10,685 818 -- (10,685) 818
Interest income (expense), net (10,402) 2,303 (3,307) -- (11,406)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 59 14,152 (3,307) (10,685) 219
Income tax expense (benefit) (2,692) 160 -- -- (2,532)
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle 2,751 13,992 (3,307) (10,685) 2,751(4,423) 92 (933) 841 (4,423)
Cumulative effect of change in accounting principle (25,327) (25,327) -- 25,327 (25,327)
--------- --------- --------- --------- ---------
Net income (loss) $ (22,576)(29,750) $ (11,335)(25,235) $ (3,307)(933) $ 14,64226,168 $ (22,576)
========= ========= ========= ========= =========
Combining Statement of Income for the nine months ended September 30, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 715,610 $ -- $ -- $ 715,610
Cost of goods sold -- 678,890 -- -- 678,890
--------- --------- --------- --------- ---------
Gross profit -- 36,720 -- -- 36,720
Selling, general and administrative expenses 225 33,929 -- -- 34,154
Amortization of goodwill -- 3,357 -- -- 3,357
--------- --------- --------- --------- ---------
Operating income (loss) (225) (566) -- -- (791)
Other income (expense), net (2,227) 647 -- 2,227 647
Interest income (expense), net (10,056) 3,881 (5,589) -- (11,764)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (12,508) 3,962 (5,589) 2,227 (11,908)
Income tax expense -- 600 -- -- 600
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle (12,508) 3,362 (5,589) 2,227 (12,508)
Cumulative effect of change in accounting principle -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (12,508) $ 3,362 $ (5,589) $ 2,227 $ (12,508)(29,750)
========= ========= ========= ========= =========
Combining Statement of Cash Flows for the ninethree months ended September 30, 2002March 31, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $(22,576) $(11,335) $ (3,307)(6,493) $ 14,642 $(22,576)(2,189) $ (708) $ 2,897 $ (6,493)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation -- 15,9405,143 -- -- 15,9405,143
Amortization -- 762222 -- -- 762
Goodwill impairment charge 25,327 25,327 -- (25,327) 25,327222
Loss on disposal of property, plant and equipment -- 19612 -- -- 19612
Issuance of common stock in connection with stock awards 17090 -- -- -- 17090
Equity in undistributed net income of subsidiaries (10,685)2,897 -- -- 10,685(2,897) --
Changes in assets and liabilities:
(Increase) decreaseDecrease (increase) in accounts receivable, net -- (28,275)19,668 -- 28,219 (56)
Decrease(19,811) (143)
(Increase) in inventories -- 2,669(15,207) -- -- 2,669
(Increase)(15,207)
Decrease in net residual interest in receivables sold -- -- (17,875)21,200 -- (17,875)21,200
(Increase) in prepayments and other current assets -- (806)(1,011) -- -- (806)(1,011)
Decrease (increase) in other noncurrent assets 326 (2,745)109 (87) -- -- (2,419)22
Increase (decrease) in accounts payable 7,185 3,571 21,034 (28,219) 3,571747 (13,761) (20,558) 19,811 (13,761)
Increase (decrease) in accrued liabilities 1,091 2,754 1483,451 (2,515) 66 -- 3,993
(Decrease)1,002
Increase in other liabilities -- (4,736)691 -- -- (4,736)691
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 838 3,322801 (9,034) -- -- 4,160(8,233)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (10,089)(4,598) -- -- (10,089)(4,598)
Proceeds from sale of property, plant and equipment -- 233 -- -- 233
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (10,066)(4,595) -- -- (10,066)(4,595)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 351418 -- -- 351418
Proceeds from long-term debt -- 55,70033,707 -- -- 55,70033,707
Repayments of long-term debt -- (55,700)(33,707) -- -- (55,700)
Repayments of notes receivable from sale of common stock 1,561(33,707)
Cash dividends paid (801) -- -- -- 1,561
Cash dividends paid (2,399) -- -- -- (2,399)(801)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (838) 351(801) 418 -- -- (487)(383)
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (6,393)(13,211) -- -- (6,393)(13,211)
Cash and cash equivalents at beginning of period -- 6,39313,211 -- -- 6,39313,211
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the ninethree months ended September 30, 2001March 31, 2002
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $(12,508)$(29,750) $(25,235) $ 3,362(933) $ (5,589) $ 2,227 $(12,508)26,168 $(29,750)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation -- 24,6455,315 -- -- 24,6455,315
Amortization 7 4,298-- 319 -- -- 4,305319
Goodwill impairment charge 25,327 25,327 -- (25,327) 25,327
Loss on disposal of property, plant and equipment -- 3592 -- -- 3592
Issuance of common stock in connection with stock awards 10675 -- -- -- 10675
Equity in undistributed net income of subsidiaries 2,227841 -- -- (2,227)(841) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (67,884)(5,349) -- 67,136 (748)
Decrease5,201 (148)
(Increase) in inventories -- 23,724(8,563) -- -- 23,724(8,563)
(Increase) in net residual interest in receivables sold -- -- (54,492)(4,188) -- (54,492)(4,188)
Decrease in prepayments and other current assets 248 8,068-- 1,058 -- -- 8,3161,058
Decrease (increase) in other noncurrent assets 326 (771)109 (806) -- -- (445)(697)
Increase (decrease) in accounts payable 6,766 7,550 60,370 (67,136) 7,550321 8,573 4,880 (5,201) 8,573
Increase (decrease) in accrued liabilities 3,684 (9,062) (289)3,876 997 241 -- (5,667)5,114
(Decrease) in other liabilities -- (5,618)(1,374) -- -- (5,618)(1,374)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 856 (11,329)799 264 -- -- (10,473)1,063
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (7,217)(1,429) -- -- (7,217)(1,429)
Proceeds from sale of property, plant and equipment -- 90 -- -- 90-- --
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (7,127)(1,429) -- -- (7,127)(1,429)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 6,942 -- -- 6,942
Proceeds from long-term debt -- 48,06034,000 -- -- 48,06034,000
Repayments of long-term debt -- (48,060)(34,000) -- -- (48,060)
Repayments of notes receivable from sale of common stock 1,613(34,000)
Cash dividends paid (799) -- -- -- 1,613
Cash dividends paid (2,469) -- -- -- (2,469)(799)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (856) 6,942(799) -- -- 6,086-- (799)
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (11,514)(1,165) -- -- (11,514)(1,165)
Cash and cash equivalents at beginning of period -- 11,5146,393 -- -- 11,5146,393
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ --5,228 $ -- $ -- $ --5,228
======== ======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section should be read in conjunction with the condensed consolidated
financial statements and notes thereto included in item 1 of this report in
addition to the consolidated financial statements of the Company and the notes
thereto included in the Company's annual report to stockholders for the year
ended December 31, 2001,2002, including footnotenote 1 which describes the Company's
significant accounting policies including its use of estimates. See the caption
entitled "Application of Critical Accounting Policies" in this section for
further information. 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 the Private Securities
LegislationLitigation Reform Act of 1995 and involve risks and uncertainties that could
render them materially different, including, but not limited to, the effect of
global economic conditions, the ability to achieve the level of cost savings or
productivity improvements anticipated by management, the effect (including
possible increases in the cost of doing business) resulting from war and
terrorist activities or political uncertainties, the impact of competitive
products and pricing, product development and commercialization, availability
and cost of critical raw materials, 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 commercial
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.
During the first nine monthsquarter of 2002,2003, shipments of the Company's aluminum sheet
products increaseddecreased by 12% from the first nine months of 2001. This is the third
consecutive quarter of higher year-over-year shipment volume following a
downturn that began in the second quarter of 2000 and extended throughout 2001.
The positive impact of this increased volume, combined with lower depreciation
and amortization charges, more than offset the impact of lower material margins
in the first nine months of 2002 versus the first nine months of 2001 and helped
to increase profitability of the aluminum business unit for both the third
quarter and first nine months of 2002 compared to the same periods in 2001.
Material margins which had been declining somewhat in the first six months of
2002, increased in the third quarter of 2002 compared to the third quarter of
2001 and the first and second quarters of 2002 due to firmer pricingweakness in
certain markets, particularly for welded aluminum prices coupled with lower metal coststube. The decline in aluminum
shipments also reflected planned equipment downtime for maintenance and better scrap availability.capital
improvement outages during the first quarter of 2003. Despite the decreased
aluminum shipments, material margins for the first quarter of 2003 were higher
than the first quarter of 2002 primarily due to selling price increases which
went into effect during the first quarter of 2003, a strategic decision to
increase the volume of product available for spot sales plus the decision to
actively pursue new markets offering higher margin opportunities than the
Company's traditional markets.
Demand for the Company's electrical products decreased during the first nine
monthsquarter
of 2002.2003. Shipments were down 5%9% compared to the first nine months of 2001
as business conditions remained competitive and commercial construction activity
declined, however shipments were up 3% in the third quarter of 2002 compared toreflecting
continued weakness in key markets in the third quarter of 2001 which was the first such increase in two years.electrical products sector,
particularly commercial construction. Material margins for the first nine monthsquarter of
2002 increased 3%2003 decreased 10% from the first nine months of 2001, but decreased 8% in the third quarter of 2002 and were down 13% from the
secondfourth quarter of 2002. The reductionincrease in materialmanufacturing costs per foot in the
first nine monthsquarter of 20022003 compared to the first nine monthsquarter of 2001 more than offset
the2002 due to lower volumes
combined with lower net selling prices anddue to the competitive price environment
contributed to the decrease in material margin improvement
inmargins for the first nine monthsquarter of 20022003
versus the first nine months of 2001. The
Company's electrical products business continued to report operating profits
which were increased over the first nine months of 2001 principally due to a
decrease in selling, general and administrative expenses and the elimination of
goodwill amortization expense in 2002. However, in the third quarter of 2002
operating profits were down compared to the third quarter of 2001 primarily due
to a third quarter 2002 adjustment of employee healthcare costs as well as a
decrease in the composite selling price.2002.
During the second quarter of 2002, the Company completed its previously
announced transitional test
of goodwill as called for underupon adoption of Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Pursuant to this
test, the Company recorded a charge of $25.3 million or $1.58 per diluted share
(before and after tax), as a cumulative effect of a change in accounting
principle, to reflect the impairment of goodwill on the balance sheet as of
January 1, 2002. The Company's restated net loss for the first quarter of 2002,
giving effect to the change in accounting principle, was $29.8 million or $1.86
per diluted share. See the caption entitled "Cumulative effect of change in
accounting principle" in the following section and note 78 to the condensed
consolidated financial statements for additional information.
Application of Critical Accounting Policies
The Company's discussion and analysis of financial condition and results of
operation is based upon the Company's condensed consolidated financial
statements, which have been prepared in conformity with accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most critical accounting policies require the use of
estimates relating to the valuation of property, plant and equipment and
goodwill, assumptions for computing pension and postretirement benefits
obligations, allowance for uncollectible accounts receivable, assumptions for
computing workers'compensation liabilities and environmental liabilities. See
the caption entitled "Application of Critical Accounting Policies" in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of the Company's annual report to stockholders for the year
ended December 31, 2002 for additional information.
Results of Operations for the three months ended March 31, 2003 and nine months ended
September 30, 2002 and 2001 Net
Sales. Net sales for the quarter ended September 30, 2002, increased 2%March 31, 2003, decreased 4% to $254$212.0
million (including $29.8$24.7 million from Alflex) from $250$221.9 million (including
$29.9$28.9 million from Alflex) for the same period in 2001.2002. The increasedecrease is due to
an increase inthe combined effect of lower aluminum and electrical product shipments and lower
net selling prices of electrical products which more than offset a decreasean increase in the
net selling prices.prices of aluminum products. As mentioned previously, the decreased
aluminum shipments were primarily due to weakness in certain markets,
particularly for welded aluminum tube. Unit sales volume of aluminum increased 5%decreased
12% to 232.8183.7 million pounds for the thirdfirst quarter of 20022003 from 221.4209.5 million
pounds for the thirdfirst quarter of 2001.2002. Alflex unit sales volume was 130.3114.9 million
feet for the thirdfirst quarter of 2002, an increase of 3%2003 versus 126.9126.0 million feet for the comparable
period in 2001. Net sales for2002, a decline of 9%. As mentioned previously, the nine-month period ended September 30, 2002,
were $728 million (including $86.4 million from Alflex), a 2% increase from the
$716 million recordeddecrease was
primarily due to continued weakness in key markets in the first nine months of 2001 (including $92.4 million
from Alflex). The increase is due to the increased shipments resulting from
increased demand for aluminumelectrical products
across all of the Company's aluminum
products' markets. Unit sales volume of aluminum was 680.2 million pounds for
the first nine months of 2002, an increase of 12% from the 609.0 million pounds
for the first nine months of 2001. Alflex unit sales volume was 374.8 million
feet for the first nine months of 2002, a decrease of 5%, versus 393.4 million
feet for the comparable period in 2001.sector, particularly commercial construction.
Gross Profit. Gross profit for the quarter ended September 30, 2002, increasedMarch 31, 2003, decreased to
$19.4$9.3 million (7.6%(4.4% of net sales) from $14.5$10.5 million (5.8%(4.8% of net sales) for the
same period in 2001. Gross profit for the nine months ended September 30,
20022002. This decrease was $45.6 million (6.3% of net sales) versus $36.7 million (5.1% of net
sales) for the comparable period in 2001. The third quarter and nine-month
increases were related entirely to the aluminum business unit andAlflex as lower
material margins due primarily to increased volumesunit manufacturing costs combined with lower
net selling prices reduced Alflex's gross profit and greater manufacturing efficiencies, improving material
margins in the third quarter, lower natural gas rates, lower outside processing
costs plus lower depreciation expense as a result of asset impairment charges
recorded in the fourth quarter of 2001. All the above factors more than offset the
Aluminum business's increase in gross profit. Despite lower material margins experienced duringnet sales, the
first half of 2002 which were
due to the tighter scrap spreads for the six months of 2002 versus the same
period in 2001. These scrap spreads widened during the third quarter of 2002 as
scrap availability increased and coupled with lower primary metal costs and
firmer pricing for aluminum products translated into higher material margins in
the third quarter of 2002 versus the third quarter of 2001 and the first two
quarters of 2002. Alflex'sAluminum business's gross profit for the first nine monthsquarter of 2003 was higher than
the first quarter of 2002 versus
the first nine months of 2001 was down as decreased net sales revenue resulting
from decreased shipments and lower selling prices offset thereflecting improved material margins.margins due to the
factors mentioned previously.
Operating Income. The Company had operating income of $6.8 million for the third
quarter of 2002 compared with operating income of $2.1 million for the third
quarter of 2001. For the nine-month period ended September 30, 2002, the Company
had operating income of $10.8 million, versus an operating loss of $0.8$3.2 million for the
first nine monthsquarter of 2001.2003 compared with an operating loss of $0.7 million for the
first quarter of 2002. The increase in the operating incomeloss was related primarily
to the Aluminum business unitcombined effect of Alflex which had an operating incomeloss of $10.8
million and $18.8$1.0 million in
the thirdfirst quarter and first nine months of 2002,
respectively,2003 compared to operating income of $4.3 million and $6.1$2.0 million in the
thirdfirst quarter of 2002 and first nine monthsan increase in selling, general and administrative
which more than offset the increase in operating income of 2001, respectively.the Aluminum
business. The increaseschanges in the operating income of Alflex and the Aluminum
business were primarily due to the factors described in the gross profit section
in the preceding paragraph and the elimination of goodwill amortization in 2002 which
more than offset an increase in selling, general and administrative expenses.
Depreciation and amortization was $4.1 million lower in the third quarter of
2002 versus the third quarter of 2001 and $12.2 million lower in the first nine
months of 2002 compared to the first nine months of 2001.paragraph. Selling, general and administrative expenses during
the thirdfirst quarter of 20022003 were $12.5 million, compared with $11.3 million for
the same period in 2001 and were $34.8 million
for the nine months ended September 30, 2002, compared with $34.2 million for
the same period in 2001.2002. The increase in selling, general and administrative
expenses is primarily due to increased professional service costs associated with the
Company's project to upgrade its information system redesign and accruals for employee
incentive plans which more than offset lower depreciation as a resulttechnology systems.
Cumulative Effect of asset
impairment charges recordedChange in the fourth quarter of 2001 on assets which the
depreciation expense is classified in selling, general and administrative
expenses.
Cumulative effect of change in accounting principle.Accounting Principle. A non-cash goodwill
impairment charge of $25.3 million was recorded as a cumulative effect of change
in accounting principle as of January 1, 2002 under SFAS No.142. See note 78 to
the condensed consolidated financial statements for additional information.
Net Income.Income (Loss). The Company had a net incomeloss of $6.1$6.5 million for the quarter
ended September 30, 2002,March 31, 2003, compared withto a net loss of $1.6$29.8 million for the same
period in 2001. The Company's net loss for the nine months ended September 30, 2002 was
$22.6 million compared with a net loss of $12.5 million for the first nine
months of 2001.2002. Interest expense was $3.7 million for both the thirdquarter ended March
31, 2003, compared to $3.9 million recorded in the first quarter of 2002 and the third quarter of 2001 and $11.4 million for the nine months ended
September 30, 2002, compared with $11.8 million for the first nine months of
2001.2002. The
decrease in the nine months amount was primarily due to lowera reduction in interest rates under the Company's
receivables purchase agreement which more than offset the combined with a
reductioneffect of an
increase in amounts outstanding under the agreement which more than offsetand a reduction in
investment interest income. The Company had an income tax benefit
of $2.6 million in the third quarter of 2002 compared toThere was income tax expense of $0.2$0.1 million forin both
the same period in 2001 and an income tax benefit of $2.5
million for the nine months ended September 30, 2002, compared to income tax
expense of $0.6 million for the same period in 2001. The decrease in income tax
expense was due to a $2.7 million adjustment recorded in the thirdfirst quarter of 2002 to reduce prior years' income tax accruals.
Liquidity2003 and Capital Resources
The Company's sources of liquidity are cash flows from operations, the Company's
receivables purchase agreement described below and borrowings under its $30
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 2003.2002.
Off-Balance Sheet Arrangement
During 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 receivables purchase agreement 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 2000, the Company and the financial institution extended the
receivables purchase agreement for an additional three-year period ending in
September 2003 and in October 2002 extended the agreement for an additional year
ending in September 2004. In addition during September 2001, the Company and the
financial institution agreed to reduce the size of the facility to $95.0
million. At September 30,March 31, 2003 and 2002, and 2001, the Company had outstanding under the
agreement $20.0$55.0 million and $17.5$47.0 million, respectively, and had $100.2$60.0 million
and $126.9$86.5 million, respectively, of net residual interest in receivables sold.
The fair value of the net residual interest is measured at the time of the sale
and is based on the sale of similar assets. In the first ninethree months ofended March 31,
2003 and 2002, and
2001, the Company received gross proceeds of $37.0$42.0 million and $30.0$27.0
million, respectively, from the sale of receivables and made gross payments of
$37.0$11.0 million and $81.5 million, respectively,in the three months ended March 31, 2003 under the agreement. The
Company made no gross payments in the first three months of 2002. Under the
terms of the agreement, the Company is required to maintain tangible net worth
of $5 million, and to not exceed certain percentages of credit sales for
uncollectible accounts, delinquent accounts and sales returns and allowances.
Should the Company exceed such limitations, the financial institution has the
right to terminate the agreement.
Liquidity and Capital Resources
The Company's operations providedused cash flows of $4.2$8.2 million for the ninethree months
ended September 30, 2002March 31, 2003 compared to using $10.5providing cash flows of $1.1 million in the
ninethree months ended September 30, 2001.March 31, 2002. Working capital increased to $129.5$133.7 million
at September 30, 2002March 31, 2003 from $123.5$126.6 million at September 30, 2001.March 31, 2002.
Capital expenditures were $6.9$4.6 million during the quarter ended September 30,
2002 and $10.1March 31, 2003
compared to $1.4 million forduring the ninethree months ended September 30,March 31, 2002. At September 30, 2002,March
31, 2003, the Company had commitments of $16.0$7.8 million for the purchase or
construction of capital assets. Total capital expenditures for the year 20022003 are
expectedestimated to be approximately $18.9$18.8 million, all generally related to upgrading
and expanding the Company's manufacturing and other facilities, acquiring and
enhancing software and hardware as part of the Company's information system
redesign project and meeting environmental requirements.
The indicated annual rateCompany's sources of dividends being paid onliquidity are cash flows from operations, the Company's
Common Stockreceivables purchase agreement described previously and borrowings under its $30
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 for the next twelve months.
The Company's revolving credit facility permits borrowings and letters of credit
up to $30.0 million outstanding at any time. Availability is $0.20 per share, or an annual totalsubject to
satisfaction of approximately $3.2 million.certain covenants and other requirements. At March 31, 2003
$26.9 million was available. The facility expires on March 31, 2005. The
following schedules summarize the Company's contractual cash obligations and
unused availability of financing sources at September 30, 2002March 31, 2003 (in thousands).
Payments Due By Period
------------------------------------------------------------
Contractual Cash Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years
- ------------------------------------------------------------------------------------------------------------
Long-term debt $125,000 $ -- $ -- $125,000 $ --
Operating leases 13,158 3,517 4,460 1,783 3,39811,751 3,330 3,915 1,717 2,789
Standby letters of credit 2,839 2,8393,111 3,111 -- -- --
Outstanding obligation under
Receivablesreceivables purchase
Agreement 20,000 20,000agreement 55,000 55,000 -- -- --
----------------------------------------------------------------------
Total contractual cash obligations $160,997 $26,356 $4,460 $126,783 $3,398$194,862 $61,441 $3,915 $126,717 $2,789
======================================================================
Amount of Availability Per Period
Unused Availability of Total Amounts ----------------------------------------------------------------------------------------------------------------------
Financing Sources Available Less than 1 year 1-3 years 4-5 years Over 5 years
- ------------------------------------------------------------------------------------------------------------
Unused revolving credit
Facility $ 27,161facility $26,889 $ -- $27,161$26,889 $ -- $ --
Unused availability under
Receivablesreceivables purchase
agreement 75,00035,299 -- 75,00035,299 -- --
-------------------------------------------------------------------------------------------------------------------------------------------
Total available $102,161$62,188 $ -- $102,161$62,188 $ -- $ --
===========================================================================================================================================
The Company has approximately 8 1/7 3/4 years remaining on a 10-year guaranteed supply agreement
with Glencore Ltd. ("Glencore"), 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 pounds of P1020/99.7% aluminum at
current market prices from Glencore over the 10-year term beginning in January 2001.term.
At September 30, 2002,March 31, 2003, the Company held firm-priced aluminum purchase and sales
commitments through AprilDecember 2004 totaling $8$5 million and $167$113 million,
respectively. The Company hedges the impact of changes in prices related to
these commitments as explained in the section entitled "Risk Management" which
follows.
The indicated annual rate of dividends being paid on the Company's Common Stock
is $0.20 per share, or an annual total of about $3.2 million.
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 a policy
of hedging its anticipated raw material purchases based on firm-priced sales and
purchase orders by purchasing and selling futures contracts, forward contracts
and options on the London Metal Exchange ("LME"). The Company also uses forward
contracts and options to reduce its risks associated with its natural gas
requirements.
As described in note 6 to the condensed consolidated financial statements, theThe Company adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133") effective
January 1, 2001 and has designated virtually all of its aluminum and natural gas futures
contracts and forward contracts as cash flow hedges.hedges pursuant to Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities."
Gains and losses on these instruments that are deferred in other comprehensive
income are reclassified into net income as cost of goods sold in the periods
when the hedged transactions occur. As of September 30, 2002, approximately $4.9
million ofMarch 31, 2003, the $5.0Company had $1.3
million of deferred net lossesgains recorded in accumulated other comprehensive
income. Over the next twelve months, approximately $1.6 million of deferred net
gains are expected to be reclassified from other comprehensive income into net
income as a reduction of cost of goods sold over the next twelve months.sold. A net loss of $0.05$0.2 million and $0.16$0.1
million was recognized in cost of goods sold during the three months ended March
31, 2003 and nine months
ended September 30, 2002, respectively, and a net loss of $0.13 million and
$0.16 million was recognized in cost of goods sold during the three months and
nine months ended September 30, 2001, respectively, representing the amount of the hedges'
ineffectiveness. As of September 30, 2002,March 31, 2003, the Company held open aluminum and
natural gas futures and forward contracts having maturity dates extending
through March 2004.December 2005.
Before entering into futures contracts, forward 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 byexpect any such
counterparties.
In ordercounterparties to hedge a portion of its interest rate risk, the Company was a party
to an interest rate swap agreement with a notional amount of $5 million under
which the Company paid a fixed rate of interest and received a LIBOR-based
floating rate. The interest rate swap agreement expired during September 2001
and as of September 30, 2002 the Company had no interest rate swap agreements in
effect. The Company's interest rate swap agreement which expired during
September 2001 did not qualify for hedge accounting under SFAS 133 and as such
the change in the fair value of the interest rate swap agreement had been
recognized currently as interest expense, net in the Company's consolidated
statement of operations. The amount of such change in the fair value of the
interest rate swap agreement was immaterial for the three months and nine months
ended September 30, 2001.perform.
Recently Issued Accounting PronouncementsStandards
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). The Statement addresses financial and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 iswas effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management
does not expect theThe adoption
of this Statement todid not have a material impact on the Company's results of
operations or financial position.
In October 2001,April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal145, "Rescission of Long-Lived Assets"FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS
No. 144"145"). The Statement addresses
financial accountingeliminates Statement of Financial Accounting Standards
No. 4, "Reporting Gains and reporting for the impairment or disposalLosses from Extinguishment of long-lived
assets. This Statement supersedesDebt", which required
all gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item. Under SFAS No. 121,145, such gains
and losses should be classified as extraordinary only if they meet the accounting and reporting
provisionscriteria
of Accounting Principles Board Opinion No. 30, "Reporting the Results30. In addition, SFAS No. 145 amends
Statement of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions",Financial Accounting Standards No. 13, "Accounting for the disposal of a "segment of a business" (as previously defined in that
Opinion). This Statement also amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements"Leases", to
eliminate an inconsistency between the exceptionrequired accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to consolidationsale-leaseback transactions. SFAS 145
was generally effective for a subsidiaryfinancial statements issued for which control is likely to be temporary.fiscal years
beginning after May 15, 2002. The objectivesadoption of SFAS No. 144 are to address significant issues relating to the implementation of
SFAS No. 121 and to develop a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. The Company adopted SFAS No.
144 in the first quarter of 2002, as required. The Statement's initial adoptionthis Statement did not have a
material impact on the Company's results of operations or financial position.
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities"(" (" SFAS No. 146"). The Statement nullifies Emerging
Issues Task Force (EITF)("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity," under which
a liability for an exit cost was recognized at the date of an entity's
commitment to an exit plan. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized at fair value when
the liability is incurred. The provisions of this statement arewere effective for
exit or disposal activities that arewere initiated after December 31, 2002. The
adoption of this Statement did not have a material impact on the Company's
results of operations or financial position.
In November 2002, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 is an interpretation of Statement of
Financial Accounting Standards No. 5, No. 57 and No. 107. FIN 45 elaborates on
required disclosures by a guarantor in its financial statements about
obligations under certain guarantees that it has issued and clarifies the need
for a guarantor to recognize, at the inception of certain guarantees, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN 45 were effective as of December
31, 2002. The provisions of this Interpretation relating to initial recognition
and measurement of guarantor liabilities were effective for qualifying
guarantees entered into or modified after December 31, 2002. The adoption of
this Interpretation did not have a material impact on the Company's results of
operations or financial position.
In January 2003, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). This
Interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements" requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN46 was
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. Management does not
expect the adoption of this Interpretation to have a material impact on the
Company's results of operations or financial position.
Item 4. Controls and Procedures
The Company's certifying officers have concluded based on their evaluation of
the Company's disclosure controls and procedures that the disclosure controls
and procedures are effective in ensuring that material information relating to
the Company, including its consolidated subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which this Form 10-Q was being prepared and that both non-financial
and financial information required to be disclosed by the Company in its
periodic reports is recorded, processed, summarized and reported in a timely
fashion. The evaluation was conducted within 90 days of the filing date of this
Form 10-Q. In addition, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation.
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 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders (the "Meeting"), held
April 25, 2003 and adjourned and held May 5, 2003, the following matters were
submitted for a vote by the security holders:
Catherine G. Burke and Larry E. Kittelberger were elected directors for
terms expiring in 2006. There were 14,296,491 and 15,584,807,
respectively, votes cast for and 1,347,746 and 59,430, respectively,
abstentions. The terms of office of C. Frederick Fetterolf, Mark V.
Kaminski, Steven J. Demetriou, Paul E. Lego and John E. Merow continued
after the meeting.
Approval of an Amendment to the 1997 Stock Incentive Plan (increasing
by 1,000,000 the number of shares available for awards under the Plan).
There were 8,643,978 votes for and 3,147,430 votes against and 9,248
abstentions; and
Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for 2003. There were 15,610,168 votes
for and 24,974 votes against and 9,095 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There were no exhibits10.1 Fifth Amendment, dated as of October 29, 2002, 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 Amendment, dated May 5, 2003, to 1997 Stock Incentive Plan,
as amended and restated April 23, 1999.
(b) Reports on Form 8-K
There were no reportsThe following report on Form 8-K was filed with the Securities and Exchange
Commission during the quarter ended September 30,
2002.March 31, 2003:
A Form 8-K dated March 17, 2003 reporting that the Company sees
greater-than-expected loss in the first quarter of 2003.
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 and
Chief Financial Officer
Date: November 12, 2002May 8, 2003
CERTIFICATIONS
I, Mark V. Kaminski, certify that:
1. I have reviewed this quarterly report on formForm 10-Q of Commonwealth
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002May 8, 2003
/s/ Mark V. Kaminski
--------------------
Mark V. Kaminski
President and Chief Executive Officer
CERTIFICATIONS (continued)
I, Donald L. Marsh, Jr., certify that:
1. I have reviewed this quarterly report on formForm 10-Q of Commonwealth
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002May 8, 2003
/s/ Donald L. Marsh, Jr.
-------------------------
Donald L. Marsh, Jr.
Executive Vice President and
Chief Financial Officer
Exhibit Index
-------------
Exhibit
Number Description
- ------- ----------------------------------------
10.1 Fifth Amendment, dated as of October 29, 2002, 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 Amendment, dated May 5, 2003, to 1997 Stock Incentive Plan,
as amended and restated April 23, 1999.
Exhibit 10.1
------------
FIFTH AMENDMENT TO RECEIVABLES PURCHASE
AGREEMENT
THIS FIFTH AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT, dated as of
October 29, 2002 (this "Amendment"), is entered into among COMMONWEALTH
FINANCING CORP., a Delaware corporation (the "Seller"), COMMONWEALTH INDUSTRIES,
INC., a Delaware corporation ("Commonwealth"), MARKET STREET FUNDING
CORPORATION, a Delaware corporation (the "Issuer"), and PNC BANK, NATIONAL
ASSOCIATION, as Administrator (the "Administrator").
RECITALS
1. The Seller, Commonwealth, the Issuer and the Administrator are
parties to the Receivables Purchase Agreement, dated as of September 29, 1997
(as amended through the date hereof, the "Agreement"); and
2. The parties hereto desire to amend the Agreement as hereinafter set
forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Certain Defined Terms. Capitalized terms that are used herein
without definition and that are defined in Exhibit I to the Agreement shall have
the same meanings herein as therein defined.
2. Amendment to Agreement. Clause (a) of the definition of "Facility
Termination Date" that appears in Exhibit I to the Agreement, is hereby amended
by replacing the date "September 22, 2003" with the date "September 22, 2004"
therein.
3. Effect of Amendment. All provisions of the Agreement, as expressly
amended and modified by this Amendment, shall remain in full force and effect
and are hereby ratified and confirmed in all respects. After this Amendment
becomes effective, all references in the Agreement (or in any other Transaction
Document) to "this Agreement", "hereof", "herein" or words of similar effect
referring to the Agreement shall be deemed to be references to the Agreement as
amended by this Amendment. This Amendment shall not be deemed, either expressly
or impliedly, to waive, amend or supplement any provision of the Agreement other
than as set forth herein.
4. Effectiveness. This Amendment shall become effective as of the date
hereof upon receipt by the Administrator of counterparts of this Amendment
(whether by facsimile or otherwise) executed by each of the other parties
hereto, in form and substance satisfactory to the Administrator in its sole
discretion.
5. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute but one and the same instrument.
6. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of New York (without regard to
any otherwise applicable principles of conflicts of law), except to the extent
that the validity or perfection of the interests of the Issuer in the
Receivables or remedies hereunder in respect thereof are governed by the laws of
a jurisdiction other than the State of New York.
7. Section Headings. The various headings of this Amendment are
included for convenience only and shall not affect the meaning or interpretation
of this Amendment, the Agreement or any provision hereof or thereof.
(continued on following page)
Fifth Amendment to
Receivables Purchase Agreement
(Commonwealth Financing Corp.)
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
COMMONWEALTH FINANCING CORP.
By: _______________________________________________________
Name: _______________________________________________________
Title: ______________________________________________________
COMMONWEALTH INDUSTRIES, INC.
By: _______________________________________________________
Name: _______________________________________________________
Title: ______________________________________________________
MARKET STREET FUNDING CORPORATION,
as Issuer
By: _______________________________________________________
Name: _______________________________________________________
Title: ______________________________________________________
PNC BANK, NATIONAL ASSOCIATION,
as Administrator
By: _______________________________________________________
Name: _______________________________________________________
Title: ______________________________________________________
Exhibit 10.2
------------
AMENDMENT TO THE
COMMONWEALTH INDUSTRIES, INC.
1997 STOCK INCENTIVE PLAN
THIS AMENDMENT TO THE COMMONWEALTH INDUSTRIES, INC. 1997 STOCK
INCENTIVE PLAN (the "Plan") is made and entered into by Commonwealth
Industries, Inc. (the "Company").
WHEREAS, pursuant to Section 16 of the Company's 1997 Stock Incentive
Plan, the Board of Directors of the Company (the "Board") has the power and
authority to amend the Plan, subject to the approval of the Company's
stockholders in respect to certain amendments;
WHEREAS, the Board, has determined to amend the Plan to increase the
number of shares authorized for issuance thereunder, such amendment being
adopted subject to approval of the Company's stockholders.
NOW, THEREFORE, the Plan is amended as follows:
1. The first sentence of Section 4 of the Plan is hereby amended in its
entirely to provide as follows:
"4. Shares Subject to the Plan. The maximum number of shares of
--------------------------
Common Stock available for grant of Awards under the Plan shall be
2,350,000, subject to adjustment pursuant to Section 13 and to the
following provisions."
2. Section 6 of the Plan is amended by deleting the last paragraph at
the end of the section.
3. The foregoing amendments shall be effective upon their approval by the
stockholders of the Company.
IN WITNESS WHEREOF, Commonwealth Industries, Inc. has caused this
Amendment to the Plan to be executed by its duly authorized officer this
5th day of May, 2003.
Commonwealth Industries, Inc.
By: ___________________________________
Name: Mark V. Kaminski
Title: President and Chief Executive Officer