===============================================================================================================================================================
UNITED STATES
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, 2003March 31, 2004
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
PNC Plaza -19th- 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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate 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 16,010,97116,034,397 shares of common stock outstanding at October 29, 2003.
================================================================================May
1, 2004.
===============================================================================
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended September 30, 2003March 31, 2004
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
-----------
Condensed Consolidated Balance Sheet as of September
30, 2003March 31, 2004
and December 31, 20022003 3
Condensed Consolidated Statement of Operations for the three
months ended March 31, 2004 and nine months ended September 30, 2003
and 2002 4
Condensed Consolidated Statement of Comprehensive Income
for the three months ended March 31, 2004 and nine months ended September
30, 2003 and 2002 5
Condensed Consolidated Statement of Cash Flows for the ninethree
months ended September 30,March 31, 2004 and 2003 and 2002 6
Notes to Condensed Consolidated Financial Statements 7-197-18
Item 2. Management's Discussion and Analysis of Financial Condition 20-2619-26
and Results of Operations
Item 4. Controls and Procedures 26
Part II - Other Information
Item 1. Legal Proceedings 27
Item 4 Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
September 30,(Unaudited)
March 31, December 31,
2004 2003
2002
------------- -------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 2,940836 $ 13,211-
Accounts receivable, net 312 66551 451
Inventories 116,067 125,348143,407 131,365
Net residual interest in receivables sold 81,633 81,19573,006 64,214
Prepayments and other current assets 5,051 7,133
-------------18,983 14,194
-------------- -----------------
Total current assets 206,003 226,953236,783 210,224
Property, plant and equipment, net 142,868 146,968138,427 142,035
Goodwill 48,872 48,87219,265 19,265
Other noncurrent assets 5,423 6,111
-------------7,753 7,802
-------------- -----------------
Total assets $ 403,166402,228 $ 428,904
=============379,326
============== =================
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ 733
Long-term debt due within one year 5,104 --
Accounts payable $ 47,151 $ 59,59457,748 50,308
Accrued liabilities 27,507 28,527
-------------31,032 24,009
-------------- -----------------
Total current liabilities 74,658 88,12193,884 75,050
Long-term debt 128,190125,000 125,000
Other long-term liabilities 3,921 5,1833,707 3,845
Accrued pension benefits 27,043 26,74331,234 30,147
Accrued postretirement benefits 70,085 76,670
-------------63,898 67,146
-------------- -----------------
Total liabilities 303,897 321,717
-------------317,723 301,188
-------------- -----------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,010,97116,020,397 and 15,997,65116,010,971 shares outstanding at
September 30, 2003March 31, 2004 and December 31, 2002,2003, respectively 160 160
Additional paid-in capital 405,793 405,703 405,613
Accumulated deficit (284,999) (277,942)(305,603) (308,477)
Accumulated other comprehensive income:
Unrealized gain on security - 34
Minimum pension liability adjustment (21,391) (21,391)(21,276) (21,276)
Effects of cash flow hedges (204) 747
-------------5,431 1,994
-------------- -----------------
Total stockholders' equity 99,269 107,187
-------------84,505 78,138
-------------- -----------------
Total liabilities and stockholders' equity $ 403,166402,228 $ 428,904
=============379,326
============== =================
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Operations
(in thousands except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------------- ---------------------------March 31,
-------------------------------------
2004 2003
2002 2003 2002
---------- ----------- ----------- ------------------------ --------------
Net sales $ 248,117284,077 $ 253,933 $ 675,205 $ 727,519211,968
Cost of goods sold 231,760 234,571 637,316 681,933
---------- ----------- ----------- -----------263,620 202,650
------------- --------------
Gross profit 16,357 19,362 37,889 45,58620,457 9,318
Selling, general and administrative expenses 10,09413,913 12,524
33,311 34,779
---------- ----------- ----------- ------------------------ --------------
Operating income 6,263 6,838 4,578 10,807(loss) 6,544 (3,206)
Other income (expense), net 423 332 1,331 818494 494
Interest expense, net (3,728) (3,704) (11,215) (11,406)
---------- ----------- ----------- -----------(4,094) (3,701)
------------- --------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 2,958 3,466 (5,306) 2192,944 (6,413)
Income tax expense (benefit) 50 (2,610) 150 (2,532)
---------- ----------- ----------- -----------
Income (loss) before cumulative effect of
change in accounting principle 2,908 6,076 (5,456) 2,751
Cumulative effect of change in accounting principle - - - (25,327)
---------- ----------- ----------- -----------70 80
------------- --------------
Net income (loss) $ 2,9082,874 $ 6,076 $ (5,456) $ (22,576)
========== =========== =========== ===========(6,493)
============= ==============
Basic and diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle $ 0.18 $ 0.38 $ (0.34) $ 0.17
Cumulative effect of change in accounting principle - - - (1.58)
---------- ----------- ----------- -----------
Net income (loss) $ 0.18 $ 0.38 $ (0.34) $(1.41)
========== =========== =========== ===========
Diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle $ 0.18 $ 0.38 $ (0.34) $ 0.17
Cumulative effect of change in accounting principle - - - (1.57)
---------- ----------- ----------- -----------
Net income (loss) $ 0.18 $ 0.38 $ (0.34) $(1.40)
========== =========== =========== ===========share $0.18 ($0.41)
============= ==============
Weighted average shares outstanding
Basic 16,020 16,011
15,998Diluted 16,187 16,011 15,992
Diluted 16,034 16,092 16,011 16,100
Dividends paid per share $ - $ 0.05 $ 0.10 $ 0.15
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------ ---------------------March 31,
-------------------------
2004 2003
2002 2003 2002
------------------- -----------
-------- --------
Net income (loss) $ 2,9082,874 $ 6,076 $(5,456) $(22,576)
Other comprehensive(6,493)
Reclassification adjustment for realized gain on security
included in net income net of tax:(34) -
Minimum pension liability adjustment - -
Net change related to cash flow hedges:
Increase (decrease) in fair value of cash flow hedges (1,459) (6,313) 3,807 (3,174)4,162 3,276
Reclassification adjustment for (gains) losses included in
net income (1,743) 4,267 (4,758) 9,479
---------(725) (2,693)
---------- ----------- -------- --------
Net change related to cash flow hedges (3,202) (2,046) (951) 6,305
---------3,437 583
---------- ----------- -------- --------
Comprehensive income (loss) $ (294)6,277 $ 4,030 $(6,407) $(16,271)
=========(5,910)
========== =========== ======== ========
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
Nine(Unaudited)
Three months ended September 30,
----------------------------March 31,
-----------------------
2004 2003
2002
--------- ----------------- --------
Cash flows from operating activities:
Net income (loss) $ (5,456)2,874 $ (22,576)(6,493)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operations:
Depreciation 15,417 15,9405,643 5,143
Amortization 666 762
Goodwill impairment charge - 25,327255 222
Loss on disposal of property, plant and equipment 68 19621 12
Issuance of common stock in connection with stock awards 90 17090
Changes in assets and liabilities:
(Increase) in accounts receivable, net (246) (56)
Decrease(100) (143)
(Increase) in inventories 9,281 2,669(12,042) (15,207)
(Increase) decrease in net residual interest in receivablesinreceivables sold (438) (17,875)
Decrease (increase)(8,837) 21,200
(Increase) in prepayments and other current assets 25 (806)
Decrease (increase)(1,352) (1,011)
(Increase) decrease in other noncurrent assets (195) 22
(2,419)
(Decrease) increaseIncrease (decrease) in accounts payable (12,443) 3,5717,440 (13,761)
Increase in accrued liabilities 86 3,9937,023 1,002
(Decrease) increase in other liabilities (7,547) (4,736)
--------- ----------(2,299) 691
------- --------
Net cash (used in) provided by operating activities (475) 4,160
--------- ----------(1,479) (8,233)
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (11,543) (10,089)(2,118) (4,598)
Proceeds from sale of property, plant and equipment 158 23
--------- ----------62 3
------- --------
Net cash (used in) investing activities (11,385) (10,066)
--------- ----------(2,056) (4,595)
------- --------
Cash flows from financing activities:
Increase(Decrease) increase in outstanding checks in excess of deposits - 351(733) 418
Proceeds from long-term debt 75,168 55,70077,648 33,707
Repayments of long-term debt (71,978) (55,700)
Repayments of notes receivable from sale of common stock - 1,561(72,544) (33,707)
Cash dividends paid (1,601) (2,399)
--------- ----------- (801)
------- --------
Net cash provided by (used in) financing activities 1,589 (487)
--------- ----------4,371 (383)
------- --------
Net increase (decrease) in cash and cash equivalents (10,271) (6,393)836 (13,211)
Cash and cash equivalents at beginning of period - 13,211
6,393
--------- ----------------- --------
Cash and cash equivalents at end of period $ 2,940836 $ -
========= ================= ========
Supplemental disclosures:
Interest paid $ 7,584424 $ 7,551215
Income taxes paid (refunds received) 167 (492)119 78
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 accounting principles generally
accepted in the United States of America. 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 September 30, 2003,March 31, 2004, 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, 2002.2003. 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 and nine months ended September
30, 2003 and the nine months ended September 30, 2002 and the Company's net
income and basic and diluted net income per
share would have been reduceddecreased for the three months ended September 30, 2002March 31, 2004 and the
Company's net loss would have been increased for the three months ended March
31, 2003 to the pro forma amounts which follow (in thousands except per share
data):
Three months ended
September 30,March 31,
2004 2003 2002
---- ----
Net income (loss) as reported $2,908 $6,076$ 2,874 $(6,493)
Less total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects 50 110130 80
------ ------
Pro forma net income $2,858 $5,966
====== ======
Basic net income per share
As reported $0.18 $0.38
Pro forma 0.18 0.37
Diluted net income per share
As reported $0.18 $0.38
Pro forma 0.18 0.37
Nine months ended
September 30,
2003 2002
---- ----
Net income (loss) as reported $(5,456) $(22,576)
Less total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects 234 297
------- --------
Pro forma net income (loss) $(5,690) $(22,873)$ 2,744 $(6,573)
======= ===============
Basic and diluted net income (loss) per share
As reported $(0.34) $(1.41)$0.18 $(0.41)
Pro forma (0.36) (1.43)
Diluted net income (loss) per share
As reported $(0.34) $(1.40)
Pro forma (0.36) (1.43)0.17 (0.41)
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 2004.2004 and in February
2004, extended the agreement through the end of March 2005. 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, and in
October 2003, the availability was further reduced to $60.0 million and in February
2004, the availability was increased to $80.0 million and in May 2004 was
increased to $100 million. At September 30,March 31, 2004 and 2003, and 2002, the Company had
outstanding under the agreement $40.0$80.0 million and $20.0$55.0 million, respectively,
and had $81.6$73.0 million and $100.2$60.0 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 20032004 and 2002,2003, the Company received gross proceeds of $62.0$20.0
million and $37.0$42.0 million, respectively, from the sale of receivables and made
gross payments of $46.0 and $37.0$11.0 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
2004.
4. Inventories
Inventories consist of the following (in thousands):
September 30, 2003March 31, 2004 December 31, 2002
------------------2003
-------------- -----------------
Raw materials $ 24,10438,812 $ 22,71838,118
Work in process 51,429 46,67658,177 49,052
Finished goods 31,598 43,78048,292 38,051
Expendable parts and supplies 14,409 14,320
---------- -----------
121,540 127,49415,140 12,915
--------- ---------
160,421 138,136
LIFO reserve (5,473) (2,146)
---------- -----------(17,014) (6,771)
--------- ---------
$ 116,067143,407 $ 125,348
========== ===========131,365
========= =========
The Company'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 expendable parts and
supplies inventory. Inventories of approximately $93.0$129.6 million and $98.2$110.0
million, included in the above totals (before the LIFO reserve) at September 30,
2003March 31,
2004 and December 31, 2002,2003, 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.
5. Provision for Income Taxes
The Company recognized income tax expense of $0.05$0.07 million and $0.2$0.08 million for
the three months ended March 31, 2004 and nine months ended September 30, 2003, respectively,
compared to an income tax benefit of $2.6 million and $2.5 million for the three
months and nine months ended September 30, 2002, respectively. The Company
recorded an adjustment of $2.7 million in the three months ended September 30,
2002 to reduce prior year's income tax accruals.
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,
2004 2003 2002
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Income before cumulative effect of change in accounting principle $2,908 $6,076
Cumulative effect of change in accounting principle - -
------ ------
Net income $2,908 $6,076
====== ======(loss) $ 2,874 $(6,493)
======= =======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,020 16,011 15,998
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,020 16,011 15,998
Plus: dilutive effect of stock options 23 94167 -
------ ------
Adjusted weighted average shares 16,034 16,09216,187 16,011
====== ======
Net income (loss) per share data:
Basic and diluted per share data:
Income before cumulative effect of change in accounting principle $0.18 $0.38
Cumulative effect of change in accounting principle - -
------ ------
Net income $0.18 $0.38
====== ======
Nine months ended
September 30,
2003 2002
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Income (loss) before cumulative effect of change in accounting principle $(5,456) $2,751
Cumulative effect of change in accounting principle - (25,327)
------- -------
Net income (loss) $(5,456) $(22,576)
======= =======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,011 15,992
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,011 15,992
Plus: dilutive effect of stock options - 108
------ ------
Adjusted weighted average shares 16,011 16,100
====== ======
Basic per share data:
Income (loss) before cumulative effect of change in accounting principle $(0.34) $0.17
Cumulative effect of change in accounting principle - (1.58)
------ ------
Net income (loss) $(0.34) $(1.41)
====== ======
Diluted per share data:
Income (loss) before cumulative effect of change in accounting principle $(0.34) $0.17
Cumulative effect of change in accounting principle - (1.57)
------ ------
Net income (loss) $(0.34) $(1.40)
======$(0.41)
===== ======
Options to purchase 577,000583,000 common shares, which equate to 44,00477,089 incremental
common equivalent shares, for the nine months ended September 30, 2003 were excluded from the diluted calculation above for the three
months ended March 31, 2003, as their effect would have been antidilutive. In
addition, options to purchase 1,382,5001,124,789 and 1,092,0001,113,000 common shares for the
three months and nine months ended September 30,March 31, 2004 and 2003, respectively, and 794,000 common shares for both the three months and nine
months ended September 30, 2002 were excluded from the diluted
calculations above because the exercise prices on the options were greater than
the average market price for the periods.
7. Financial Instruments and Hedging Activities
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. For the second quarterlast three quarters of the year ending June 30,December 31, 2003
and the thirdfirst quarter ending September 30, 2003,March 31, 2004, the Company's aluminum futures
contracts did not meet certain "effectiveness" requirements set forth in
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").
Accordingly, as prescribed by the provisions of SFAS No. 133, the derivative
instruments used as hedges were marked-to-market and the gains and losses during
the second and thirdlast three quarters of 2003 and the first quarter of 2004 were recorded
currently in the consolidated statement of operations instead of being deferred
in other comprehensive income and included in income when the underlying hedged
transactions occur. The Company's natural gas futures continue to be deemed
"effective" per SFAS No. 133 and accordingly the gains and losses on these
financial instruments are deferred in other comprehensive income and included in
income when the underlying hedged transactions occur.
As of September 30, 2003,March 31, 2004, the Company had $0.2$5.4 million of deferred net lossesgains
recorded in accumulated other comprehensive income. Over the next twelve months,
approximately $0.6$4.2 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. As of September 30, 2003,March 31, 2004, the Company held open aluminum and natural gas
futures and forward contracts and aluminum options having maturity dates
extending through December 2005.2006. A net gain of $1.1$3.0 million and $1.5 million was recognized as a reduction
in cost of goods sold during the three months and nine months ended September
30, 2003, respectively, and a net loss of
$0.05 million and $0.16$0.2 million was recognized in cost of goods sold during the three months ended
March 31, 2004 and nine months ended
September 30, 2002,2003, 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 was subsequently
superseded 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 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 was 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 recorded a goodwill impairment loss of $25.3 million ($13.5
million in its aluminum segment and $11.8 million in its electrical products
segment). As required by SFAS No. 142 and as 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.
During the fourth quarter of 2003, the Company performed its annual impairment
review of the Company's remaining goodwill balance relating to the Alflex
electrical products segment and determined that an additional goodwill
impairment write-down of $29.6 million was necessary. The impairment loss was
due to increased competition in the electrical products industry which lowered
the operating profits and cash flows during 2003 over what had been expected.
Based upon this trend, the long-term earnings and cash flow forecasts were
revised.
The following displays the changes in the carrying amount of goodwill in each of
the Company's reportable segments for the three months ended Marchsince December 31, 20022001 (in thousands). There
have beenwere no further changes in the carrying amount of goodwill sinceduring the three months ended
March 31, 2002:2004 and 2003:
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 MarchDecember 31, 2002 - 48,872 48,872
Goodwill impairment loss as a result of annual
Impairment test performed in fourth quarter - (29,607) (29,607)
------ ------- -------
Balance December 31, 2003 $ - $48,872 $48,872
======== ========$19,265 $19,265
====== ======= =======
The Company has no other intangible assets other than the goodwill discussed
above.
9. Pension Plans
The Company has two defined benefit pension plans covering certain salaried and
non-salaried employees. The components of net pension expense for the three
months ended March 31 are as follows (in thousands):
2004 2003
---- ----
Components of net pension expense:
Service cost $ 856 $ 755
Interest cost 1,747 1,632
Expected return on plan assets (1,715) (1,462)
Amortization of prior service cost (benefit) 46 (5)
Recognized net actuarial loss 341 355
------ ------
Net pension expense $1,275 $1,275
====== ======
The Company previously disclosed in its annual report to stockholders for the
year ended December 31, 2003, that the Company expected to contribute $4.7
million of contributions to the plans in the year ended December 31, 2004. As of
March 31, 2004, $0.2 million of contributions have been made.
10. Postretirement Benefits Other Than Pensions
The Company provides postretirement health care and life insurance benefits to
certain employees hired on or before September 1, 1998. The components of net
postretirement benefit expense for the three months ended March 31 are as
follows (in thousands):
2004 2003
---- ----
Components of net postretirement benefit expense:
Service cost $ 128 $155
Interest cost 748 1,005
Amortization of prior service cost (benefit) (2,373) (739)
Recognized net actuarial gain (66) (63)
------ -----
Net postretirement benefit expense (income) ($1,563) $358
====== =====
The Company previously disclosed in its annual report to stockholders for the
year ended December 31, 2003, that the Company expected to contribute $4.0
million of contributions to the plan in the year ended December 31, 2004. As of
March 31, 2004, $1.7 million of contributions have been made.
11. 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, 2002.2003. All intersegment sales prices are market based. The
Company evaluates the performance of its operating segments based upon operating
income.
The Company's reportable segments are strategic business unitsbusinesses 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, 2004 and nine months ended
September 30, 2003 and 2002
(in thousands). 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. Certain
expenses and assets relating to information technology which prior to the first quarter of 2003 had been allocated to
reportable segments are no longer being allocated. Prior period amounts have
been reclassified to conform with current classifications.
Electrical
Aluminum Products Other Total
-------- ---------- --------- ----------------- --------
Three months ended September 30, 2003March 31, 2004
- ----------------------------------------------------------------------
Net sales to external customers $221,213 $26,904 $ -- $248,117$252,254 $31,823 $-- $284,077
Intersegment net sales 3,9066,023 -- (3,906)(6,023) --
Operating income (loss) 11,112 29 (4,878) 6,26312,193 2,959 (8,608) 6,544
Depreciation 4,6084,573 429 641 5,643
Amortization -- -- 255 255
Total assets 326,745 62,419 13,064 402,228
Capital expenditures 1,523 595 -- 2,118
Three months ended March 31, 2003
- ---------------------------------
Net sales to external customers $187,286 $24,682 $-- $211,968
Intersegment net sales 5,647 -- (5,647) --
Operating income (loss) 4,886 (1,019) (7,073) (3,206)
Depreciation 4,584 559 -- 5,1675,143
Amortization -- -- 222 222
Total assets 303,908 86,393 12,865 403,166315,242 85,245 8,842 409,329
Capital expenditures 1,353 77 3,022 4,452
Three months ended September 30, 2002
- -------------------------------------
Net sales to external customers $224,124 $29,809 $ -- $253,933
Intersegment net sales 4,656 -- (4,656) --
Operating income (loss) 11,506 1,137 (5,805) 6,838
Depreciation 4,725 571 -- 5,296
Amortization -- -- 225 225
Total assets 324,589 93,236 1,742 419,567
Capital expenditures 2,975 11 3,909 6,895
Nine months ended September 30, 2003
- ------------------------------------
Net sales to external customers $598,598 $76,607 $ -- $675,205
Intersegment net sales 12,422 -- (12,422) --
Operating income (loss) 22,271 (1,017) (16,676) 4,578
Depreciation 13,740 1,677 -- 15,417
Amortization -- -- 666 666
Total assets 303,908 86,393 12,865 403,166
Capital expenditures 4,920 345 6,278 11,543
Nine months ended September 30, 2002
- ------------------------------------
Net sales to external customers $641,081 $86,438 $ -- $727,519
Intersegment net sales 14,190 -- (14,190) --
Operating income (loss) 21,484 5,069 (15,746) 10,807
Depreciation 14,228 1,712 -- 15,940
Amortization -- -- 762 762
Total assets 324,589 93,236 1,742 419,567
Capital expenditures 5,926 254 3,909 10,0892,559 2 2,037 4,598
10.12. 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, 2003March 31, 2004 and December 31, 2002,2003 and a
statement of operations for the three months and nine months ended September 30,
2003 and 2002 and statement of cash flows for the ninethree months ended
September
30, 2003March 31, 2004 and 2002.2003.
Combining Balance Sheet at September 30,March 31, 2004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 836 $ -- $ -- $ 836
Accounts receivable, net -- 299,230 -- (298,679) 551
Inventories -- 143,407 -- -- 143,407
Net residual interest in receivables sold -- -- 73,006 -- 73,006
Prepayments and other current assets 435 18,548 -- -- 18,983
--------- --------- --------- --------- ---------
Total current assets 435 462,021 73,006 (298,679) 236,783
Property, plant and equipment, net 2 138,425 -- -- 138,427
Goodwill -- 19,265 -- -- 19,265
Other noncurrent assets 411,129 7,100 -- (410,476) 7,753
--------- --------- --------- --------- ---------
Total assets $ 411,566 $ 626,811 $ 73,006 $(709,155) $ 402,228
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Long-term debt due within one year $ -- $ 5,104 $ -- $ -- $ 5,104
Accounts payable 176,770 57,741 121,916 (298,679) 57,748
Accrued liabilities 9,446 22,170 (584) -- 31,032
--------- --------- --------- --------- ---------
Total current liabilities 186,216 85,015 121,332 (298,679) 93,884
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 3,707 -- -- 3,707
Accrued pension benefits -- 31,234 -- -- 31,234
Accrued postretirement benefits -- 63,898 -- -- 63,898
--------- --------- --------- --------- ---------
Total liabilities 311,216 183,854 121,332 (298,679) 317,723
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 160 1 -- (1) 160
Additional paid-in capital 405,793 486,727 5,000 (491,727) 405,793
Accumulated deficit (305,603) (27,926) (53,326) 81,252 (305,603)
Accumulated other comprehensive income:
Minimum pension liability adjustment -- (21,276) -- -- (21,276)
Effects of cash flow hedges -- 5,431 -- -- 5,431
--------- --------- --------- --------- ---------
Total stockholders' equity 100,350 442,957 (48,326) (410,476) 84,505
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 411,566 $ 626,811 $ 73,006 $(709,155) $ 402,228
========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 2,940-- $ -- $ -- $ 2,940--
Accounts receivable, net -- 298,466288,989 -- (298,154) 312(288,538) 451
Inventories -- 116,067131,365 -- -- 116,067131,365
Net residual interest in receivables sold -- -- 81,63364,214 -- 81,63364,214
Prepayments and other current assets 435 4,61613,759 -- -- 5,05114,194
--------- --------- --------- --------- ---------
Total current assets 435 422,089 81,633 (298,154) 206,003434,113 64,214 (288,538) 210,224
Property, plant and equipment, net -- 142,8683 142,032 -- -- 142,868142,035
Goodwill net -- 48,87219,265 -- -- 48,87219,265
Other noncurrent assets 424,757 4,552404,703 7,040 -- (423,886) 5,423(403,941) 7,802
--------- --------- --------- --------- ---------
Total assets $ 425,192405,141 $ 618,381602,450 $ 81,633 $(722,040)64,214 $(692,479) $ 403,166379,326
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ 733 $ -- $ -- $ 733
Accounts payable $ 170,063 $ 47,151 $ 128,091 $(298,154) $ 47,151176,832 50,303 111,711 (288,538) 50,308
Accrued liabilities 9,265 19,000 (758)5,923 18,576 (490) -- 27,50724,009
--------- --------- --------- --------- ---------
Total current liabilities 179,328 66,151 127,333 (298,154) 74,658182,755 69,612 111,221 (288,538) 75,050
Long-term debt 125,000 3,190 -- -- 128,190-- 125,000
Other long-term liabilities -- 3,9213,845 -- -- 3,9213,845
Accrued pension benefits -- 27,04330,147 -- -- 27,04330,147
Accrued postretirement benefits -- 70,08567,146 -- -- 70,08567,146
--------- --------- --------- --------- ---------
Total liabilities 304,328 170,390 127,333 (298,154) 303,897307,755 170,750 111,221 (288,538) 301,188
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 160 1 -- (1) 160
Additional paid-in capital 405,703 486,727 5,000 (491,727) 405,703
Accumulated deficit (284,999) (17,142) (50,700) 67,842 (284,999)(308,477) (35,746) (52,041) 87,787 (308,477)
Accumulated other comprehensive income:
Unrealized gain on security -- -- 34 -- 34
Minimum pension liability adjustment -- (21,391)(21,276) -- -- (21,391)(21,276)
Effects of cash flow hedges -- (204)1,994 -- -- (204)1,994
--------- --------- --------- --------- ---------
Total stockholders' equity 120,864 447,991 (45,700) (423,886) 99,26997,386 431,700 (47,007) (403,941) 78,138
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 425,192405,141 $ 618,381602,450 $ 81,633 $(722,040)64,214 $(692,479) $ 403,166379,326
========= ========= ========= ========= =========
Combining Balance Sheet at DecemberStatement of Operations for the three months ended March 31, 20022004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ ----------------- --------- --------- ---------
Assets
Current assets:
Cash and cash equivalentsNet sales $ -- $ 13,211284,077 $ -- $ -- $ 13,211
Accounts receivable, net284,077
Cost of goods sold -- 286,847 -- (286,781) 66
Inventories -- 125,348263,620 -- -- 125,348
Net residual interest in receivables sold -- -- 81,195 -- 81,195
Prepayments and other current assets 435 6,698 -- -- 7,133263,620
--------- --------- --------- --------- ---------
Total current assets 435 432,104 81,195 (286,781) 226,953
Property, plant and equipment, netGross profit -- 146,96820,457 -- -- 146,968
Goodwill, net20,457
Selling, general and administrative expenses 193 13,675 45 -- 48,872 -- -- 48,872
Other noncurrent assets 419,913 4,913 -- (418,715) 6,11113,913
--------- --------- --------- --------- ---------
Total assets $ 420,348 $ 632,857 $ 81,195 $(705,496) $ 428,904
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Accounts payable $ 161,658 $ 59,594 $ 125,123 $(286,781) $ 59,594
Accrued liabilities 5,859 23,515 (847)Operating income (loss) (193) 6,782 (45) -- 28,5276,544
Other income (expense), net 6,535 383 111 (6,535) 494
Interest income (expense), net (3,468) 725 (1,351) -- (4,094)
--------- --------- --------- --------- ---------
Total current liabilities 167,517 83,109 124,276 (286,781) 88,121
Long-term debt 125,000Income (loss) before income taxes 2,874 7,890 (1,285) (6,535) 2,944
Income tax expense -- 70 -- -- -- 125,000
Other long-term liabilities -- 5,183 -- -- 5,183
Accrued pension benefits -- 26,743 -- -- 26,743
Accrued postretirement benefits -- 76,670 -- -- 76,67070
--------- --------- --------- --------- ---------
Total liabilities 292,517 191,705 124,276 (286,781) 321,717
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 160 1 -- (1) 160
Additional paid-in capital 405,613 486,727 5,000 (491,727) 405,613
Accumulated deficit (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 -- 747 -- -- 747
--------- --------- --------- --------- ---------
Total stockholders' equity 127,831 441,152 (43,081) (418,715) 107,187
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equityNet income (loss) $ 420,3482,874 $ 632,8577,820 $ 81,195 $(705,496)(1,285) $ 428,904(6,535) $ 2,874
========= ========= ========= ========= =========
Combining Statement of Operations 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 $ -- $ 248,117211,968 $ -- $ -- $ 248,117211,968
Cost of goods sold -- 231,760202,650 -- -- 231,760202,650
--------- --------- --------- --------- ---------
Gross profit -- 16,3579,318 -- -- 16,3579,318
Selling, general and administrative expenses 52 10,042128 12,396 -- -- 10,09412,524
--------- --------- --------- --------- ---------
Operating income (loss) (52) 6,315(128) (3,078) -- -- 6,263(3,206)
Other income (expense), net 6,428 423(2,897) 494 -- (6,428) 4232,897 494
Interest income (expense), net (3,468) 652 (912)475 (708) -- (3,728)(3,701)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 2,908 7,390 (912) (6,428) 2,958(6,493) (2,109) (708) 2,897 (6,413)
Income tax expense -- 5080 -- -- 50
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle 2,908 7,340 (912) (6,428) 2,908
Cumulative effect of change in accounting principle -- -- -- -- --80
--------- --------- --------- --------- ---------
Net income (loss) $ 2,908(6,493) $ 7,340(2,189) $ (912)(708) $ (6,428)2,897 $ 2,908(6,493)
========= ========= ========= ========= =========
Combining Statement of IncomeCash Flows for the three months ended September 30, 2002March 31, 2004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- --------- --------- -------------------
Cash flows from operating activities:
Net salesincome (loss) $ 2,874 $ 7,820 $ (1,285) $ (6,535) $ 2,874
Adjustments to reconcile net income (loss) to
net cash (used in) operations:
Depreciation 1 5,642 -- -- 5,643
Amortization -- 244 11 -- 255
Loss on disposal of property, plant and equipment -- 21 -- -- 21
Issuance of common stock in connection with stock awards 90 -- -- -- 90
Equity in undistributed net income of subsidiaries (6,535) -- -- 6,535 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (10,241) -- 10,141 (100)
(Increase) in inventories -- (12,042) -- -- (12,042)
(Increase) in net residual interest in receivables sold -- -- (8,837) -- (8,837)
(Increase) in prepayments and other current assets -- (1,352) -- -- (1,352)
Decrease (increase) in other noncurrent assets 109 (304) -- -- (195)
(Decrease) increase in accounts payable (62) 7,438 10,205 (10,141) 7,440
Increase (decrease) in accrued liabilities 3,523 3,594 (94) -- 7,023
(Decrease) in other liabilities -- (2,299) -- -- (2,299)
-------- -------- -------- -------- --------
Net cash (used in) operating activities -- (1,479) -- -- (1,479)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (2,118) -- -- (2,118)
Proceeds from sale of property, plant and equipment -- 62 -- -- 62
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (2,056) -- -- (2,056)
-------- -------- -------- -------- --------
Cash flows from financing activities:
(Decrease) in outstanding checks in excess of deposits -- (733) -- -- (733)
Proceeds from long-term debt -- 77,648 -- -- 77,648
Repayments of long-term debt -- (72,544) -- -- (72,544)
-------- -------- -------- -------- --------
Net cash provided by financing activities -- 4,371 -- -- 4,371
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 836 -- -- 836
Cash and cash equivalents at beginning of period -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 253,933836 $ -- $ -- $ 253,933
Cost of goods sold -- 234,571 -- -- 234,571
--------- --------- --------- --------- ---------
Gross profit -- 19,362 -- -- 19,362
Selling, general and administrative expenses 51 12,473 -- -- 12,524
Amortization of goodwill -- -- -- -- --
--------- --------- --------- --------- ---------
Operating income (loss) (51) 6,889 -- -- 6,838
Other income (expense), net 6,904 332 -- (6,904) 332
Interest income (expense), net (3,469) 807 (1,042) -- (3,704)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 3,384 8,028 (1,042) (6,904) 3,466
Income tax expense (benefit) (2,692) 82 -- -- (2,610)
--------- --------- --------- --------- ---------
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 Operations for the nine months ended September 30, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 675,205 $ -- $ -- $ 675,205
Cost of goods sold -- 637,316 -- -- 637,316
--------- --------- --------- --------- ---------
Gross profit -- 37,889 -- -- 37,889
Selling, general and administrative expenses 224 33,087 -- -- 33,311
--------- --------- --------- --------- ---------
Operating income (loss) (224) 4,802 -- -- 4,578
Other income (expense), net 5,171 1,331 -- (5,171) 1,331
Interest income (expense), net (10,403) 1,807 (2,619) -- (11,215)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (5,456) 7,940 (2,619) (5,171) (5,306)
Income tax expense -- 150 -- -- 150
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle (5,456) 7,790 (2,619) (5,171) (5,456)
Cumulative effect of change in accounting principle -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (5,456) $ 7,790 $ (2,619) $ (5,171) $ (5,456)
========= ========= ========= ========= =========
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
Cumulative effect of change in accounting principle (25,327) (25,327) -- 25,327 (25,327)
--------- --------- --------- --------- ---------
Net income (loss) $ (22,576) $ (11,335) $ (3,307) $ 14,642 $ (22,576)
========= ========= ========= ========= =========836
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the ninethree months ended September 30,March 31, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ (5,456)(6,493) $ 7,790(2,189) $ (2,619)(708) $ (5,171)2,897 $ (5,456)(6,493)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation -- 15,4175,143 -- -- 15,4175,143
Amortization -- 666222 -- -- 666222
Loss on disposal of property, plant and equipment -- 6812 -- -- 6812
Issuance of common stock in connection with stock awards 90 -- -- -- 90
Equity in undistributed net income of subsidiaries (5,171)2,897 -- -- 5,171(2,897) --
Changes in assets and liabilities:
(Increase) decreaseDecrease (increase) in accounts receivable, net -- (11,619)19,668 -- 11,373 (246)
Decrease(19,811) (143)
(Increase) in inventories -- 9,281(15,207) -- -- 9,281
(Increase)(15,207)
Decrease in net residual interest in receivables sold -- -- (438)21,200 -- (438)
Decrease21,200
(Increase) in prepayments and other current assets -- 25(1,011) -- -- 25(1,011)
Decrease (increase) in other noncurrent assets 327 (305)109 (87) -- -- 22
Increase (decrease) in accounts payable 8,405 (12,443) 2,968 (11,373) (12,443)747 (13,761) (20,558) 19,811 (13,761)
Increase (decrease) in accrued liabilities 3,406 (3,409) 893,451 (2,515) 66 -- 86
(Decrease)1,002
Increase in other liabilities -- (7,547)691 -- -- (7,547)691
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 1,601 (2,076)801 (9,034) -- -- (475)(8,233)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (11,543)(4,598) -- -- (11,543)(4,598)
Proceeds from sale of property, plant and equipment -- 1583 -- -- 1583
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (11,385)(4,595) -- -- (11,385)(4,595)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 418 -- -- 418
Proceeds from long-term debt -- 75,16833,707 -- -- 75,16833,707
Repayments of long-term debt -- (71,978)(33,707) -- -- (71,978)(33,707)
Cash dividends paid (1,601)(801) -- -- -- (1,601)(801)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (1,601) 3,190(801) 418 -- -- 1,589(383)
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (10,271)(13,211) -- -- (10,271)(13,211)
Cash and cash equivalents at beginning of period -- 13,211 -- -- 13,211
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 2,940 $ -- $ -- $ 2,940
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the nine months ended September 30, 2002
(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) $ 14,642 $(22,576)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation -- 15,940 -- -- 15,940
Amortization -- 762 -- -- 762
Goodwill impairment charge 25,327 25,327 -- (25,327) 25,327
Loss on disposal of property, plant and equipment -- 196 -- -- 196
Issuance of common stock in connection with stock awards 170 -- -- -- 170
Equity in undistributed net income of subsidiaries (10,685) -- -- 10,685 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (28,275) -- 28,219 (56)
Decrease in inventories -- 2,669 -- -- 2,669
(Increase) in net residual interest in receivables sold -- -- (17,875) -- (17,875)
(Increase) in prepayments and other current assets -- (806) -- -- (806)
Decrease (increase) in other noncurrent assets 326 (2,745) -- -- (2,419)
Increase (decrease) in accounts payable 7,185 3,571 21,034 (28,219) 3,571
Increase in accrued liabilities 1,091 2,754 148 -- 3,993
(Decrease) in other liabilities -- (4,736) -- -- (4,736)
-------- -------- -------- -------- --------
Net cash provided by operating activities 838 3,322 -- -- 4,160
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (10,089) -- -- (10,089)
Proceeds from sale of property, plant and equipment -- 23 -- -- 23
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (10,066) -- -- (10,066)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 351 -- -- 351
Proceeds from long-term debt -- 55,700 -- -- 55,700
Repayments of long-term debt -- (55,700) -- -- (55,700)
Repayments of notes receivable from sale of common stock 1,561 -- -- -- 1,561
Cash dividends paid (2,399) -- -- -- (2,399)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (838) 351 -- -- (487)
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (6,393) -- -- (6,393)
Cash and cash equivalents at beginning of period -- 6,393 -- -- 6,393
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
13. Contingencies
The Company disclosed in its annual report to stockholders for the year ended
December 31, 2003 that Goldendale Aluminum Company ("Goldendale Aluminum") had
filed for bankruptcy protection in December 2003. The Company still cannot
presently quantify any additional liability that may be incurred as a result of
Goldendale Aluminum's bankruptcy filing. Reference is made to footnote 13
"Contingencies" in the Company's annual report to stockholders for the year
ended December 31, 2003 for additional information.
14. Recently Issued Accounting Standards
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"), and issued a
revision in December 2003. 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. FIN 46 was effective for the Company in the quarter ending March
31, 2004. The Statement's initial adoption did not have a material impact on the
Company's results of operations or financial position.
In December 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 132 (revised 2003), "Employers' Disclosures
about Pensions and Other Postretirement Benefits". The Statement requires
additional disclosures about an employer's pension plans and postretirement
benefits plans such as: the types of plan assets, investment strategy,
measurement date, plan obligations, cash flows, and components of net periodic
benefit cost recognized during interim periods. See notes 9 and 10 to the
condensed consolidated financial statements for the required additional
disclosures for interim periods.
In January 2004, the Financial Accounting Standards Board issued Staff Position
No. FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003" ("FSP FAS 106-1").
FSP FAS 106-1 allows companies to assess the effect of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 ("the Act") on their
postretirement benefit obligations and costs and reflect the effects in their
financial statements, pursuant to SFAS No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions." Companies are also allowed to make
a one-time election to defer accounting for the effects of the Act until
authoritative guidance is issued. The guidance in FSP FAS 106-1 is effective for
years ending after December 7, 2003. In accordance with FSP FAS 106-1, the
accumulated postretirement benefit obligation and net periodic postretirement
benefit expense (income) in the Company's consolidated financial statements do
not reflect the effects of the Act on the Company's postretirement health care
plan. In addition, specific authoritative guidance on the accounting for the
federal subsidy, one of the provisions of the Act, is pending, and that
guidance, when issued, could require the Company to change previously reported
information.
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, 2002,2003, including footnote 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
Litigation Reform Act of 1995 and involve risks and uncertainties that could
render them materially different, including, but not limited to, the success of
the implementation of the company-wide information system, 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 ability to successfully
implement new marketing and sales strategies, the impact of competitive products
and pricing, product development and commercialization, availability and cost of
critical raw materials, the ability to effectively hedge the cost of 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 operates two businesses, an aluminum business and an electrical
products business. The aluminum business is the larger of the two, accounting
for approximately 89% of net sales in 2003. The aluminum business manufactures
non-heat treat coiledcoil aluminum sheet forproducts, generally referred to as common
alloy products, that are sold through distributors and theto end-users, principally
in building and construction, transportation, construction and consumer durables end use markets and electrical flexible conduitwelded tube
product markets. Both businesses are highly cyclical in nature and prewired armored cableare affected
by global economic conditions, market competition, product development and
commercialization and other such factors that influence supply and demand for
the commercial
construction and renovation markets.products produced by the Company.
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 primary 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 materialmaterials ("material
margins") and its unit cost of converting raw materialmaterials into its products
("conversion cost"). While changes in aluminum and copper prices can cause the
Company's net sales to changevary significantly from period to period, net income is
more directly impacted by the fluctuationfluctuations in material margins.
Duringmargins and conversion cost.
The price of aluminum metal affects the first nine months of 2003, shipmentsprice of the Company's products and in
the longer term can have an effect on the competitive position of aluminum in
relation to alternative materials. The price of primary metal is determined
largely by worldwide supply and demand conditions and is highly cyclical. The
price of primary aluminum in world markets greatly influences the price of
aluminum scrap, the Company's principal raw material. Significant movements in
the price of primary aluminum can affect the Company's margins, however,
aluminum sheet prices do not always move simultaneously nor necessarily to the
same degree as the primary markets. The Company seeks to manage its material
margins by focusing on higher margin products decreasedand by 18%sourcing the scrap and
primary metal markets in the most cost-effective manner. An important element in
the Company's management of its material margins involves the use of futures
contracts to hedge the Company's exposure to the risk of changes in aluminum
prices.
The use of futures contracts to hedge the Company's exposure to changes in
aluminum prices can best be understood by following aluminum metal
sales/purchases flows. Aluminum metal sold to customers is typically priced by
industry participants, including the Company, at a market-based cents-per-pound
differential ("rolling margin") over the prevailing market price of a
base-reference primary metal type ("P1020"). The rolling margin differs for each
coil type sold, depending on the specifications of the metal, the cost of
manufacturing the metal, and by prevailing supply and demand conditions, as
reflected by competitors' price offerings and general economic trends. The
base-reference primary metal, P1020, is used in the sales pricing formula
because of its widespread acceptance as a reference value for the price of
primary aluminum. The P1020 price is determined in the market by the market
price of primary aluminum sold on the London Metal Exchange ("LME") commodity
market, plus a market-based cents-per-pound price differential ("Mid-West
Premium") covering the cost of transportation from the first nine months of 2002 due to weak
economic conditions, however third quarter 2003 shipments have trended upwardsmelter to the highest levelMidwestern
United States.
On the raw materials side of the business, the Company purchases the great
majority of its scrap aluminum and its primary aluminum at a discount or premium
to the prevailing LME price, the particular differential in 2003 having increased 10% overeach case based on
the second quarterqualities of the type of metal being purchased. (Discounts from LME relating
to scrap aluminum purchases are generally referred to as "scrap spreads"). Like
its counterpart base-reference P1020 for sales transactions, the LME serves as a
base-reference for raw material purchase transactions in the industry because of
its widespread acceptance as a value indicator. Since the P1020 market price
used to set selling prices is itself directly linked to the market price of LME
as described in the preceding paragraph, the LME serves as a common component in
pricing both raw material purchases and finished product sales. Common use of
the LME as a component in both purchase and sale pricing practices enables the
Company to substantially, but not exactly, "lock-in" material margins on its
sales without simultaneously buying physical metal to satisfy customers' fixed
price sales orders. This is accomplished by the Company's purchase of LME
futures contracts, which serve as economic substitutes for physical metal
purchases, at the same time that selling prices are fixed. (When the metal to
satisfy the fixed price sale commitments is physically purchased and fixed in
price the LME futures contracts are sold, resulting in an economically effective
cash flow hedge of the metal component of the transactions at issue.)
The Company's metal hedging practices have several distinct advantages. The
foremost of these advantages is that by executing the hedge strategy described
the Company can continue to make fixed price sales for delivery to customers in
future periods without assuming the significant metal price risk associated with
changes in the LME. If the Company did not hedge its future metal delivery
commitments by purchasing futures contracts on the LME, the Company,
alternatively, could avoid metal price risk by simultaneously buying physical
metal to match its future sales commitments; however, this approach would
significantly increase the Company's working capital requirements to accommodate
the inventory purchases and create serious logistical storage and transportation
problems. If the Company were to assume metal price risk, by neither hedging its
fixed price sales commitments with futures contracts nor simultaneously buying
physical metal, its exposure to metal price changes could threaten the Company's
solvency in periods of metal price fluctuations.
Despite the obvious benefit (in an economic and cash flow sense) of employing
LME futures contracts to hedge its metal purchases, the Company notes that the
accounting treatment accorded hedge gains/losses realized during the last three
quarters of 2003 and 6% over the first quarter of 2003. Contributing to the nine-month decline in
aluminum shipments was planned equipment downtime for maintenance and capital
improvement outages during the first quarter of 2003. Despite the decreased
aluminum shipments, material margins for the first nine months of 2003 were
higher than the first nine months of 2002 helping to partially offset the sales
volume decline. The improvement in margin was principally the outcome of
initiatives to: maintain selling price increases introduced in the first quarter
of 2003; increase the volume of product available for the Company's higher value
added products; and continue to actively pursue new customers and new markets
offering higher margin opportunities than the Company's traditional high volume
commodity markets. In addition, the material margin was favorably impacted2004 required that such gains/losses
be marked-to-market as prescribed by a
third quarter 2003 gain of approximately $1.1 million or $0.07 per share
relating to certain aluminum hedge transactions. The Company determined that
hedges in place during the quarter to reduce its exposure to aluminum price
fluctuations did not meet certain "effectiveness" requirements set forth in Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"). Accordingly,This mark-to-market treatment resulted from a
determination that the hedges did not meet certain "effectiveness" requirements
that would have enabled such realized gains/losses to be recorded in other
comprehensive income for later reclassification into cost of goods sold when the
hedged transactions occur. The "effectiveness" standard required to be met for
deferral treatment of the hedge gains/losses is predicated on a statistically
based high degree of correlation between price changes in the metal purchases
being hedged and price changes in the hedge instruments, the LME futures
contracts. The requisite correlation was not met during the last three quarters
of 2003 and the first quarter of 2004 due to the fact that the variability in
price changes relating to unhedged components of the metal purchases being
hedged (principally scrap spreads) did not move in tandem with hedged components
to the degree that would statistically demonstrate the requisite correlation.
Recognizing in income rather than deferring the hedge gains/losses as prescribedrequired
by the provisions of SFAS No. 133 had the derivative
instruments used as hedgeseffect of increasing 2003 material margins, pretax
income and net income by approximately $7.0 million, that otherwise would have
been recorded in other comprehensive income and matched to hedged metal
purchases in 2004. Consequently, 2004 material margins when the hedged
transactions occur have been and will be adversely affected by the $7.0 million
which was required under SFAS No. 133 to be recognized in 2003 (see the section
entitled "Risk Management" for additional information regarding the Company's
hedging programs.) The Company had estimated at the end of 2003 that, absent any
other effects that arise from 2004 transactions, the $7.0 million adverse impact
in 2004 would be distributed approximately $3.3 million in the first quarter,
$1.7 million in the second quarter, $1.2 million in the third quarter and $0.8
million in the fourth quarter. During the first quarter of 2004, new
transactions were entered into which increased material margins, pretax income
and net income by approximately $6.3 million or a net favorable effect on the
first quarter of $3.0 million after the reversal of 2003 transactions mentioned
above of $3.3 million. At March 31, 2004, the cumulative marked-to-market
giving riseadjustments described herein would have the effect of reducing future period
material margins by approximately $10.0 million (excluding the effects of new
marked-to-market adjustments arising in the future). The $10.0 million adverse
impact would be distributed approximately $5.0 million in the second quarter of
2004, $3.1 million in the third quarter of 2004, $1.8 million in the fourth
quarter of 2004 and $0.1 million in 2005.
During the first quarter of 2004, shipments of the Company's aluminum sheet
products increased by 32% from the first quarter of 2003 due to the $1.1
million gain.strengthening in
certain markets. Demand for the Company's electrical products decreasedalso increased
during the first nine
monthsquarter of 2003.2004. Shipments were down 6%up 11% compared to the first
nine monthsquarter of 20022003 reflecting weaknessstrengthening in key markets in the electrical
products sector, particularly commercial construction, however third quarter 2003 shipments
increased 12% compared to shipments for the second quarter of 2003 reflecting a
strengthening of demand in the commercial construction market even though net
selling prices were lower. Material margins for the first nine months of 2003
decreased 15% from the first nine months of 2002. Lower net selling prices due
to the competitive price environment combined with higher material costs
resulted in the decrease in material margins for the first nine months of 2003
versus the first nine months of 2002. While manufacturing costs per foot were up
for the nine-month period 2003 versus the same period in 2002, manufacturing
costs per foot for the third quarter 2003 were down compared to the third
quarter of 2002 and the second quarter of 2003 primarily due to lower overtime
labor, group insurance and workers compensation insurance costs.construction.
During the second quarter of 2003, the Company implemented changes to its
postretirement medical insurance program applicable to all non-bargaining unit
Kentucky employees, limiting eligibility and increasing premiums. Because of
these changes, the Company realized a second quarter benefit of approximately $2.5$6.5 million
after tax or $0.16$0.40 per share andin 2003 with the benefit allocated approximately
one-half as a third quarter benefit of
approximately $2.0 million after tax or $0.12 per share. The Company recognized
the second quarter and third quarter benefits as reductions of approximately
$1.3 million and $1.0 million, respectively,reduction in cost of goods sold and $1.2
million and $1.0 million, respectively,one-half in selling, general
and administrative expenses. In addition to the effect on 2003, the second and thirdCompany
realized a benefit of approximately $2.1 million after tax or $0.13 per share in
the first quarter of 2003, the
Company2004 and estimates that net income will be increased
approximately $2.0$8.3 million infor the fourth quarter of 2003, approximately $8.3 millionfull year in 2004 and approximately $1.7
million in 2005.
During the second quarter of 2002, the Company completed its transitional test
of goodwill upon 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. During the fourth quarter of 2003, the Company will be
conducting its annual impairment review of the Company's remaining goodwill
balance of $48.9 million relating to the Company's Alflex electrical products
reporting unit. See the caption entitled "Cumulative effect of change in
accounting principle" in the following section and note 8 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 and methodology for assessing hedge effectiveness
regarding aluminum and natural gas futures contracts, forward contracts and
options, 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, 20022003 for additional information.
Results of Operations for the three months ended March 31, 2004 and nine months ended September 30,
2003 and 2002
Net Sales. Net sales for the quarter ended September 30, 2003 decreased 2%March 31, 2004, increased 34% to
$248$284.1 million (including $27$31.8 million from Alflex) from $254$212.0 million
(including $30$24.7 million from Alflex) for the same period in 2002.2003. The decreaseincrease
is due to the combined effect of lowerhigher aluminum and electrical product
shipments and lower net
selling prices of electrical products which more than offset an increase inhigher net selling prices of aluminum and electrical products. As
mentioned previously, the increased aluminum shipments were primarily due to
strengthening in certain markets. Unit sales volume of aluminum decreased 16%increased 32% to
195.4241.9 million pounds for the thirdfirst quarter of 20032004 from 232.8183.7 million pounds for
the thirdfirst quarter of 2002.2003. Alflex unit sales volume was 124.5127.7 million feet for
the thirdfirst quarter of 2003, a decrease of 4%2004 versus 130.3114.9 million feet for the comparable period in
2002.2003, an increase of 11%. As mentioned previously, the decreased aluminum
and electrical product shipments wereincrease was primarily
due to difficult business conditionsa strengthening in both businesses. Net sales for the nine-month period ended September 30, 2003,
were $675 million (including $77 million from Alflex), a 7% decrease from the
$728 million recordedkey markets in the first nine months of 2002 (including $86 million
from Alflex). The decrease is due to the combined effect of lower aluminum and
electrical product shipments and lower net selling prices of electrical products which more than offset an increase in net selling prices of aluminum products.
Unit sales volume of aluminum was 557.3 million pounds for the nine months of
2003, a decrease of 18% from the 680.2 million pounds for the first nine months
of 2002. Alflex unit sales volume was 350.9 million feet for the first nine
months of 2003, a decrease of 6%, versus 374.8 million feet for the comparable
period in 2002. As mentioned previously, the decreased aluminum and electrical
product shipments were due to difficult business conditions in both businesses.sector,
particularly commercial construction.
Gross Profit. Gross profit for the quarter ended September 30, 2003, decreasedMarch 31, 2004, increased to
$16.4$20.5 million (6.6%(7.2% of net sales) from $19.4$9.3 million (7.6%(4.4% of net sales) for the
same period in 2002. Gross profit for the nine months ended September 30,
20032003. This increase was $37.9 million (5.6% of net sales) versus $45.6 million (6.3% of net
sales) for the comparable period in 2002. Contributingrelated to the third quarter and
nine-month decreases in gross profit were decreasesincreases in both the Aluminum
business and Alflex. The Aluminum business gross profit declined in both the
third quarter and nine-month period compared to the prior year periodsincreased primarily due
to lowerhigher shipment volumes, partially offset by the combined effects of
improved material margins, the mark-to-market hedge adjustments mentioned
previouslylower manufacturing unit costs and by cost of goods
sold reductions related to the aforementioned changes to the Company's
postretirement medical insurance program. These items were partially offset by
the effects of lower material margins despite the fact there was a net favorable
effect as a result of the mark-to-market hedge adjustments also mentioned
previously. The third
quarterlower material margins were primarily due to the affects of a
competitive marketplace, inventory mix, melt loss and nine-monthhardeners cost increases.
The gross profit decreasesincrease at Alflex reflectreflects the net effects of lowerhigher shipment
volume, lowerhigher material margins and a mix of higher
manufacturing unit costs for the nine-month period, somewhat offset by lower manufacturing unit costs in the third quarter.costs.
Operating Income. The Company had operating income of $6.3$6.5 million for the
thirdfirst quarter of 2004 compared with an operating loss of $3.2 million for the
first quarter of 2003. This increase was related to increases in both the
Aluminum business and Alflex. The Aluminum business had an operating income of
$12.2 million in the first quarter of 2004 compared to operating income of $4.9
million in the first quarter of 2003 compared with operating income of $6.8 million for the third
quarter of 2002. For the nine-month period ended September 30, 2003, the Companywhile Alflex had operating income of $4.6$3.0
million versusin the first quarter of 2004 compared to an operating loss of $1.0
million in the first quarter of 2003. The changes in the operating income of $10.8 million
for the first nine months of 2002. The decreases in operating income for the
third quarter and nine-month period were primarily due to reduced operating
income at both Alflex and the
Aluminum business and Alflex were primarily due to the factors described in the
gross profit section in the preceding paragraph, partiallyparagraph. These combined increases more
than offset by loweran increase in selling, general and administrative expenses.
Selling, general and administrative expenses during the thirdfirst quarter of 20032004
were $10.1$13.9 million, compared with $12.5 million for the same period in 2002 and were $33.3 million for the nine months ended September
30, 2003, compared with $34.8 million for the same period in 2002.2003. The
third
quarter and nine-month decreasesincrease in selling, general and administrative expenses wereis primarily due to
a reduction in postretirement medical expense relating to
the changes made in the postretirement medical program during the second quarter
of 2003 and lowerhigher accruals for employee incentive plans, which more than offset
an increase inincreased depreciation expense due
to the information technology systems upgrade, higher sales commissions due to
increased sales at Alflex and increased professional service costs principally associated withcosts. These items
were partially offset by the Company's project to upgrade its information technology systems.
Cumulative effect of changereduction in 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 8 to
the condensed consolidated financial statements for additional information.postretirement medical expenses
previously mentioned.
Net Income.Income (Loss). The Company had net income of $2.9 million for the quarter
ended September 30, 2003,March 31, 2004, compared withto a net incomeloss of $6.1$6.5 million for the same period
in 2002. The Company's2003 due to the factors described in the previous sections. Interest expense,
net loss for the nine months ended September 30, 2003 was $5.5 million compared with a net loss of $22.6$4.1 million for the first nine months
of 2002. The net loss forquarter ended March 31, 2004, compared to $3.7
million recorded in the first nine monthsquarter of 2002 includes the $25.3
million goodwill impairment charge described in the preceding paragraph.
Interest expense was $3.7 million for both the quarter ended September 30, 2003
and 2002 and $11.2 million for the nine months ended September 30, 2003,
compared with $11.4 million for the first nine months of 2002.2003. The nine-month
decreaseincrease was primarily due to a reduction in interest rates under the Company's
receivables purchase agreement which more than offset the combined effect of
an increase in amounts outstanding under the Company's receivables purchase
agreement and an increase in interest rates under the agreement combined with a
reduction in investment interest income. Income tax expenseThere was $0.05 million in the third
quarter of 2003 compared to an income tax benefit of $2.6 million for the same
period in 2002 and an income tax expense of $0.2$0.07
million for the nine months
ended September 30, 2003 compared to an income tax benefit of $2.5 million for
the same period in 2002. The increase 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.2004 and $0.08 million in the first quarter of
2003.
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 2004.2004 and in February 2004, extended the agreement through
the end of March 2005. In addition, during September 2001 the Company and the
financial institution agreed to reduce the size of the facility to $95.0
million, and in October 2003, the availability was further reduced to $60.0 million and in
February 2004, the availability was increased to $80.0 million and in May 2004
was increased to $100.0 million. At September 30,March 31, 2004 and 2003, and 2002, the Company had
outstanding under the agreement $40.0$80.0 million and $20.0$55.0 million, respectively,
and had $81.6$73.0 million and $100.2$60.0 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 ninethree
months ended September 30,March 31, 2004 and 2003,
and 2002, the Company received gross proceeds of
$62.0$20.0 million and $37.0$42.0 million, respectively, from the sale of receivables and
made gross payments of $46.0$11.0 million and 37.0 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 2004. 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 used cash flows of $0.5$1.5 million and $8.2 million for
the ninethree months ended September 30, 2003 compared to providing cash flows of $4.2 million in the
nine months ended September 30, 2002.March 31, 2004 and 2003. Working capital increased to
$131.3$148.0 million at September 30, 2003March 31, 2004 from $129.5$133.7 million at September 30, 2002.March 31, 2003.
Capital expenditures were $4.4$2.1 million during the quarter ended March 31, 2004
compared to $4.6 million during the three months ended September
30, 2003 and $11.5 million during the nine months ended September 30, 2003
compared to $6.9 million during the three months ended September 30, 2002 and
$10.1 million during the nine months ended September 30, 2002.March 31, 2003. At September 30,
2003,March
31, 2004, the Company had commitments of $4.9$8.7 million for the purchase or
construction of capital assets. Total capital expenditures for the year 20032004 are
estimated to be approximately $15.4$18.3 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 Company's sources of liquidity are cash flows from operations, the Company's
receivables purchase agreement described previously and borrowings under its $30
million revolving credit facility. The revolving credit facility expires on
March 31, 2005. Availability of advances under the $30 million revolving credit
facility is dependent on the continued satisfaction of certain financial
covenants contained in the revolving credit agreement. While the Company is
currently in full compliance with such financial covenants there is no assurance
that the Company will be able to continue meeting such covenants, as currently
structured, at all times during the next twelve months. In the event the Company
does not meet the requisite covenants it may seek to obtain waivers or
amendments of applicable covenant provisions from the participating lenders. In
any event, the Company believes it has sufficient liquidity available from
operating cash flows and amounts available under its receivables purchase
agreement to fund its working capital requirements, capital expenditures, debt
service, and if necessary, to satisfy any outstanding amounts under its
revolving credit facility for at least 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. As noted in the previous paragraph,
availability is subject to satisfaction of certain covenants and other
requirements. At September 30, 2003March 31, 2004, $21.8 million was available, as the only
outstanding amounts underagainst the credit facility consisted of $3.2 million of borrowings andwas $3.1 million of standby
letters of credit leaving $23.7and $5.1 million available at September 30, 2003.of borrowings.
The Company announced on July 31, 2003, that its Board of Directors had
suspended the Company's quarterly cash dividend payments on its common stock as
of the third quarter of 2003 due to the challenging economic conditions and to
ensure continued compliance with the Company's debt instruments regarding the
payment of dividends. The restrictions that limit the payment of cash dividends
are contained in the Indenture relating to the Company's $125 million senior
subordinated notes due in 2006. The Company believes that the restrictions are
likely to result in suspension of the cash dividend through at least the
maturity of the senior subordinated notes in 2006.
The following schedules summarize the Company's contractual cash obligations and
unused availability of financing sources at September 30, 2003March 31, 2004 (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 $128,190$130,104 $ -- $3,190 $125,000$130,104 $ -- Operating$ --
Capital and operating leases 10,715 3,303 3,400 1,450 2,5629,510 3,114 2,836 1,205 2,355
Standby letters of credit 3,111 3,111 -- -- --
Outstanding obligation under
receivablesReceivables purchase
agreement 40,000 40,000Agreement 80,000 -- 80,000 -- --
----------------------------------------------------------------------
Total contractual cash obligations $182,016 $46,414 $6,590 $126,450 $2,562$222,725 $6,225 $212,940 $1,205 $2,355
======================================================================
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
facilityFacility $ 23,69921,785 $ -- $23,699$ 21,785 $ -- $ --
Unused availability under
receivablesReceivables purchase
agreement 55,000(1) 55,000(1)Agreement --(1) -- --(1) -- --
----------------------------------------------------------------------
Total available $ 78,699(2) $55,000(1) $23,69921,785(2) $ -- $21,785(2) $ -- $ --
======================================================================
(1) The amount was reducedwould be $20,000 giving effect to $20,000 as of October 31, 2003.the May 2004
amendment to the receivables purchase agreement described previously.
(2) The amount was reducedwould be increased to $43,699 as of October 31, 2003.$41,785 giving effect to the May 2004
amendment to the receivables purchase agreement described previously.
The Company has 7 1/6 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 billion120 million pounds of P1020/99.7% aluminum at
current market prices from Glencore each year over the 10-year term. The Company
has met or exceeded the minimum purchase quantity for each year of the contract.
At September 30, 2003,March 31, 2004, the Company held firm-priced aluminum purchase and sales
commitments through May 2005 totaling $7$14 million and $131$218 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.
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.
For the second quarter ending June 30,last three quarters of 2003 and the thirdfirst quarter ending
September 30, 2003,of 2004, the Company's
aluminum futures contracts did not meet certain "effectiveness" requirements set
forth in Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). Accordingly, as
prescribed by the provisions of SFAS No. 133, the derivative instruments that
were used as hedges were marked-to-market and the gains and losses during the
secondlast three quarters of 2003 and thirdthe first quarter of 20032004 were recorded
currently in the consolidated statement of operations instead of being deferred
in other comprehensive income and included in income when the underlying hedged
transactions occur. For the foreseeable future, it is likely that the derivative
instruments will continue to be marked-to-market through the consolidated
statement of operations. It is the Company's policy to hedge its exposure to
variability in expected future cash flows relating to its purchases of scrap
aluminum by entering into forward purchase contracts of primary aluminum. Scrap
metal purchases are priced by suppliers in relation to prevailing primary metal
prices, plus or minus certain quality and delivery differentials. The quality
and delivery differentials change from time to time in relation to market
conditions, but there is no derivative instrument available to correspondingly
hedge such changes. Since the forward purchase contracts used by the Company
only hedge the primary metal pricing components, changes in the other scrap
metal pricing components cause the noted ineffectiveness. However, the
derivative instruments are considered by the Company to be economically
appropriate hedges of cash flows associated with the primary metal pricing
components of scrap aluminum purchases. The Company's natural gas futures
continue to be deemed "effective" per SFAS No. 133 and accordingly the gains and
losses on these financial instruments are deferred in other comprehensive income
and included in income when the underlying hedged transactions occur.
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, 2003,March 31, 2004, the Company had $0.2$5.4
million of deferred net lossesgains recorded in accumulated other comprehensive
income. Over the next twelve months, approximately $0.6$4.2 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. A net gain of $1.1$3.0 million and $1.5a
net loss of $0.2 million was recognized in cost of goods sold during the three
months ended March 31, 2004 and nine months ended September 30, 2003,
respectively, and 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, representing the amount of
the hedges' ineffectiveness. As of September 30, 2003,March 31, 2004, the Company held open
aluminum and natural gas futures and forward contracts and aluminum options
having maturity dates extending through December 2005.2006.
Before entering into futures contracts, forward contracts and options, the
Company reviews the credit rating of the counterparty and assesses 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 expect any such
counterparties to not perform.
Recently Issued Accounting PronouncementsStandards
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")., and issued a
revision in December 2003. This Interpretation of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements"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. FIN 46 was effective immediately for all new variable interest entities created or acquired
after Januarythe Company in the quarter ending March
31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 were to be applied to the first
interim or annual period beginning after June 15, 2003, but in October 2003 the
Financial Accounting Standards Board decided to defer that implementation to the
first interim or annual period beginning after December 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.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (" SFAS No. 149"). The Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. In addition, the provisions of this Statement are generally to be
applied prospectively.2004. The Statement's initial adoption did not have a material impact on the
Company's results of operations or financial position.
In MayDecember 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities132 (revised 2003), "Employers' Disclosures
about Pensions and Equity" ("SFAS No.
150")Other Postretirement Benefits". The Statement establishes standardsrequires
additional disclosures about an employer's pension plans and postretirement
benefits plans such as: the types of plan assets, investment strategy,
measurement date, plan obligations, cash flows, and components of net periodic
benefit cost recognized during interim periods. See notes 9 and 10 to the
condensed consolidated financial statements for how an issuer classifiesthe required additional
disclosures for interim periods.
In January 2004, the Financial Accounting Standards Board issued Staff Position
No. FAS 106-1, "Accounting and measures certainDisclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003" ("FSP FAS 106-1").
FSP FAS 106-1 allows companies to assess the effect of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 ("the Act") on their
postretirement benefit obligations and costs and reflect the effects in their
financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. The provisions ofstatements, pursuant to SFAS No. 150 apply immediately106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions." Companies are also allowed to all financial instruments entered into or modified
after May 31, 2003, and otherwise are effective atmake
a one-time election to defer accounting for the beginningeffects of the first
interim period beginningAct until
authoritative guidance is issued. The guidance in FSP FAS 106-1 is effective for
years ending after June 15,December 7, 2003. The Statement's initial adoption
didIn accordance with FSP FAS 106-1, the
accumulated postretirement benefit obligation and net periodic postretirement
benefit expense (income) in the Company's consolidated financial statements do
not have a material impactreflect the effects of the Act on the Company's resultspostretirement health care
plan. In addition, specific authoritative guidance on the accounting for the
federal subsidy, one of operations or
financial position.the provisions of the Act, is pending, and that
guidance, when issued, could require the Company to change previously reported
information.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company's management carried out an evaluation, with
the participation of the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures as of the end of the quarter ended September 30, 2003.March 31, 2004. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in its reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) Changes in Internal Control over Financial Reporting
ThereAs noted in the Company's 2003 Form 10-K Item 9A "Controls and Procedures", the
Company implemented a new information systems platform for its aluminum business
during the fourth quarter of 2003 and experienced information gaps that
inhibited effective internal controls over financial reporting. As a result,
during the first quarter of 2004, the Company implemented greater systems
functionality, improved user training and more comprehensive controls over
work-around procedures in order to address and correct the detected
deficiencies. During April 2004, the Company performed additional analysis and
procedures to obtain reasonable assurance of the accuracy of the Company's
financial statements for the first quarter of 2004. Certain additional
deficiencies were detected as a result of the additional analysis and procedures
and these deficiencies have been addressed.
The Company continues to believe that the detected failures to adequately and
timely detect all information necessary to ensure the reliability of financial
reporting noted herein are temporary, and that the continued effort to implement
greater systems functionality, improve user training and perform more
comprehensive controls over work-around processes have corrected these
deficiencies.
Except as set forth above, there have not been any changes in the Company's
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act) during the quarter ended September 30, 2003March 31, 2004 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to non-environmental legal proceedings and administrative
actions all of which are of an ordinary routine nature incidental to the
operations of the Company. Although it is impossible to predict the outcome of
any legal proceeding, in the opinion of management such proceedings and actions
should not, individually or in aggregate, have a material adverse effect on the
Company's financial condition, results of operations or cash flows, although
resolution in any year or quarter could be material to the results of operation
for that period.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders (the "Meeting"), held April 23,
2004, the following matters were submitted for a vote by the security holders:
Paul E. Lego and John E. Merow were elected directors for terms
expiring in 2007. There were 15,360,463 and 15,360,427, respectively,
votes cast for and 104,981 and 105,017, respectively, abstentions. The
terms of office of Catherine G. Burke, C. Frederick Fetterolf, Mark V.
Kaminski, Steven J. Demetriou, and Larry E. Kittelberger continued
after the meeting.
Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for 2004. There were 15,417,079 votes
for and 40,881 votes against and 7,484 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amendment,Ninth Amemdment, dated October 14, 2003,as of May 3, 2004, to Third Amended and
Restated CreditReceivables
Purchase Agreement among Commonwealth Financing Corp., the
Company, subsidiaries of
the Company, the several lenders from time to time parties
thereto,Market Street Funding Corporation and PNC Bank,
National Association, as administrative
agent, dated as of March 21, 2002.September 29, 1997.
31 Rule 13a-14(a)13a-14 (a) /15d-14(a) 15d-14 (a) Certifications ("Section 302
Certifications").
32 Section 1350 Certifications ("Section 906 Certifications").
(b) Reports on Form 8-K
The following reports on Form 8-K were furnished or filed with the Securities
and Exchange Commission during the quarter ended September 30, 2003:March 31, 2004:
A Form 8-K dated July 22, 2003 reportingJanuary 29, 2004 announcing the Company's results of
operations for the SecondFourth Quarter ofand Full Year 2003.
A Form 8-K dated July 31, 2003 reporting thatMarch 11, 2004 announcing the Company was
suspending quarterly cash dividend payments on its common stock.Company's revised
results of operations for the Fourth Quarter and Full Year 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 6, 2003May 7, 2004
Exhibit Index
-------------
Exhibit
Number Description
- ------- --------------------------------------------------------------------------------------------------------------------------
10.1 FirstNinth Amendment, dated October 14, 2003,as of May 3, 2004, to Third Amended and
Restated CreditReceivables Purchase
Agreement among Commonealth Financing Corp., the Company, subsidiaries of
the Company, the several lenders from time to time parties
thereto,Market
Street Funding Corporation and PNC Bank, National Association, as administrative
agent, dated
as of March 21, 2002.September 29, 1997.
31 Rule 13a-14(a)13a-14 (a) /15d-14(a) 15d-14 (a) Certifications ("Section 302
Certifications").
32 Section 1350 Certifications ("Section 906 Certifications").