===============================================================================================================================================================
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 SeptemberJune 30, 20032004
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 16,010,97116,254,397 shares of common stock outstanding at
October 29, 2003.
================================================================================August 1, 2004.
===============================================================================
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended SeptemberJune 30, 20032004
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
-----------
Condensed Consolidated Balance Sheet as of SeptemberJune 30, 20032004
and December 31, 20022003 3
Condensed Consolidated Statement of Operations for the three
months and ninesix months ended SeptemberJune 30, 20032004 and 20022003 4
Condensed Consolidated Statement of Comprehensive Income (Loss)
for the three months and ninesix months ended SeptemberJune 30, 20032004 and 20022003 5
Condensed Consolidated Statement of Cash Flows for the ninesix
months ended SeptemberJune 30, 20032004 and 20022003 6
Notes to Condensed Consolidated Financial Statements 7-197-22
Item 2. Management's Discussion and Analysis of Financial Condition 20-2623-31
and Results of Operations
Item 4. Controls and Procedures 2631
Part II - Other Information
Item 1. Legal Proceedings 2733
Item 6. Exhibits and Reports on Form 8-K 2733
Signatures 2834
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
September(Unaudited)
June 30, December 31,
2004 2003
2002
------------- ---------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,9402,246 $ 13,211-
Accounts receivable, net 312 6678 307
Inventories 116,067 125,348139,158 116,150
Net residual interest in receivables sold 81,633 81,19536,306 44,889
Prepayments and other current assets 5,051 7,13316,956 13,964
Current assets of discontinued operations 41,707 35,704
------------- ---------------------------
Total current assets 206,003 226,953236,451 211,014
Property, plant and equipment, net 142,868 146,968
Goodwill 48,872 48,872120,611 127,610
Other noncurrent assets 5,423 6,1118,696 7,802
Noncurrent assets of discontinued operations 33,776 33,690
------------- ---------------------------
Total assets $ 403,166399,534 $ 428,904380,116
============= ===========================
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ 947
Long-term debt due within one year 8,588 -
Accounts payable $ 47,151 $ 59,59457,429 44,176
Accrued liabilities 27,507 28,52735,826 21,259
Current liabilities of discontinued operations 12,849 9,458
------------- ---------------------------
Total current liabilities 74,658 88,121114,692 75,840
Long-term debt 128,190125,000 125,000
Other long-term liabilities 3,921 5,1833,297 3,845
Accrued pension benefits 27,043 26,74330,108 29,017
Accrued postretirement benefits 70,085 76,67061,203 67,146
Noncurrent liabilities of discontinued operations 1,230 1,130
------------- ---------------------------
Total liabilities 303,897 321,717335,530 301,978
------------- ---------------------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,010,97116,254,397 and 15,997,65116,010,971 shares outstanding at
SeptemberJune 30, 20032004 and December 31, 2002,2003, respectively 160162 160
Additional paid-in capital 407,965 405,703 405,613
Accumulated deficit (284,999) (277,942)(328,704) (308,477)
Unearned compensation (1,972) -
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) 7477,829 1,994
------------- ---------------------------
Total stockholders' equity 99,269 107,18764,004 78,138
------------- ---------------------------
Total liabilities and stockholders' equity $ 403,166399,534 $ 428,904380,116
============= ===========================
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Operations
(in thousands except per share data)
(Unaudited) (Unaudited)
Three months ended NineSix months ended
SeptemberJune 30, SeptemberJune 30,
-------------------------- ------------------------------------------------------- -----------------------------
2004 2003 20022004 2003
2002
---------- ----------- ----------- ------------ -----------
Net sales $ 248,117273,634 $ 253,933190,099 $ 675,205525,888 $ 727,519377,385
Cost of goods sold 231,760 234,571 637,316 681,933
----------268,704 180,911 506,722 361,020
----------- ----------- ------------ -----------
Gross profit 16,357 19,362 37,889 45,5864,930 9,188 19,166 16,365
Selling, general and administrative expenses 10,094 12,524 33,311 34,779
----------10,654 7,640 20,911 17,004
Restructuring charges 12,943 - 13,337 -
----------- ----------- ------------ -----------
Operating income 6,263 6,838 4,578 10,807(loss) (18,667) 1,548 (15,082) (639)
Other income (expense), net 423 332 1,331 818375 414 869 908
Interest expense, net (3,728) (3,704) (11,215) (11,406)
----------(4,300) (3,919) (8,553) (7,754)
----------- ----------- ------------ -----------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle 2,958 3,466 (5,306) 219(22,592) (1,957) (22,766) (7,485)
Income tax expense (benefit) 50 (2,610) 150 (2,532)
----------(18) 4 43 67
----------- ----------- ------------ -----------
Income (loss) from continuing operations (22,574) (1,961) (22,809) (7,552)
Discontinued operations:
Income (loss) from operations before cumulative effect of
change in accounting principle 2,908 6,076 (5,456) 2,751
Cumulative effect of change in accounting principleincome taxes 2,046 106 5,164 (779)
(Loss) on disposition (1,570) - (1,570) -
- (25,327)
----------Income tax expense (benefit) 1,003 16 1,012 33
----------- ----------- ------------ -----------
Income (loss) from discontinued operations (527) 90 2,582 (812)
----------- ----------- ------------ -----------
Net income (loss) $ 2,908(23,101) $ 6,076(1,871) $ (5,456)(20,227) $ (22,576)
==========(8,364)
=========== =========== ============ ===========
Basic net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principlefrom continuing operations $ 0.18(1.40) $ 0.38(0.12) $ (0.34)(1.42) $ 0.17
Cumulative effect of change in accounting principle - - - (1.58)
---------- ----------- ----------- -----------(0.47)
Income (loss) from discontinued operations (0.03) 0.01 0.16 (0.05)
Net income (loss) $ 0.18 $ 0.38 $ (0.34) $(1.41)
========== =========== =========== ===========(1.44) (0.12) (1.26) (0.52)
Diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principlefrom continuing operations $ 0.18(1.40) $ 0.38(0.12) $ (0.34)(1.42) $ 0.17
Cumulative effect of change in accounting principle - - - (1.57)
---------- ----------- ----------- -----------(0.47)
Income (loss) from discontinued operations (0.03) 0.01 0.16 (0.05)
Net income (loss) $ 0.18 $ 0.38 $ (0.34) $(1.40)
========== =========== =========== ===========(1.44) (0.12) (1.26) (0.52)
Weighted average shares outstanding
Basic 16,069 16,011 15,99816,045 16,011
15,992
Diluted 16,034 16,09216,069 16,011 16,10016,045 16,011
Dividends paid per share $ - $ 0.05 $ 0.10- $ 0.150.10
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Comprehensive Income (Loss)
(in thousands)
(Unaudited) (Unaudited)
Three months ended NineSix months ended
SeptemberJune 30, SeptemberJune 30,
------------------------ ----------------------------------------------- -----------------------
2004 2003 20022004 2003
2002---------- ----------- --------- ----------- -------- -----------------
Net income (loss) $ 2,908(23,101) $ 6,076 $(5,456) $(22,576)(1,871) $(20,227) $ (8,364)
Other comprehensive income (loss), net of tax:
Reclassification adjustment for realized gain on security
included in net income (loss) - - (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)2,785 1,990 6,947 5,266
Reclassification adjustment for (gains) losses included
in net income (1,743) 4,267 (4,758) 9,479(loss) (387) (322) (1,112) (3,015)
---------- ----------- --------- ----------- -------- -----------------
Net change related to cash flow hedges (3,202) (2,046) (951) 6,3052,398 1,668 5,835 2,251
---------- ----------- --------- ----------- -------- -----------------
Comprehensive income (loss) $ (294)(20,703) $ 4,030 $(6,407) $(16,271)(203) $(14,426) $ (6,113)
========== =========== ========= =========== ======== =================
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
Nine(Unaudited)
Six months ended SeptemberJune 30,
--------------------------------------------------------------
2004 2003
2002
--------- --------------------- -------------
Cash flows from operating activities:
Net income (loss) $ (5,456)(20,227) $ (22,576)(8,364)
(Income) loss from discontinued operations (2,582) 812
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operations:
Depreciation 15,417 15,94010,515 9,132
Amortization 666 762
Goodwill impairment charge - 25,327604 444
Loss on disposal of property, plant and equipment 68 196578 40
Issuance of common stock in connection with stock awards 206 90 170
Changes in assets and liabilities:
(Increase)Decrease in accounts receivable, net (246) (56)
Decrease229 8
(Increase) in inventories 9,281 2,669
(Increase)(23,008) (16,512)
Decrease in net residual interest in receivables sold (438) (17,875)8,517 40,969
Decrease (increase) in prepayments and other current assets 25 (806)
Decrease (increase)2,843 689
(Increase) decrease in other noncurrent assets 22 (2,419)
(Decrease) increase(1,380) 23
Increase (decrease) in accounts payable (12,443) 3,57113,253 (21,905)
Increase (decrease) in accrued liabilities 86 3,99314,567 (4,249)
(Decrease) in other liabilities (7,547) (4,736)
--------- ----------(5,400) (1,818)
----------- -------------
Net cash (used in) continuing operations (1,285) (641)
Net cash (used in) provided by discontinued operations (16) 2,294
----------- -------------
Net cash (used in) provided by operating activities (475) 4,160
--------- ----------(1,301) 1,653
----------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (11,543) (10,089)(4,226) (6,823)
Proceeds from sale of property, plant and equipment 158 23
--------- ----------132 155
----------- -------------
Net cash (used in) investing activities (11,385) (10,066)
--------- ----------(4,094) (6,668)
----------- -------------
Cash flows from financing activities:
Increase(Decrease) in outstanding checks in excess of deposits (947) - 351
Proceeds from long-term debt 75,168 55,700148,801 60,398
Repayments of long-term debt (71,978) (55,700)
Repayments of notes receivable from sale of common stock - 1,561(140,213) (60,398)
Cash dividends paid - (1,601)
(2,399)
--------- --------------------- -------------
Net cash provided by (used in) financing activities 1,589 (487)
--------- ----------7,641 (1,601)
----------- -------------
Net increase (decrease) in cash and cash equivalents (10,271) (6,393)2,246 (6,616)
Cash and cash equivalents at beginning of period 13,211 6,393
--------- ----------- 13,199
----------- -------------
Cash and cash equivalents at end of period $ 2,9402,246 $ -
========= ==========6,583
=========== =============
Supplemental disclosures:
Interest paid $ 7,5847,711 $ 7,5517,269
Income taxes paid (refunds received) 167 (492)182 179
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.
As a result of the Company's sale of its Alflex subsidiary which comprised its
electrical products segment, the assets, liabilities, results of operations and
cash flows of the electrical products segment have been reported separately as
discontinued operations in the Company's condensed consolidated financial
statements and previously reported amounts have been restated to present
consistently the discontinued operations. See note 15, "Discontinued Electrical
Products Segment Operations" for additional information. The sale was completed
on July 30, 2004.
2. Stock-Based Compensation
At SeptemberJune 30, 2003,2004, 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 ninesix months ended SeptemberJune 30, 20032004 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 reduced for
the three months ended September 30, 20022003 to the pro forma amounts which follow (in thousands except per share data):
Three months ended
SeptemberJune 30,
2004 2003 2002
---- ----
Net income (loss) as reported $2,908 $6,076$(23,101) $(1,871)
Less total stock-based employee compensation expense
determined under fair value method for all awards, net
of related tax effects 50 110
------ ------(22) 104
--------- --------
Pro forma net income $2,858 $5,966
====== ======(loss) $(23,079) $(1,975)
========= ========
Basic net income (loss) per share
As reported $0.18 $0.38$(1.44) $(0.12)
Pro forma 0.18 0.37(1.44) (0.12)
Diluted net income (loss) per share
As reported $0.18 $0.38$(1.44) $(0.12)
Pro forma 0.18 0.37
Nine(1.44) (0.12)
Six months ended
SeptemberJune 30,
2004 2003 2002
---- ----
Net income (loss) as reported $(5,456) $(22,576)$(20,227) $(8,364)
Less total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects 234 297
-------108 184
--------- --------
Pro forma net income (loss) $(5,690) $(22,873)
=======$(20,335) $(8,548)
========= ========
Basic net income (loss) per share
As reported $(0.34) $(1.41)$(1.26) $(0.52)
Pro forma (0.36) (1.43)(1.27) (0.53)
Diluted net income (loss) per share
As reported $(0.34) $(1.40)$(1.26) $(0.52)
Pro forma (0.36) (1.43)(1.27) (0.53)
3. Receivables Purchase Agreement
On September 26, 1997, the Company sold all of its trade accounts receivablesreceivable 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 in2003. In October 2002, the
Company extended the agreement for an additional year ending in September 2004. In
addition during2004
and in February 2004, extended the agreement through the end of March 2005.
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. In
February 2004, the availability was increased to $80.0 million and in May 2004
was increased to $100 million. At SeptemberJune 30, 20032004 and 2002,December 31, 2003, the
Company had outstanding under the agreement $40.0$100.0 million and $20.0$60.0 million,
respectively, and had $81.6$36.3 million and $100.2$44.9 million, respectively, of net
residual interest in the receivables sold. The net residual interest in the
receivables sold has been reduced by $23.3 million and $19.3 million,
respectively, at June 30, 2004 and December 31, 2003, for the portion of the net
residual interest that relates to the Company's discontinued electrical products
segment and was included in the current assets of discontinued operations on the
condensed consolidated balance sheet. The fair value of the net residual
interest iswas measured at the time of the sale and is based on the sale of similar
assets. In the first ninesix months of 20032004 and 2002,2003, the Company received gross
proceeds of $62.0$40.0 million and $37.0$62.0 million, respectively, from the sale of
receivables and made gross payments of $46.0 and $37.0$16.0 million respectively,in 2003 under the
agreement. There have been no payments made during the first six months of 2004.
4. Inventories
Inventories consist of the following (in thousands):
SeptemberJune 30, 20032004 December 31, 2002
------------------2003
------------- -----------------
Raw materials $ 24,10436,550 $ 22,71836,502
Work in process 51,429 46,67665,671 47,871
Finished goods 31,598 43,78043,616 25,633
Expendable parts and supplies 14,409 14,32015,064 12,915
---------- -----------
121,540 127,494----------
160,901 122,921
LIFO reserve (5,473) (2,146)(21,743) (6,771)
---------- ---------------------
$ 116,067139,158 $ 125,348116,150
========== =====================
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 themethod. 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 $93.0The inventory has been reduced by $17.1 million and $98.2$15.2
million, respectively, at June 30, 2004 and December 31, 2003, for the portion
of the inventory that relates to the Company's discontinued electrical products
segment and was included in the above totals (beforecurrent assets of discontinued operations on the
LIFO reserve) at September 30,
2003 and December 31, 2002, respectively, are accounted for under the LIFO
method of accounting while the remainder of the inventories are accounted for
under the FIFO and average-cost methods.condensed consolidated balance sheet.
5. Provision for Income Taxes
The Company recognized incomeApproximately $1.0 million of the tax expense of $0.05 million and $0.2 millionon discontinued operations for the
three months and ninesix months ended SeptemberJune 30, 2003,2004, respectively, comparedrelates to an incomethe
planned sale of the discontinued operations while the remainder is the tax
benefitexpense which relates to the operations 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 indiscontinued operations prior to
the three months ended September 30,
2002 to reduce prior year's income tax accruals.sale.
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
SeptemberJune 30,
2004 2003
2002----- ------
Income (numerator) amounts used for basic and diluted per share computations:
Income (loss) from continuing operations $(22,574) $(1,961)
======== ========
Income (loss) from discontinued operations $ (527) $ 90
======= =====
Net income (loss) $(23,101 $(1,871)
======== ========
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,069 16,011
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,069 16,011
Plus: dilutive effect of stock options - -
------ ------
Adjusted weighted average shares 16,069 16,011
====== ======
Basic net income (loss) per share data:
Income (loss) from continuing operations $(1.40) $(0.12)
======= =======
Income (loss) from discontinued operations $(0.03) $ 0.01
======= ======
Net income (loss) $(1.44) $(0.12)
======= =======
Diluted net income (loss) per share data:
Income (loss) from continuing operations $(1.40) $(0.12)
======= =======
Income (loss) from discontinued operations $(0.03) $ 0.01
======= ======
Net income (loss) $(1.44) $(0.12)
======= =======
Six months ended June
30,
2004 2003
---- ----
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 - -
------ ------(loss) from continuing operations $(22,809) $(7,552)
========= ========
Income (loss) from discontinued operations $ 2,582 $ (812)
======= =======
Net income $2,908 $6,076
====== ======(loss) $(20,227) $(8,364)
========= ========
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,045 16,011 15,998
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,045 16,011 15,998
Plus: dilutive effect of stock options 23 94
------ ------
Adjusted weighted average shares 16,034 16,092
====== ======
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 16,045 16,011 16,100
====== ======
Basic net income (loss) 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)
------ ------from continuing operations $(1.42) $(0.47)
======= =======
Income (loss) from discontinued operations $ 0.16 $(0.05)
====== =======
Net income (loss) $(0.34) $(1.41)
====== ======$(1.26) $(0.52)
======= =======
Diluted net income (loss) 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)
------ ------from continuing operations $(1.42) $(0.47)
======= =======
Income (loss) from discontinued operations $ 0.16 $(0.05)
====== =======
Net income (loss) $(0.34) $(1.40)
====== ======$(1.26) $(0.52)
======= =======
Options to purchase 577,000850,500 and 850,500 common shares, which equate to 44,004224,907
and 196,167 incremental common equivalent shares, respectively, for the ninethree
months and six months ended SeptemberJune 30, 2004 and options to purchase 583,000 and
588,500 common shares, which equate to 31,177 and 54,133 incremental common
equivalent shares, respectively, for the three months and six months ended June
30, 2003 were excluded from the diluted calculation above as their effect would
have been antidilutive. In addition, options to purchase 1,382,500 and 1,092,000 common
shares for the three months and nine months ended September 30, 2003,
respectively, and 794,0001,387,697 common shares
for both the three months and ninesix months ended SeptemberJune 30, 20022004 and 1,118,500 and
1,113,000 common shares for the three months and six months ended June 30, 2003,
respectively, 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 quarter ending June 30,last three quarters of the year ended December 31, 2003
and the third quarter
ending September 30, 2003,first two quarters 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", 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").
Refererence is made to the "Business Overview" section included in the
Management's Discussion and Analaysis of Financial Condition and Results of
Operations in this report for additional information. 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 two quarters 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 SeptemberJune 30, 2003,2004, the Company had $0.2$7.8 million of deferred net lossesgains recorded
in accumulated other comprehensive income. Over the next twelve months,
approximately $0.6$5.4 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 SeptemberJune 30, 2003,2004, the Company held open aluminum and natural gas
futures and forward contracts and aluminum options having maturity dates
extending through December
2005.March 2007. A net gainloss of $1.1$4.6 million and $1.5$1.6 million was
recognized as a reductionan increase in cost of goods sold during the three months and ninesix
months ended SeptemberJune 30, 2003,2004, respectively, and a net lossgain of $0.05$0.7 million and
$0.16$0.4 million was recognized inas a reduction of cost of goods sold during the
three months and ninesix months ended SeptemberJune 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 discontinued 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 discontinued
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 since March 31, 2002:during the six months ended
June 30, 2004 and 2003:
Less
Discontinued
Electrical Electrical
Aluminum Products Total Products Total
---------- ---------- -------- ---------- -----------------
Balance December 31, 2001 $13,470 $60,729 $74,199 ($60,729) $13,470
Goodwill impairment loss as a result of
transitional Impairmentimpairment test related to
adoption of SFAS No. 142 (13,470) (11,857) (25,327) 11,857 (13,470)
-------- -------- --------------- --------- --------
Balance MarchDecember 31, 2002 - 48,872 48,872 (48,872) -
Goodwill impairment loss as a result of
annual impairment test performed in fourth
quarter - (29,607) (29,607) 29,607 -
-------- -------- -------- --------- --------
Balance December 31, 2003 $ - $48,872 $48,872$19,265 $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 and six months ended June 30 are as follows (in thousands):
Three months ended
June 30,
2004 2003
---- ----
Components of net pension expense:
Service cost $ 786 $ 698
Interest cost 1,764 1,785
Expected return on plan assets (1,698) (1,473)
Amortization of prior service cost (benefit) 44 50
Recognized net actuarial loss 375 464
------ ------
Net pension expense $1,271 $1,524
====== ======
Six months ended
June 30,
2004 2003
---- ----
Components of net pension expense:
Service cost $ 1,642 $ 1,453
Interest cost 3,511 3,417
Expected return on plan assets (3,413) (2,935)
Amortization of prior service cost (benefit) 90 45
Recognized net actuarial loss 716 819
------ ------
Net pension expense $2,546 $2,799
====== ======
Included in the net pension expense above is $0.10 million and $0.12 million for
the three months ended June 30, 2004 and 2003, respectively, and $0.24 million
and $0.26 million for the six months ended June 30, 2004 and 2003, respectively,
relating to the Company's discontinued electrical products segment operations.
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
June 30, 2004, $1.4 million of contributions have been made. The Company
presently anticipates contributing an additional $2.6 million to fund its
pension plans in 2004 for a total of $4.0 million.
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 and six months ended June 30
are as follows (in thousands):
Three months ended
June 30,
2004 2003
---- ----
Components of net postretirement benefit expense:
Service cost $ 61 $145
Interest cost 531 988
Amortization of prior service cost (benefit) (2,373) (738)
Recognized net actuarial gain (282) (63)
Curtailment gain - (2,516)
------ ------
Net postretirement benefit expense (income) ($2,063) ($2,184)
======= =======
Six months ended
June 30,
2004 2003
---- ----
Components of net postretirement benefit expense:
Service cost $ 189 $300
Interest cost 1,279 1,993
Amortization of prior service cost (benefit) (4,746) (1,477)
Recognized net actuarial gain (348) (126)
Curtailment gain - (2,516)
------ -------
Net postretirement benefit expense (income) ($3,626) ($1,826)
======= =======
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
June 30, 2004, $2.3 million of contributions have been made.
11. Information Concerning Business Segments
The Company has determined it has two reportable segments: aluminum andoperates principally in the United States in one segment after
having disposed of its other segment, the electrical products.products segment, in July
2004. The aluminum segment manufactures common alloy aluminum sheet for
distributors and the transportation, construction, and consumer durables end-use
markets. The electrical products segment manufacturesmanufactured 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 Note 1, "Basis of Presentation and Summary of Significant
Accounting Policies" in the Company's annual report to stockholdersSee note
15, "Discontinued Electrical Products Segment Operations" for the year
ended December 31, 2002. All intersegment sales prices are market based. The
Company evaluates the performance of its operating segments based upon operating
income.
The Company's reportable segments are strategic business units that offer
different products to different customer groups. They are managed separately
because each business requires different technology and marketing strategies.
Summarized financial information concerning the Company's reportable segments is
shown in the following table for the three months and nine months ended
September 30, 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, 2003
- -------------------------------------
Net sales to external customers $221,213 $26,904 $ -- $248,117
Intersegment net sales 3,906 -- (3,906) --
Operating income (loss) 11,112 29 (4,878) 6,263
Depreciation 4,608 559 -- 5,167
Amortization -- -- 222 222
Total assets 303,908 86,393 12,865 403,166
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 10,089
10.additional
information.
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 SeptemberJune 30, 20032004 and December 31, 2002,2003, statement of
operations for the three months and ninesix months ended SeptemberJune 30, 20032004 and 20022003 and
statement of cash flows for the ninesix months ended SeptemberJune 30, 20032004 and 2002.
2003.
Combining Balance Sheet at SeptemberJune 30, 2004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 2,246 $ -- $ -- $ 2,246
Accounts receivable, net -- 270,333 -- (270,255) 78
Inventories -- 139,158 -- -- 139,158
Net residual interest in receivables sold -- -- 36,306 -- 36,306
Prepayments and other current assets 435 16,521 -- -- 16,956
Current assets of discontinued operations -- 41,707 -- -- 41,707
--------- --------- --------- --------- ---------
Total current assets 435 469,965 36,306 (270,255) 236,451
Property, plant and equipment, net 1 120,610 -- -- 120,611
Other noncurrent assets 378,052 8,151 -- (377,507) 8,696
Noncurrent assets of discontinued operations -- 33,776 -- -- 33,776
--------- --------- --------- --------- ---------
Total assets $ 378,488 $ 632,502 $ 36,306 $(647,762) $ 399,534
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Lon-term debt due within one year $ -- $ 8,588 $ -- $ -- $ 8,588
Accounts payable 183,435 57,417 86,832 (270,255) 57,429
Accrued liabilities 6,049 30,488 (711) -- 35,826
Current liabilities of discontinued operations -- 12,849 -- -- 12,849
--------- --------- --------- --------- ---------
Total current liabilities 189,484 109,342 86,121 (270,255) 114,692
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 3,297 -- -- 3,297
Accrued pension benefits -- 30,108 -- -- 30,108
Accrued postretirement benefits -- 61,203 -- -- 61,203
Noncurrent liabilities of discontinued operations -- 1,230 -- -- 1,230
--------- --------- --------- --------- ---------
Total liabilities 314,484 205,180 86,121 (270,255) 335,530
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 162 1 -- (1) 162
Additional paid-in capital 407,965 486,727 5,000 (491,727) 407,965
Accumulated deficit (328,704) (45,959) (54,815) 100,774 (328,704)
Unearned compensation (1,972) -- -- -- (1,972)
Accumulated other comprehensive income:
Minimum pension liability adjustment (21,276) (21,276) -- 21,276 (21,276)
Effects of cash flow hedges 7,829 7,829 -- (7,829) 7,829
--------- --------- --------- --------- ---------
Total stockholders' equity 64,004 427,322 (49,815) (377,507) 64,004
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 378,488 $ 632,502 $ 36,306 $(647,762) $ 399,534
========= ========= ========= ========= =========
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 -- 298,466269,520 -- (298,154) 312(269,213) 307
Inventories -- 116,067116,150 -- -- 116,067116,150
Net residual interest in receivables sold -- -- 81,63344,889 -- 81,63344,889
Prepayments and other current assets 435 4,61613,529 -- -- 5,05113,964
Current assets of discontinued operations -- 35,704 -- -- 35,704
--------- --------- --------- --------- ---------
Total current assets 435 422,089 81,633 (298,154) 206,003434,903 44,889 (269,213) 211,014
Property, plant and equipment, net -- 142,8683 127,607 -- -- 142,868
Goodwill, net -- 48,872 -- -- 48,872127,610
Other noncurrent assets 424,757 4,552385,455 7,040 -- (423,886) 5,423(384,693) 7,802
Noncurrent assets of discontinued operations -- 33,690 -- -- 33,690
--------- --------- --------- --------- ---------
Total assets $ 425,192385,893 $ 618,381603,240 $ 81,633 $(722,040)44,889 $(653,906) $ 403,166380,116
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ 947 $ -- $ -- $ 947
Accounts payable $ 170,063 $ 47,151 $ 128,091 $(298,154) $ 47,151176,832 44,171 92,386 (269,213) 44,176
Accrued liabilities 9,265 19,000 (758)5,923 15,826 (490) -- 27,50721,259
Current liabilities of discontinued operations -- 9,458 -- -- 9,458
--------- --------- --------- --------- ---------
Total current liabilities 179,328 66,151 127,333 (298,154) 74,658182,755 70,402 91,896 (269,213) 75,840
Long-term debt 125,000 3,190 -- -- 128,190-- 125,000
Other long-term liabilities -- 3,9213,845 -- -- 3,9213,845
Accrued pension benefits -- 27,04329,017 -- -- 27,04329,017
Accrued postretirement benefits -- 70,08567,146 -- -- 70,08567,146
Noncurrent liabilities of discontinued operations -- 1,130 -- -- 1,130
--------- --------- --------- --------- ---------
Total liabilities 304,328 170,390 127,333 (298,154) 303,897307,755 171,540 91,896 (269,213) 301,978
--------- --------- --------- --------- ---------
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 (34) 34
Minimum pension liability adjustment (21,276) (21,276) -- (21,391) -- -- (21,391)21,276 (21,276)
Effects of cash flow hedges 1,994 1,994 -- (204) -- -- (204)(1,994) 1,994
--------- --------- --------- --------- ---------
Total stockholders' equity 120,864 447,991 (45,700) (423,886) 99,26978,138 431,700 (47,007) (384,693) 78,138
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 425,192385,893 $ 618,381603,240 $ 81,633 $(722,040)44,889 $(653,906) $ 403,166380,116
========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 2002Statement of Operations for the three months ended June 30, 2004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ ----------------- --------- --------- ---------
Assets
Current assets:
Cash and cash equivalentsNet sales $ -- $ 13,211273,634 $ -- $ -- $ 13,211
Accounts receivable, net273,634
Cost of goods sold -- 286,847 -- (286,781) 66
Inventories -- 125,348268,704 -- -- 125,348
Net residual interest in receivables sold -- -- 81,195 -- 81,195
Prepayments and other current assets 435 6,698 -- -- 7,133268,704
--------- --------- --------- --------- ---------
Total current assets 435 432,104 81,195 (286,781) 226,953
Property, plant and equipment, netGross profit -- 146,9684,930 -- -- 146,968
Goodwill, net4,930
Selling, general and administrative expenses 110 10,589 (45) -- 48,87210,654
Restructuring charges -- 12,943 -- -- 48,872
Other noncurrent assets 419,913 4,913 -- (418,715) 6,11112,943
--------- --------- --------- --------- ---------
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) (110) (18,602) 45 -- 28,527(18,667)
Other income (expense), net (18,995) 375 -- 18,995 375
Interest income (expense), net (3,469) 703 (1,534) -- (4,300)
--------- --------- --------- --------- ---------
Total current liabilities 167,517 83,109 124,276 (286,781) 88,121
Long-term debt 125,000Income (loss) from continuing operations
before income taxes (22,574) (17,524) (1,489) 18,995 (22,592)
Income tax expense -- (18) -- -- -- 125,000
Other long-term liabilities -- 5,183 -- -- 5,183
Accrued pension benefits -- 26,743 -- -- 26,743
Accrued postretirement benefits -- 76,670 -- -- 76,670(18)
--------- --------- --------- --------- ---------
Total liabilities 292,517 191,705 124,276 (286,781) 321,717Income (loss) from continuing operations (22,574) (17,506) (1,489) 18,995 (22,574)
Discontinued operations:
Income (loss) from operations before income taxes 2,046 2,046 -- (2,046) 2,046
(Loss) on disposition (1,570) (1,570) -- 1,570 (1,570)
Income tax expense (benefit) 1,003 1,003 -- (1,003) 1,003
--------- --------- --------- --------- ---------
Commitments and contingenciesIncome (loss) from discontinued operations (527) (527) -- -- -- -- --
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 -- -- 747527 (527)
--------- --------- --------- --------- ---------
Total stockholders' equity 127,831 441,152 (43,081) (418,715) 107,187
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equityNet income (loss) $ 420,348(23,101) $ 632,857(18,033) $ 81,195 $(705,496)(1,489) $ 428,90419,522 $ (23,101)
========= ========= ========= ========= =========
Combining Statement of Operations for the three months ended SeptemberJune 30, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 248,117190,099 $ -- $ -- $ 248,117190,099
Cost of goods sold -- 231,760180,911 -- -- 231,760180,911
--------- --------- --------- --------- ---------
Gross profit -- 16,3579,188 -- -- 16,3579,188
Selling, general and administrative expenses 52 10,04244 7,596 -- -- 10,0947,640
--------- --------- --------- --------- ---------
Operating income (loss) (52) 6,315(44) 1,592 -- -- 6,2631,548
Other income (expense), net 6,428 4231,550 414 -- (6,428) 423(1,550) 414
Interest income (expense), net (3,468) 652 (912)(3,467) 547 (999) -- (3,728)(3,919)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle 2,908 7,390 (912) (6,428) 2,958(1,961) 2,553 (999) (1,550) (1,957)
Income tax expense -- 504 -- -- 504
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (1,961) 2,549 (999) (1,550) (1,961)
Discontinued operations:
Income (loss) from operations before cumulative effect of
change in accounting principle 2,908 7,340 (912) (6,428) 2,908
Cumulative effect of change in accounting principleincome taxes 106 106 -- (106) 106
(Loss) on disposition -- -- -- -- --
Income tax expense (benefit) 16 16 -- (16) 16
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations 90 90 -- (90) 90
--------- --------- --------- --------- ---------
Net income (loss) $ 2,908(1,871) $ 7,3402,639 $ (912)(999) $ (6,428)(1,640) $ 2,908(1,871)
========= ========= ========= ========= =========
Combining Statement of IncomeOperations for the threesix months ended SeptemberJune 30, 20022004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 253,933525,888 $ -- $ -- $ 253,933525,888
Cost of goods sold -- 234,571506,722 -- -- 234,571506,722
--------- --------- --------- --------- ---------
Gross profit -- 19,36219,166 -- -- 19,36219,166
Selling, general and administrative expenses 51 12,473303 20,608 -- -- 12,524
Amortization of goodwill20,911
Restructuring charges -- 13,337 -- -- -- -- --13,337
--------- --------- --------- --------- ---------
Operating income (loss) (51) 6,889(303) (14,779) -- -- 6,838(15,082)
Other income (expense), net 6,904 332 -- (6,904) 332(15,569) 758 111 15,569 869
Interest income (expense), net (3,469) 807 (1,042)(6,937) 1,269 (2,885) -- (3,704)(8,553)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle 3,384 8,028 (1,042) (6,904) 3,466(22,809) (12,752) (2,774) 15,569 (22,766)
Income tax expense (benefit) (2,692) 82-- 43 -- -- (2,610)43
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (22,809) (12,795) (2,774) 15,569 (22,809)
Discontinued operations:
Income (loss) from operations before cumulative effect of
change in accounting principle 6,076 7,946 (1,042) (6,904) 6,076
Cumulative effect of change in accounting principleincome taxes 5,164 5,164 -- (5,164) 5,164
(Loss) on disposition (1,570) (1,570) -- 1,570 (1,570)
Income tax expense (benefit) 1,012 1,012 -- (1,012) 1,012
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations 2,582 2,582 -- --(2,582) 2,582
--------- --------- --------- --------- ---------
Net income (loss) $ 6,076(20,227) $ 7,946(10,213) $ (1,042)(2,774) $ (6,904)12,987 $ 6,076(20,227)
========= ========= ========= ========= =========
Combining Statement of Operations for the ninesix months ended SeptemberJune 30, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 675,205377,385 $ -- $ -- $ 675,205377,385
Cost of goods sold -- 637,316361,020 -- -- 637,316361,020
--------- --------- --------- --------- ---------
Gross profit -- 37,88916,365 -- -- 37,88916,365
Selling, general and administrative expenses 224 33,087172 16,832 -- -- 33,31117,004
--------- --------- --------- --------- ---------
Operating income (loss) (224) 4,802(172) (467) -- -- 4,578(639)
Other income (expense), net 5,171 1,331(445) 908 -- (5,171) 1,331445 908
Interest income (expense), net (10,403) 1,807 (2,619)(6,935) 888 (1,707) -- (11,215)(7,754)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle (5,456) 7,940 (2,619) (5,171) (5,306)(7,552) 1,329 (1,707) 445 (7,485)
Income tax expense -- 15067 -- -- 15067
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (7,552) 1,262 (1,707) 445 (7,552)
Discontinued operations:
Income (loss) from operations before cumulative effect of
change in accounting principle (5,456) 7,790 (2,619) (5,171) (5,456)
Cumulative effect of change in accounting principleincome taxes (779) (779) -- 779 (779)
(Loss) on disposition -- -- -- -- --
Income tax expense (benefit) 33 33 -- (33) 33
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations (812) (812) -- 812 (812)
--------- --------- --------- --------- ---------
Net income (loss) $ (5,456)(8,364) $ 7,790450 $ (2,619)(1,707) $ (5,171)1,257 $ (5,456)(8,364)
========= ========= ========= ========= =========
Combining Statement of IncomeCash Flows for the ninesix months ended SeptemberJune 30, 20022004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- --------- --------- -------------------
Cash flows from operating activities:
Net salesincome (loss) $(20,227) $(10,213) $ (2,774) $ 12,987 $(20,227)
(Income) loss from discontinued operations (2,582) (2,582) -- 2,582 (2,582)
Adjustments to reconcile net income (loss) to
net cash (used in) operations:
Depreciation 2 10,513 -- -- 10,515
Amortization -- 572 32 -- 604
Loss on disposal of property, plant and equipment -- 578 -- -- 578
Issuance of common stock in connection with stock awards 206 -- -- -- 206
Equity in undistributed net income of subsidiaries 15,569 -- -- (15,569) --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net -- (813) -- 1,042 229
(Increase) in inventories -- (23,008) -- -- (23,008)
Decrease in net residual interest in receivables sold -- -- 8,517 -- 8,517
Decrease in prepayments and other current assets -- 2,843 -- -- 2,843
Decrease (increase) in other noncurrent assets 303 (1,683) -- -- (1,380)
Increase (decrease) in accounts payable 6,603 13,246 (5,554) (1,042) 13,253
Increase (decrease) in accrued liabilities 126 14,662 (221) -- 14,567
(Decrease) in other liabilities -- (5,400) -- -- (5,400)
-------- -------- -------- -------- --------
Net cash (used in) continuing operations -- (1,285) -- -- (1,285)
Net cash (used in) discontinued operations -- (16) -- -- (16)
-------- -------- -------- -------- --------
Net cash (used in) operating activities -- (1,301) -- -- (1,301)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (4,226) -- -- (4,226)
Proceeds from sale of property, plant and equipment -- 132 -- -- 132
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (4,094) -- -- (4,094)
-------- -------- -------- -------- --------
Cash flows from financing activities:
(Decrease) in outstanding checks in excess of deposits -- (947) -- -- (947)
Proceeds from long-term debt -- 148,801 -- -- 148,801
Repayments of long-term debt -- (140,213) -- -- (140,213)
-------- -------- -------- -------- --------
Net cash provided by financing activities -- 7,641 -- -- 7,641
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 2,246 -- -- 2,246
Cash and cash equivalents at beginning of period -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 727,5192,246 $ -- $ -- $ 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)
========= ========= ========= ========= =========2,246
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the ninesix months ended SeptemberJune 30, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ (5,456)(8,364) $ 7,790450 $ (2,619)(1,707) $ (5,171)1,257 $ (5,456)(8,364)
Loss from discontinued operations 812 812 -- (812) 812
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation -- 15,4179,132 -- -- 15,4179,132
Amortization -- 666444 -- -- 666444
Loss on disposal of property, plant and equipment -- 6840 -- -- 6840
Issuance of common stock in connection with stock awards 90 -- -- -- 90
Equity in undistributed net income of subsidiaries (5,171)445 -- -- 5,171(445) --
Changes in assets and liabilities:
(Increase) decreaseDecrease (increase) in accounts receivable, net -- (11,619)31,312 -- 11,373 (246)
Decrease(31,304) 8
(Increase) in inventories -- 9,281(16,512) -- -- 9,281
(Increase)(16,512)
Decrease in net residual interest in receivables sold -- -- (438)40,969 -- (438)40,969
Decrease in prepayments and other current assets -- 25689 -- -- 25689
Decrease (increase) in other noncurrent assets 327 (305)218 (195) -- -- 2223
Increase (decrease) in accounts payable 8,405 (12,443) 2,968 (11,373) (12,443)8,360 (22,266) (39,303) 31,304 (21,905)
Increase (decrease) in accrued liabilities 3,406 (3,409) 8940 (4,330) 41 -- 86(4,249)
(Decrease) in other liabilities -- (7,547)(1,818) -- -- (7,547)(1,818)
-------- -------- -------- -------- --------
Net cash provided by (used in) continuing operations 1,601 (2,242) -- -- (641)
Net cash provided by discontinued operations -- 2,294 -- -- 2,294
-------- -------- -------- -------- --------
Net cash provided by operating activities 1,601 (2,076)52 -- -- (475)1,653
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (11,543)(6,823) -- -- (11,543)(6,823)
Proceeds from sale of property, plant and equipment -- 158155 -- -- 158155
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (11,385)(6,668) -- -- (11,385)(6,668)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt -- 75,16860,398 -- -- 75,16860,398
Repayments of long-term debt -- (71,978)(60,398) -- -- (71,978)(60,398)
Cash dividends paid (1,601) -- -- -- (1,601)
-------- -------- -------- -------- --------
Net cash (used in) financing activities (1,601) 3,190 -- -- 1,589-- (1,601)
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (10,271)(6,616) -- -- (10,271)(6,616)
Cash and cash equivalents at beginning of period -- 13,21113,199 -- -- 13,21113,199
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 2,9406,583 $ -- $ -- $ 2,9406,583
======== ======== ======== ======== ========
Combining13. 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
Cash FlowsFinancial 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 ninerequired 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 allowed 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 were 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 was 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. Additionally, in May 2004, the Financial Accounting Standards Board
issued Staff Position No. FAS 106-2, "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003" ("FSP FAS 106-2"). FSP FAS 106-2 supersedes FSP FAS 106-1 and will be
effective for the Company in the third quarter of 2004. FSP FAS 106-2 provides
guidance on the accounting for the effects of the Act for employers that sponsor
postretirement health care plans the provide drug benefits and also requires
those employers to provide certain disclosures regarding the effect of the
federal subsidy provided by the Act.
15. Discontinued Electrical Products Segment Operations
On June 4, 2004, the Company entered into an agreement to sell its Alflex
subsidiary, which comprises its Electrical Products Segment, to Southwire
Company. The sale was completed on July 30, 2004. Summary operating results for
the discontinued operations follows (in thousands):
Three months ended
June 30,
2004 2003
---- ----
Net sales $29,855 $25,021
======= =======
Income (loss) from discontinued operations before income taxes $2,046 $106
Income tax expense 3 16
------- -------
Income (loss) from discontinued operations, net 2,043 90
------- -------
(Loss) on disposal of discontinued operations (1,570) -
Income tax expense 1,000 -
------- -------
(Loss) on disposal of discontinued operations, net (2,570) -
------- -------
Income (loss) on discontinued operations, net ($527) $ 90
======= =======
Six months ended
June 30,
2004 2003
---- ----
Net sales $61,678 $49,703
======= =======
Income (loss) from discontinued operations before income taxes $5,164 ($779)
Income tax expense 12 33
------- -------
Income (loss) from discontinued operations, net 5,152 (812)
------- -------
(Loss) on disposal of discontinued operations (1,570) -
Income tax expense 1,000 -
------- -------
(Loss) on disposal of discontinued operations, net (2,570) -
------- -------
Income (loss) on discontinued operations, net $2,582 ($812)
======= =======
Summarized balance sheet information for the discontinued operations is as
follows (in thousands):
June 30, December 31,
2004 2003
---- ----
Current assets $41,707 $35,704
Property, plant and equipment, net 14,511 14,425
Goodwill 19,265 19,265
Current liabilities (12,849) (9,458)
Accrued pension benefits (1,230) (1,130)
16. Subsequent Event
On July 30, 2004, the Company completed the disposition of its Alflex
subsidiary, which comprised its Electrical Products Segment, to Southwire
Company pursuant to a stock purchase agreement. The cash consideration received
by the Company was $64.0 million (subject to final adjustment upon verification
of the actual value of property, plant and equipment and working capital, as
set forth in the stock purchase agreement.)
17. Pending Merger
On June 17, 2004, the Company and IMCO Recycling Inc. ("IMCO") announced that
they had entered into an Agreement and Plan of Merger pursuant to which a newly
formed indirect wholly owned subsidiary of IMCO will merge with and into the
Company, and as a result, the Company will become a wholly owned indirect
subsidiary of IMCO.
Terms of the Merger Agreement call for the Company's stockholders to receive
0.815 IMCO shares in exchange for each of their Company shares. The merger
is expected to close in the fourth quarter of 2004, subject to the
approval of the stockholders of both companies, approval under the Hart Scott
Rodino Act, refinancing of indebtedness and other customary closing conditions.
18. Restructuring Charges
During the second quarter of 2004, the Company recorded restructuring charges of
$15.2 million including $2.2 million inventory write-downs included in cost of
goods sold on the condensed consolidated statement of operations and $15.5
million for the six months ended SeptemberJune 30, 20022004. The restructuring costs are
related to new management's initial efforts to improve profitability by
eliminating under-performing operations and streamlining overhead, as well as
costs associated with the proposed merger with IMCO, which is expected to close
in the fourth quarter of 2004.
During the quarter, the Company closed its tube manufacturing facility in Kings
Mountain, North Carolina, to focus on its core aluminum sheet and recycling
operations and eliminate an unprofitable product line. Total production of tube,
fabrication operations and assembly of retail products ceased on June 30, 2004.
Estimated costs for the closure are approximately $7.2 million including
severance costs, fixed asset and inventory write-downs, present value of
equipment lease obligations and various other closing costs. $5.8 million of
closure costs were recorded in the second quarter of 2004, with the balance
expected to be recorded in the third quarter of this year.
The departure of the former chief executive officer and other key executives
related to the upcoming merger with IMCO, represent the initial steps in
streamlining overhead costs, resulting in a charge of $6.4 million for severance
costs in the second quarter. In addition, the Company recorded $3.0 million of
merger-related charges in the second quarter of 2004 and $0.4 million in the
first quarter of 2004.
A summary of the significant components of the restructuring charges for the six
months ended June 30, 2004 is as follows (in thousands):
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
---------Merger Closure Of Tube
Related Manufacturing Streamlining
Costs Facility Overhead Total
---------- -------------- ------------ ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $(22,576) $(11,335)Severance costs $ (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 disposal512 $ 6,367 $6,879
Lease termination costs - 2,251 - 2,251
Asset write-downs - 792 - 792
Professional fees 3,351 - - 3,351
Other costs - 64 - 64
------- ------ ------- ------
Total 3,351 3,619 6,367 13,337
Inventory write-downs (included in cost 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 periodgoods sold) - 2,208 - 2,208
------- ------ ------- ------
Total $ --3,351 $ --5,827 $ -- $ -- $ --
======== ======== ======== ========6,367 $15,545
======= ====== ======= ======
Accruals for the restructuring charges are included in accrued liabilities on
the condensed consolidated balance sheet and amounted to $7.0 million at June
30, 2004. The accruals primarily consist of costs related to severance, lease
termination costs and professional fees.
A summary of the activity with respect to the restructuring accruals is as
follows (in thousands):
Total
-------
Restructuring accrual at March 31, 2004 $ 250
Restructuring charges (1) 12,151
Payments (5,425)
--------
Restructuring accrual at June 30, 2004 $6,976
========
Note (1) - represents severance, lease termination costs, professional fees and
other costs included in the restructuring accrual. The remaining restructuring
charges of $792 consist of asset write-downs and are not included in the
restructuring accrual.
19. Stock Incentives
During June 2004, the Company awarded 220,000 shares of restricted common stock
to certain new members of management. The awards were recorded in the
stockholders' equity section of the condensed consolidated balance sheet by
increasing the combined amounts of common stock and additional paid in capital
by $2.1 million with a corresponding charge to unearned compensation. The
unearned compensation amount is being amortized over the vesting period of the
restricted stock. The unearned compensation balance at June 30, 2004 was $2.0
million.
20. Revolving Credit Agreement
The Company has a $30 million revolving credit facility that expires on March
31, 2005. At June 30, 2004, $18.3 million was available, as the outstanding
amounts against the credit facility were $3.1 million of standby letters of
credit and $8.6 million of borrowings. 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. In the
quarter ended June 30, 2004, the Company determined that an amendment to its
credit agreement pertaining to certain financial covenants would be necessary to
avoid a breach of the credit agreement. The Company obtained the necessary
amendment, which was effective as of June 30, 2004, in July 2004.
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 ability to
close the merger agreement with IMCO Recycling Inc. ("IMCO") announced in June
2004, the success of the implementation of the company-wideCompany-wide information system,
the effect of global economic conditions, the ability to achieve the level of
cost savings or productivity improvements anticipated by management, including
synergies that the IMCO merger are expected to produce, the effect (including
possible increases in the cost of doing business) resulting from war andor
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 filings with the Securities and Exchange Commission.
Recent Developments
Alflex Sale
On June 7, 2004 the Company announced the planned sale of its Alflex electrical
products business to Southwire Company. The announcement indicated that the sale
was expected to close on or before July 30, 2004, with proceeds to be used to
pay down debt and other corporate purposes. The sale closed on July 30, 2004 for
a cash consideration received by the Company of $64.0 million (subject to final
adjustment of property, plant and equipment and working capital balances, as set
forth in the Stock Purchase Agreement between the parties.)
Management Changes
On June 11, 2004 the Company announced the appointment of Steven J. Demetriou as
the new president and chief executive officer of the Company replacing Mark V.
Kaminski. Other Company officers joining the Company in June were Michael D.
Friday, executive vice president and chief financial officer, Christopher R.
Clegg, vice president, general counsel and secretary and Sean M. Stack, vice
president and treasurer. (See Merger Announcement section below for added
context.)
Merger Announcement
On June 17, 2004 the Company announced that it had entered into a merger
agreement with IMCO pursuant to which a newly formed indirect wholly owned
subsidiary of IMCO will merge with and into the Company, with the effect that
the Company will become a wholly owned indirect subsidiary of IMCO. Under the
terms of the merger agreement, at the effective time of the merger, holders of
Company common stock will receive 0.815 share of IMCO common stock for each
share of Company common stock held. Refer to Form 8-K filed by the Company with
the Securities and Exchange Commission filings.on June 18, 2004 which includes the
merger agreement and is incorporated herein by reference. Also refer to Form S-4
Registration Statement filed by IMCO Recycling Inc. with the Securities and
Exchange Commission on July 21, 2004 for detailed information on the merger
transaction.
Special Charges Announcement
On July 21, 2004 the Company announced that it expected to incur second quarter
2004 restructuring charges of approximately $15.2 million, consisting of $6.4
million employee severance costs (including costs relating to separation
agreements with Mark V. Kaminski, former chief executive officer; Lenna Ruth
Macdonald, former vice president, general counsel and secretary; and Gregory P.
Givan, former vice president and treasurer), $5.8 million in costs relating to
closure of its aluminum segment tube manufacturing products line and $3.0
million in merger-related costs. The Company recorded these charges in the 2004
second quarter, of which approximately $12.9 million is shown as a "
restructuring charges" line item and $2.2 million is included in cost of goods
sold in the Company's condensed consolidated statement of operations herein. See
note 18 "Restructuring Charges" in the condensed consolidated financial
statements for additional information.
The Company also announced in the same release that it expected to incur
additional costs of $3.3 million in connection with the sale of its Alflex
electrical products business (inclusive of $1.0 million income tax expense).
Actual costs recorded in the second quarter 2004 financial statements herein are
$2.6 million, or $0.7 million lower than estimated by the Company, as the result
of the Company's incurring lower employee severance costs than estimated. See
note 15 "Discontinued Electrical Products Segment Operations" in the condensed
consolidated financial statements for additional information.
Business Overview
The Company operates in one business, the aluminum business after having
disposed of the Company's electrical products business in July 2004. See note 15
"Discontinued Electrical Products Segment Operations" in the condensed
consolidated financial statements for additional information. 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 and welded tube product markets, however, the Company closed its tube
manufacturing facility at the end use marketsof June 2004 and electrical flexible conduitexited that product line. See
note 18 "Restructuring Charges" in the condensed consolidated financial
statements for additional information. The aluminum business is highly cyclical
in nature and prewired armored cableis 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 and 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 the London Metal Exchange ("LME") 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 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 quartertwo quarters 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 two quarters of 2004 due to
the fact that the variability in price changes relating to metal purchases being
hedged (principally scrap spreads) did not move in tandem with price changes in
the LME futures contracts 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 hedges were marked-to-market, giving riseeffect 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 $1.1hedged transactions occur have been and will be adversely affected by
the $7.0 million gain.
Demandwhich was required under SFAS No. 133 to be recognized in 2003
(see the section entitled "Risk Management" for additional information regarding
the Company's electrical products decreased duringhedging 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 nine
months of 2003. Shipments were down 6% compared to the first nine months of 2002
reflecting weaknessquarter, $1.7 million 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$1.2 million 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 2003and $0.8 million in the fourth
quarter. During the first two quarters of 2004, mark-to-market changes in the
carrying value of the futures contracts and new transactions were down comparedentered into
which increased material margins, pretax income and net income by approximately
$3.4 million, the effect of which was to partially offset the $5.0 million loss
carried over from 2003. At June 30, 2004, the cumulative mark-to-market
adjustments described herein have the effect of reducing future period material
margins by approximately $5.5 million (excluding the effects of new
mark-to-market adjustments arising in the future). The $5.5 million adverse
impact would be distributed approximately $2.9 million in the third quarter of
20022004, $2.2 million in the fourth quarter of 2004 and $0.4 million in 2005.
During the second quarter and first half of 2003 primarily2004, shipments of the Company's
aluminum sheet products increased by 35% and 33%, respectively, from the prior
year periods due to lower overtime
labor, group insurance and workers compensation insurance costs.strengthening in certain markets.
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 secondCompany
realized a benefit of approximately $2.1 million after tax or $0.13 per share in
the both the first and thirdsecond 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 and ninesix months ended SeptemberJune 30, 20032004
and 20022003
Net Sales. Net sales for the quarter ended SeptemberJune 30, 2003 decreased 2%2004, increased 44% to
$248$279.5 million (including $27$5.8 million sales to the discontinued electrical
products segment) from Alflex) from $254$194.2 million (including $30$4.1 million from Alflex)sales to the
discontinued electrical products segment) for the same period in 2002.2003. The
decrease isincrease was due to the
combined effect of lowerhigher aluminum and electrical product shipments and lowerhigher net selling prices of
electrical products which more than offset an increasealuminum. As mentioned previously, the increased aluminum shipments were
primarily due to strengthening in net
selling prices of aluminum products.the building and construction, distribution
and transportation markets. Unit sales volume of aluminum decreased 16%increased 35% to 195.4247.4
million pounds (including 5.2 million pounds sold to the discontinued electrical
products segment) for the thirdsecond quarter of 20032004 from 232.8183.0 million pounds
(including 4.8 million pounds sold to the discontinued electrical products
segment) for the thirdsecond quarter of 2002. Alflex unit sales volume was 124.5 million feet
for the third quarter of 2003, a decrease of 4% versus 130.3 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.2003. Net sales for the nine-monthsix-month period
ended SeptemberJune 30, 2003,2004, were $675$537.7 million (including $77$11.9 million from Alflex)sales to the
discontinued electrical products segment), a 7% decrease39% increase from the $728$385.9
million (including $8.5 million sales to the discontinued electrical products
segment) recorded in the first nine monthshalf of 2002 (including $86 million
from Alflex).2003. The decrease isincrease was 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
products. Unit sales volume of aluminum was 557.3494.9 million pounds for(including 10.8
million pounds sold to the nine months of
2003, a decrease of 18% from the 680.2 million poundsdiscontinued electrical products segment) for the
first nine monthshalf of 2002. Alflex unit sales volume was 350.92004, an increase of 33% from the 371.9 million feetpounds (including
10.0 million pounds sold to the discontinued electrical products segment) for
the first nine
monthshalf 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.2003.
Gross Profit. (All gross profit comparisons exclude Alflex, which is reported
under discontinued operations) Gross profit for the quarter ended SeptemberJune 30, 2003,2004
decreased to $16.4$4.9 million (6.6%(1.8% of net sales) from $19.4$9.2 million (7.6%(4.8% of net
sales) for the same period in 2002. Gross profit for the nine months ended September 30,
2003 was $37.9 million (5.6% of net sales) versus $45.6 million (6.3% of net
sales) for the comparable period in 2002. Contributing to the third quarter and
nine-month decreases in2003. The gross profit were decreases 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 periods primarilydecrease is due to lower shipment volumes, partially offset bya
combination of factors, including the combinedunfavorable effects of
improved material margins, the mark-to-market
hedge adjustments mentioned previously and a $2.2 million inventory write-down
related to closure of the tube product line. Partially offsetting those factors
was the net favorable effect of the 35% increase in shipment volume, including
the impact of the volume increase in reducing manufacturing and freight unit
costs by costspreading the fixed component of goods soldthose costs over the larger volume
base. The volume increase more than offset the reduction in material margins,
which declined (exclusive of the hedge and tube inventory write-down) to
$0.308 per pound from $0.358 per pound in the prior year quarter. The $0.050 per
pound material margin decline was principally related to selling price
reductions relatedgranted by the Company in order to increase 2004 shipment volume and
regain market share lost in 2003. Gross profit for the six months ended June 30,
2004 increased to $19.2 million (3.6% of sales) from $16.4 million (4.3% of
sales) in the prior year period. The six months gross profit increase includes
the unfavorable effect of the same factors that affected the 2004 second
quarter, consisting of the mark-to-market hedge and the tube inventory
write-down. The 2004 six month material margin declined (exclusive of hedge and
tube inventory write-down) by $0.049 per pound to $0.303 per pound from $0.352
per pound in the prior year period. The decrease, attributable to the
aforementioned changes tomarket share-related customer selling price reductions granted in
2004, was more than offset by the Company's postretirement medical insurance program. The third
quarter and nine-month gross profit decreases at Alflex reflect the netbeneficial effects of lower shipmentthe resulting volume
lower 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.increase on gross profit.
Operating Income. The Company had an operating incomeloss of $6.3$18.7 million for the
thirdsecond quarter of 20032004 compared with operating income of $6.8$1.5 million for the
thirdsecond quarter of 2002.2003. For the nine-monthsix-month period ended SeptemberJune 30, 2003,2004, the
Company had an operating incomeloss of $4.6$15.1 million, versus an operating incomeloss of $10.8$0.6
million for the first nine monthshalf 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 due2003. In addition to the factors described in the
preceding paragraph, partially offsetgross profit section, operating income changes were impacted by lowerthe recording of
restructuring charges in the second quarter of 2004 and changes in selling,
general and administrative expenses. Selling, general and administrative expenses during the
third quarter of 2003 were $10.1 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. The third
quarter and nine-month decreases in selling, general and administrative expenses
were primarily due to a reduction in postretirement medical expense relating to
the changes made in the postretirement medical programCompany incurred restructuring charges
during the second quarter of 20032004 of $12.9 million and lower accruals$13.3 million for employee incentive plans which more than offset
an increase in professional servicethe six
months ended June 30, 2004 relating to new management's initial efforts to
improve profitability by eliminating under-performing operations and
streamlining overhead, as well as costs principally associated with the Company's project to upgrade its information technology systems.
Cumulative effect of change 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.planned merger with
IMCO Recycling Inc. See note 8 to18 "Restructuring Charges" in the condensed
consolidated financial statements for additional information. Net Income. The Company had net incomeThere were no
similar charges in the comparable periods in 2003. Selling, general and
administrative expenses during the second quarter of $2.92004 were $10.7 million, for the quarter ended
September 30, 2003,
compared with net income of $6.1$7.6 million for the same period in 2002. The Company's net loss2003 and were $20.9 million
for the ninesix months ended SeptemberJune 30, 2003 was
$5.5 million2004, compared with $17.0 million for the same
period in 2003. The increase in selling, general and administrative expenses was
primarily due to higher accruals for employee incentive plans, increased
depreciation expense due to the information technology systems upgrade and
increased professional service costs.
Income (Loss) From Continuing Operations. The Company had a net loss from continuing
operations of $22.6 million for the first nine months
of 2002. The net loss for the first nine months 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 SeptemberJune 30, 2003
and 2002 and $11.22004, compared to a
loss from continuing operations of $2.0 million for the ninesame period in 2003 and
a loss from continuing operations of $22.8 million for the six months ended SeptemberJune
30, 2003,2004 compared with $11.4to a loss from continuing operations of $7.6 million for the
first ninehalf of 2003 due principally to the factors described in the previous
sections. Interest expense, net was $4.3 million for the quarter ended June 30,
2004, compared to $3.9 million recorded in the second quarter of 2003 and $8.6
million for the six months ended June 30, 2004, compared with $7.8 million for
the first half of 2002.2003. The nine-month
decrease wasquarter and six-month increase were 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 expense was $0.05 millionDiscontinued Operations. The Company disposed of its electrical products
business in July 2004 and all periods shown have reclassified the results of
this business as discontinued operations including the loss on disposition. See
note 15 "Discontinued Electrical Products Segment Operations" in the thirdcondensed
consolidated financial statements for additional information. Income from
operations before income taxes was $2.0 million for the quarter of 2003ended June 30,
2004, compared to an income tax benefitfrom operations before taxes of $2.6$0.1 million for the
same period in 20022003 and an income tax expensefrom operations before income taxes of $0.2$5.2
million for the ninesix months ended SeptemberJune 30, 20032004 compared to a loss from
operations before income taxes of $0.8 million for the first half of 2003. The
improvements were primarily due to the net effects of higher shipment volume,
higher material margins and lower manufacturing costs. The loss on disposition
of $1.6 million ($2.6 million after an estimated $1.0 million of income tax
benefitexpense) relates to estimated transaction costs relating to severance and
professional fees.
Net Income (Loss). The Company had a net loss of $2.5$23.1 million for the quarter
ended June 30, 2004, compared to a net loss of $1.9 million for the same period
in 2002. The increase in income tax expense was2003 and a net loss of $20.2 million for the six months ended June 30, 2004
compared to a net loss of $8.4 million for the first half of 2003 due to a $2.7
million adjustment recordedthe
factors described in the third quarter of 2002 to reduce prior years'
income tax accruals.previous sections.
Off-Balance Sheet Arrangement
During 1997, the Company sold all of its trade accounts receivablesreceivable 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,can sell, on a revolving basis, an
undivided interest in certain of its receivables and receivesreceive 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 in2003. In October 2002, the Company extended the agreement for an
additional year ending in September 2004. In addition during2004 and in February 2004, extended the
agreement through the end of March 2005. 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. In
February 2004, the availability was increased to $80.0 million and in May 2004
was increased to $100.0 million. At SeptemberJune 30, 20032004 and 2002,December 31, 2003, the
Company had outstanding under the agreement $40.0$100.0 million and $20.0$60.0 million,
respectively, and had $81.6$36.3 million and $100.2$44.9 million, respectively, of net
residual interest in receivables sold. The net residual interest in the
receivables sold has been reduced by $23.3 million and $19.3 million,
respectively, at June 30, 2004 and December 31, 2003, for the portion of the net
residual interest that related to the Company's discontinued electrical products
segment and included in the current assets of discontinued operations on the
condensed consolidated balance sheet. The fair value of the net residual
interest iswas measured at the time of the sale and is based on the sale of similar
assets. In the ninesix months ended SeptemberJune 30, 20032004 and 2002,2003, the Company received
gross proceeds of $62.0$40.0 million and $37.0$62.0 million, respectively, from the sale
of receivables and made gross payments of $46.0$16.0 million and 37.0 million, respectively,in the first half of
2003 under the agreement. There have been no payments made during the first six
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 continuing operations used cash flows of $0.5$1.3 million for the ninesix
months ended SeptemberJune 30, 20032004 compared to providingusing cash flows of $4.2$0.6 million infor the
nine months ended September 30, 2002.first half of 2003. Working capital increaseddecreased to $131.3$121.8 million at SeptemberJune 30, 20032004
from $129.5$133.4 million at SeptemberJune 30, 2002.2003.
Capital expenditures were $4.4$4.2 million during the threesix months ended SeptemberJune 30, 2003 and $11.52004
compared to $6.8 million during the ninesix months ended SeptemberJune 30, 2003
compared to $6.9 million during the three months ended September2003. At June 30,
2002 and
$10.1 million during the nine months ended September 30, 2002. At September 30,
2003,2004, the Company had commitments of $4.9$7.8 million for the purchase or
construction of capital assets. Total capital expenditures for the year 20032004 are
estimated to be approximately $15.4$14.3 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 after having obtained
an amendment in July 2004 which is effective as of June 30, 2004 for certain of
the 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 SeptemberJune 30, 20032004, $18.3 million was available, as the outstanding
amounts underagainst the credit facility consisted of $3.2 million of borrowings andwere $3.1 million of standby letters of
credit leaving $23.7and $8.6 million available at Septemberof borrowings. The Company received cash proceeds of
$64.0 million on July 30, 2003.2004 related to the sale of its Alflex electrical
products business and will apply the proceeds to reduce amounts outstanding on
its revolving credit facility, its receivables purchase agreement and for other
general corporate purposes.
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 SeptemberJune 30, 20032004 (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$133,588 $ -- $3,1908,588 $125,000 $ -- Operating$ --
Capital and operating leases 10,715 3,303 3,400 1,450 2,5628,505 2,670 2,568 1,049 2,218
Standby letters of credit 3,111 3,111 -- -- --
Outstanding obligation under
receivables purchase
agreement 40,000 40,000 -- -- --
-------------------------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $182,016 $46,414 $6,590 $126,450 $2,562
======================================================================$145,204 $14,369 $127,568 $1,049 $2,218
=====================================================================
Amount of Availability Per Period
Unused Availability of Total Amounts ----------------------------------------------------------------------------------------------------------------------
Financing Sources Available Less than 1 year 1-3 years 4-5 years Over 5 years
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unused revolving credit facility $ 23,699 $ -- $23,699$18,301 $18,301 $ -- $ -- Unused availability under
receivables purchase
agreement 55,000(1) 55,000(1)$ --
-- --
-------------------------------------------------------------------------------------------------------------------------------------------
Total available $ 78,699(2) $55,000(1) $23,699$18,301 $18,301 $ -- $ -- ======================================================================
(1) The amount was reduced to $20,000 as of October 31, 2003.
(2) The amount was reduced to $43,699 as of October 31, 2003.$ --
=====================================================================
The Company has 76 1/42 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 SeptemberJune 30, 2003,2004, the Company held forward firm-priced aluminum purchase and
sales commitmentsorders through May 2005 totaling $7$19 million and $131$242 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 third quarter ending
September 30, 2003,first two quarters 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 third quarterthe first two quarters 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 SeptemberJune 30, 2003,2004, the Company had $0.2$7.8
million of deferred net lossesgains recorded in accumulated other comprehensive
income. Over the next twelve months, approximately $0.6$5.4 million of deferred net
gains are expected to be reclassified from other comprehensive income into net
income as a reductiondecrease of cost of goods sold.
A net gainloss of $1.1$4.6 million and $1.5$1.6 million was recognized in cost of goods sold
during the three months and ninesix months ended SeptemberJune 30, 2003,2004, respectively, and a
net lossgain of $0.05$0.7 million and $0.16$0.4 million was recognized in cost of goods sold
during the three months and ninesix months ended SeptemberJune 30, 2002,2003, respectively,
representing the amount of the hedges' ineffectiveness. As of SeptemberJune 30, 2003,2004, the
Company held open aluminum and natural gas futures and forward contracts and
aluminum options having maturity dates extending through December 2005.March 2007.
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 allowed 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 were 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 was 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. Additionally, in May 2004, the Financial Accounting Standards Board
issued Staff Position No. FAS 106-2, "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003" ("FSP FAS 106-2"). FSP FAS 106-2 supersedes FSP FAS 106-1 and will be
effective for the Company in the third quarter of 2004. FSP FAS 106-2 provides
guidance on the accounting for the effects of the Act for employers that sponsor
postretirement health care plans that provide drug benefits and also requires
those employers to provide certain disclosures regarding the effect of the
federal subsidy provided by the Act.
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 SeptemberJune 30, 2003.2004. 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. In addition, as noted in the Company's first quarter 2004 Form
10-Q Item 4(b) "Controls and Procedures", 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 were addressed.
The Company continues to believe that failures to ensure the reliability of
financial reporting noted herein were temporary, and that the efforts 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 SeptemberJune 30, 20032004 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.12.1 Agreement and Plan of Merger, dated as of June 16, 2004,
by and among the Company, Silver Fox Acquisition Company
and IMCO Recycling Inc. (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form
8-K filed on June 18, 2004).
4.1 First Amendment, dated October 14, 2003,as of June 16, 2004, to the
Stockholder Protection Rights Agreement, dated as of
March 6, 1996, between the Company and National City
Bank, as Rights Agent (incorporated by reference to
Exhibit 1 to the Company's Amendment to the Registration
Statement on Form 8-A, filed on June 24, 2004).
10.1 Third Amendment, dated July 21, 2004, effective as of
June 30, 2004, to Third Amended and Restated Credit
Agreement among the Company, subsidiaries of the
Company, the several lenders from time to time parties
thereto, and PNC Bank, National Association, as
administrative agent, dated March 21, 2002.
10.2 Fourth Amendment, dated as of July 30, 2004, to Third
Amended and Restated Credit Agreement among the Company,
subsidiaries of the Company, the several lenders from
time to time parties thereto, PNC Bank, National
Association, as administrative agent, dated March 21,
2002.
10.3 Amendment No. 1, dated as of July 30, 2004, to Second
Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of PNC Bank, National
Association, as Administrative Agent, dated as of March
21, 2002.
10.4 Tenth Amendment, dated as of July 30, 2004, to
Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, as
Administrator, dated as of September 29, 1997.
10.5 Form of Severance Agreements between the Company and
Michael D. Friday and Christopher R. Clegg.
10.6 Form of Severance Agreement between the Company and
Sean M. Stack.
10.7 Separation Agreement, dated June 10, 2004, between the
Company and Mark V. Kaminski (incorporated by reference
to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed on June 14, 2004).
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 SeptemberJune 30, 2003:2004:
A Form 8-K dated July 22, 2003 reportingfiled April 23, 2004 providing certain new disclosures made
by the Company's President and Chief Executive Officer during the
Company's 2004 Annual Meeting of Stockholders.
A Form 8-K filed May 7, 2004 announcing the Company's results of
operations for the SecondFirst Quarter of 2003.2004.
A Form 8-K dated July 31, 2003 reportingfiled June 7, 2004 announcing the Company has agreed to sell
its Alflex electrical products unit.
A Form 8-K filed June 14, 2004 announcing the Company's board of
directors has appointed a new president and chief executive officer.
A Form 8-K filed June 18, 2004 announcing that the Company was
suspending quarterly cash dividend payments on its common stock.and IMCO
Recycling has signed a Definitive Merger Agreement.
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.Michael D. Friday
-------------------------
Michael D. Friday
Executive Vice President and
Chief Financial Officer
Date: November 6, 2003August 5, 2004
Exhibit Index
-------------
Exhibit
Number Description
- ------- ---------------------------------------------------------
10.1------ --------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of June 16, 2004,
by and among the Company, Silver Fox Acquisition Company
and IMCO Recycling Inc. (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form
8-K filed on June 18, 2004).
4.1 First Amendment, dated October 14, 2003,as of June 16, 2004, to the
Stockholder Protection Rights Agreement, dated as of
March 6, 1996, between the Company and National City
Bank, as Rights Agent (incorporated by reference to
Exhibit 1 to the Company's Amendment to the Registration
Statement on Form 8-A, filed on June 24, 2004).
10.1 Third Amendment, dated July 21, 2004, effective as of
June 30, 2004, to Third Amended and Restated Credit
Agreement among the Company, subsidiaries of the
Company, the several lenders from time to time parties
thereto, and PNC Bank, National Association, as
administrative agent, dated March 21, 2002.
10.2 Fourth Amendment, dated as of July 30, 2004, to Third
Amended and Restated Credit Agreement among the Company,
subsidiaries of the Company, the several lenders from
time to time parties thereto, PNC Bank, National
Association, as administrative agent, dated March 21,
2002.
10.3 Amendment No. 1, dated as of July 30, 2004, to Second
Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of PNC Bank, National
Association, as Administrative Agent, dated as of March
21, 2002.
10.4 Tenth Amendment, dated as of July 30, 2004, to
Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, as
Administrator, dated as of September 29, 1997.
10.5 Form of Severance Agreements between the Company and
Michael D. Friday and Christopher R. Clegg.
10.6 Form of Severance Agreement between the Company and
Sean M. Stack.
10.7 Separation Agreement, dated June 10, 2004, between the
Company and Mark V. Kaminski (incorporated by reference
to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed on June 14, 2004).
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").