===============================================================================================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 16,010,97116,644,343 shares of common stock outstanding at
October 29, 2003.
================================================================================November 1, 2004.
===============================================================================
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended September 30, 20032004
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
-----------
Condensed Consolidated Balance Sheet as of
September 30, 20032004 and December 31, 20022003 3
Condensed Consolidated Statement of Operations for the three
months and nine months ended September 30, 20032004 and 20022003 4
Condensed Consolidated Statement of Comprehensive Income
(Loss) for the three months and nine months ended
September 30, 20032004 and 20022003 5
Condensed Consolidated Statement of Cash Flows for the nine
months ended September 30, 20032004 and 20022003 6
Notes to Condensed Consolidated Financial Statements 7-197-23
Item 2. Management's Discussion and Analysis of Financial Condition 20-2624-33
and Results of Operations
Item 4. Controls and Procedures 2634
Part II - Other Information
Item 1. Legal Proceedings 2735
Item 6. Exhibits and Reports on Form 8-K 2735
Signatures 2836
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
(Unaudited)
September 30, December 31,
2004 2003
2002------------ ------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 2,94016,856 $ 13,211-
Accounts receivable, net 312 66141 307
Inventories 116,067 125,348111,555 116,150
Net residual interest in receivables sold 81,633 81,19591,140 44,889
Prepayments and other current assets 5,051 7,13324,470 13,964
Current assets of discontinued operations 243 35,704
------------ ------------- --------------
Total current assets 206,003 226,953244,405 211,014
Property, plant and equipment, net 142,868 146,968
Goodwill 48,872 48,872117,790 127,610
Other noncurrent assets 5,423 6,1117,836 7,802
Noncurrent assets of discontinued operations - 33,690
------------ ------------- --------------
Total assets $ 403,166370,031 $ 428,904380,116
============ ============= ==============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ 947
Accounts payable $ 47,151 $ 59,59450,672 44,176
Accrued liabilities 27,507 28,52734,284 21,259
Current liabilities of discontinued operations 1,918 9,458
------------ ------------- --------------
Total current liabilities 74,658 88,12186,874 75,840
Long-term debt 128,190125,000 125,000
Other long-term liabilities 3,921 5,1833,256 3,845
Accrued pension benefits 27,043 26,74323,533 29,017
Accrued postretirement benefits 70,085 76,67058,368 67,146
Noncurrent liabilities of discontinued operations 775 1,130
------------ ------------- --------------
Total liabilities 303,897 321,717297,806 301,978
------------ ------------- --------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,010,97116,644,343 and 15,997,65116,010,971 shares outstanding at
September 30, 20032004 and December 31, 2002,2003, respectively 160166 160
Additional paid-in capital 410,103 405,703 405,613
Accumulated deficit (284,999) (277,942)(326,596) (308,477)
Unearned compensation (2,058) -
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) 74711,886 1,994
------------ ------------- --------------
Total stockholders' equity 99,269 107,18772,225 78,138
------------ ------------- --------------
Total liabilities and stockholders' equity $ 403,166370,031 $ 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 Nine months ended
September 30, September 30,
-------------------------- ------------------------------------------------------- -----------------------------
2004 2003 20022004 2003
2002
---------- ----------- ----------- ------------ -----------
Net sales $ 248,117308,497 $ 253,933221,213 $ 675,205834,385 $ 727,519598,598
Cost of goods sold 231,760 234,571 637,316 681,933
----------287,022 207,870 793,744 568,890
----------- ----------- ------------ -----------
Gross profit 16,357 19,362 37,889 45,58621,475 13,343 40,641 29,708
Selling, general and administrative expenses 10,094 12,524 33,311 34,779
----------9,817 7,109 30,728 24,113
Restructuring and other charges 5,243 - 18,580 -
----------- ----------- ------------ -----------
Operating income 6,263 6,838 4,578 10,807(loss) 6,415 6,234 (8,667) 5,595
Other income (expense), net 459 423 3321,328 1,331 818
Interest expense, net (3,728) (3,704) (11,215) (11,406)
----------(4,230) (3,867) (12,783) (11,621)
----------- ----------- ------------ -----------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle 2,958 3,466 (5,306) 2192,644 2,790 (20,122) (4,695)
Income tax expense 87 33 130 100
----------- ----------- ------------ -----------
Income (loss) from continuing operations 2,557 2,757 (20,252) (4,795)
Discontinued operations:
Income (loss) from operations before income taxes (752) 168 4,412 (611)
Income (loss) on disposition 11 - (1,559) -
Income tax expense (benefit) (292) 17 720 50 (2,610) 150 (2,532)
----------
----------- ----------- ------------ -----------
Income (loss) before cumulative effect of
change in accounting principle 2,908 6,076 (5,456) 2,751
Cumulative effect of change in accounting principle - - - (25,327)
----------from discontinued operations (449) 151 2,133 (661)
----------- ----------- ------------ -----------
Net income (loss) $ 2,108 $ 2,908 $ 6,076(18,119) $ (5,456)
$ (22,576)
========== =========== =========== ============ ===========
Basic net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principlefrom continuing operations $ 0.18 $ 0.38 $ (0.34)0.16 $ 0.17 Cumulative effect of change in accounting principle - - - (1.58)
---------- ----------- ----------- -----------$ (1.25) $ (0.30)
Income (loss) from discontinued operations (0.03) 0.01 0.13 (0.04)
Net income (loss) $0.13 0.18 $ 0.38 $(1.12) (0.34) $(1.41)
========== =========== =========== ===========
Diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principlefrom continuing operations $ 0.18 $ 0.38 $ (0.34)0.15 $ 0.17 Cumulative effect of change in accounting principle - - - (1.57)
---------- ----------- ----------- -----------$ (1.25) $ (0.30)
Income (loss) from discontinued operations (0.03) 0.01 0.13 (0.04)
Net income (loss) $0.13 0.18 $ 0.38 $(1.12) (0.34) $(1.40)
========== =========== =========== ===========
Weighted average shares outstanding
Basic 16,435 16,011 15,99816,176 16,011
15,992
Diluted 16,568 16,034 16,09216,176 16,011 16,100
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 Nine months ended
September 30, September 30,
------------------------ ----------------------------------------------- -----------------------
2004 2003 20022004 2003
2002---------- ----------- --------- ----------- -------- -----------------
Net income (loss) $ 2,108 $ 2,908 $(18,119) $ 6,076 $(5,456) $(22,576)(5,456)
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 5,331 (1,459) (6,313)12,278 3,807 (3,174)
Reclassification adjustment for (gains) losses included
in net income (loss) (1,274) (1,743) 4,267(2,386) (4,758)
9,479---------- ----------- --------- ----------- -------- -----------------
Net change related to cash flow hedges 4,057 (3,202) (2,046)9,892 (951)
6,305---------- ----------- --------- ----------- -------- -----------------
Comprehensive income (loss) $ 6,165 $ (294) $ 4,030 $(6,407) $(16,271)(8,261) $ (6,407)
========== =========== ========= =========== ======== =================
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
Nine months ended September 30,
--------------------------------------------------------------
2004 2003
2002
--------- --------------------- -------------
Cash flows from operating activities:
Net income (loss) $ (18,119) $ (5,456)
$ (22,576)(Income) loss from discontinued operations (2,133) 661
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operations:
Depreciation 15,417 15,94015,486 13,740
Amortization 1,138 666 762
Goodwill impairment charge - 25,327
Loss on disposal of property, plant and equipment 604 68 196
Issuance of common stock in connection with stock awards 212 90 170
Changes in assets and liabilities:
(Increase)Decrease (increase) in accounts receivable, net (246) (56)166 (81)
Decrease in inventories 9,281 2,6694,595 8,358
(Increase) decrease in net residual interest in receivables sold (438) (17,875)
Decrease (increase)(46,340) 1,672
(Increase) in prepayments and other current assets 25 (806)
Decrease (increase)(614) (286)
(Increase) decrease in other noncurrent assets (764) 22
(2,419)
(Decrease) increaseIncrease (decrease) in accounts payable (12,443) 3,5716,496 (14,033)
Increase (decrease) in accrued liabilities 86 3,99313,025 (642)
(Decrease) in other liabilities (7,547) (4,736)
--------- ----------(14,851) (7,157)
----------- -------------
Net cash (used in) continuing operations (41,099) (2,378)
Net cash (used in) provided by discontinued operations (652) 1,567
----------- -------------
Net cash (used in) operating activities (475) 4,160
--------- ----------(41,751) (811)
----------- -------------
Cash flows from investing activities:
Proceeds from sale of electrical products segment 64,041 -
Purchases of property, plant and equipment (11,543) (10,089)(6,452) (11,198)
Proceeds from sale of property, plant and equipment 182 158
23
--------- --------------------- -------------
Net cash provided by (used in) investing activities (11,385) (10,066)
--------- ----------57,771 (11,040)
----------- -------------
Cash flows from financing activities:
Increase(Decrease) in outstanding checks in excess of deposits (947) - 351
Proceeds from long-term debt 167,879 75,168 55,700
Repayments of long-term debt (167,879) (71,978)
(55,700)
Repayments of notes receivableProceeds from saleissuance of common stock 1,783 - 1,561
Cash dividends paid - (1,601)
(2,399)
--------- --------------------- -------------
Net cash provided by (used in) financing activities 836 1,589
(487)
--------- --------------------- -------------
Net increase (decrease) in cash and cash equivalents (10,271) (6,393)16,856 (10,262)
Cash and cash equivalents at beginning of period 13,211 6,393
--------- ----------- 13,199
----------- -------------
Cash and cash equivalents at end of period $16,856 $ 2,940 $ -
========= ==========2,937
=========== =============
Supplemental disclosures:
Interest paid $ 7,5848,300 $ 7,5517,584
Income taxes paid (refunds received)585 167 (492)
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 September 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 income and basic and diluted net income per
share would have increased for the three months ended September 30, 2004 and the
Company's net loss and basic and diluted net loss per share would have been increaseddecreased
for the three months and nine months ended September
30, 2003 and the nine months ended September 30, 2002 and2004 due to the significant amount of
forfeitures during the third quarter of 2004, primarily as a result of the
departure of the Company's former chief executive officer, while the Company's
net income andfor the three months ended September 30, 2003 would have decreased
but with no change in basic and diluted net income per share and the Company's
net loss and basic and diluted net loss per share would have been reducedincreased for the
threenine months ended September 30, 20022003 to the pro forma amounts which follow (in
thousands except per share data):
Three months ended
September 30,
2004 2003 2002
---- ----
Net income (loss) as reported $2,108 $2,908 $6,076
Less total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects (1,375) 50 110
------ ------
Pro forma net income (loss) $3,483 $2,858 $5,966
====== ======
Basic net income (loss) per share
As reported $0.13 $0.18 $0.38
Pro forma 0.21 0.18 0.37
Diluted net income (loss) per share
As reported $0.13 $0.18 $0.38
Pro forma 0.21 0.18 0.37
Nine months ended
September 30,
2004 2003 2002
---- ----
Net income (loss) as reported $(18,119) $(5,456) $(22,576)
Less total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects (1,267) 234
297
------- -------------- ------
Pro forma net income (loss) $(16,852) $(5,690)
$(22,873)
======= ============== ======
Basic net income (loss) per share
As reported $(1.12) $(0.34) $(1.41)
Pro forma (1.04) (0.36) (1.43)
Diluted net income (loss) per share
As reported $(1.12) $(0.34) $(1.40)
Pro forma (1.04) (0.36) (1.43)
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 September 30, 20032004 and 2002,December 31, 2003, the
Company had outstanding under the agreement $40.0$50.0 million and $20.0$60.0 million,
respectively, and had $81.6$91.1 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 $19.3 million at 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 nine 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$50.0
million and $37.0$46.0 million, respectively, under the agreement.
4. Inventories
Inventories consist of the following (in thousands):
September 30, 20032004 December 31, 20022003
------------------ -----------------
Raw materials $ 24,10426,177 $ 22,71836,502
Work in process 51,429 46,67654,530 47,871
Finished goods 31,598 43,78038,728 25,633
Expendable parts and supplies 14,409 14,32014,985 12,915
---------- -----------
121,540 127,494----------
134,420 122,921
LIFO reserve (5,473) (2,146)(22,865) (6,771)
---------- ---------------------
$ 116,067111,555 $ 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. InventoriesThe inventory has been reduced by $15.2 million at December
31, 2003, for the portion of approximately $93.0 millionthe inventory that relates to the Company's
discontinued electrical products segment and $98.2
million,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 recognizedhad an income tax benefit of $0.3 million and an income tax expense
of $0.05$0.7 million and $0.2 millionon discontinued operations for the three months and nine months
ended September 30, 2003,2004, respectively, comparedwhich relates to anthe July 30, 2004 sale
of the discontinued operations while the remainder of the income tax benefitexpense on
discontinued operations 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
September 30,
2004 2003 2002
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Income before cumulative effect of change in accounting principle $2,908 $6,076
Cumulative effect of change in accounting principle - -
------ ------(loss) from continuing operations $2,557 $2,757
====== ======
Income (loss) from discontinued operations $ (449) $ 151
====== ======
Net income (loss) $2,108 $2,908 $6,076
====== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,435 16,011 15,998
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,435 16,011 15,998
Plus: dilutive effect of stock options 133 23 94
------ ------
Adjusted weighted average shares 16,568 16,034 16,092
====== ======
Basic and dilutednet income (loss) per share data:
Income before cumulative effect of change in accounting principle $0.18 $0.38
Cumulative effect of change in accounting principle - -
------ ------(loss) from continuing operations $0.16 $0.17
====== ======
Income (loss) from discontinued operations $(0.03) $0.01
====== ======
Net income (loss) $0.13 $0.18 $0.38
====== ======
Diluted net income (loss) per share data:
Income (loss) from continuing operations $0.15 $0.17
====== ======
Income (loss) from discontinued operations $(0.03) $0.01
====== ======
Net income (loss) $0.13 $0.18
====== ======
Nine months ended
September 30,
2004 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)
------- -------from continuing operations $(20,252) $(4,795)
======== =======
Income (loss) from discontinued operations $2,133 $ (661)
======== =======
Net income (loss) $(18,119) $(5,456)
$(22,576)
=============== =======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,176 16,011
15,992
====== ============== =======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,176 16,011 15,992
Plus: dilutive effect of stock options - 108
------ -------
-------- -------
Adjusted weighted average shares 16,176 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 $(1.25) $(0.30)
======== =======
Income (loss) from discontinued operations $ 0.13 $(0.04)
======== =======
Net income (loss) $(1.12) $(0.34)
$(1.41)
====== ============== =======
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 $(1.25) $(0.30)
======== =======
Income (loss) from discontinued operations $ 0.13 $(0.04)
======== =======
Net income (loss) $(1.12) $(0.34)
$(1.40)
====== ============== =======
Options to purchase 463,000 common shares, which equate to 175,198 incremental
common equivalent shares for the nine months ended September 30, 2004 and
options to purchase 577,000 common shares, which equate to 44,004 incremental
common equivalent shares for the nine months ended September 30, 2003 were
excluded from the diluted calculation above as their effect would have been
antidilutive. In addition, options to purchase 636,440 and 909,028 common shares
for the three months and nine months ended September 30, 2004 and 1,382,500 and
1,092,000 common shares for the three months and nine months ended September 30,
2003, respectively, and 794,000 common shares for both the three months and nine
months ended September 30, 2002 were excluded from the diluted calculations above because
the exercise prices on the options were greater than the average market price
for the periods.
7. Financial Instruments and Hedging Activities
The Company enters into futures contracts, forward contracts and options to
manage exposures to price risk related to aluminum and natural gas purchases.
The Company has designated the futures contracts and forward contracts as cash
flow hedges of anticipated aluminum raw material and natural gas requirements,
respectively. For the second quarter ending June 30,last three quarters of the year ended December 31, 2003
and the third quarter
ending September 30, 2003,first three 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"). Reference
is made to the "Business Overview" section included in the Management's
Discussion and Analysis 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
three 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 September 30, 2003,2004, the Company had $0.2$11.9 million of deferred net lossesgains
recorded in accumulated other comprehensive income. Over the next twelve months,
approximately $0.6$7.8 million of deferred net gains are expected to be reclassified
from other comprehensive income into net income as a reduction of cost of goods
sold. As of September 30, 2003,2004, the Company held open aluminum and natural gas
futures and forward contracts and aluminum options having maturity dates
extending through December
2005.October 2007. A net gain of $1.1$3.7 million and $1.5$2.1 million was
recognized as a reduction in cost of goods sold during the three months and nine
months ended September 30, 2003,2004, respectively, and a net lossgain of $0.05$1.1 million
and $0.16$1.5 million was recognized inas a reduction of cost of goods sold during the
three months and nine months ended September 30, 2002,2003, respectively,
representing the amount of the hedges' ineffectiveness.
8. Goodwill
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). The Statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes Accounting Principles Board
Opinion No. 17, "Intangible Assets" and amends Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"), to exclude from its scope
goodwill and intangible assets that are not amortized. SFAS No. 121 was
subsequently superseded by Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144").
SFAS No. 142 addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. Under SFAS No. 142, goodwill is no longer to be amortized but
reviewed for impairment annually or more frequently if certain indicators arise,
using a two-step approach. SFAS No. 142 was effective January 1, 2002 and the
Company was required to complete step one of a transitional impairment test by
June 30, 2002 and to complete step two of the transitional impairment test, if
step one indicates that the reporting unit's carrying value exceeds its fair
value, by December 31, 2002. Any impairment loss resulting from the transitional
impairment test was required to be recorded as a cumulative effect of a change
in accounting principle in the quarter ended March 31, 2002. Any subsequent
impairment losses will be reflected in operating income in the consolidated
statement of operations. The net goodwill balances attributable to each of the
Company's reporting units were tested for impairment by comparing the fair value
of each reporting unit to its carrying value. Fair value was determined by using
the valuation technique of calculating the present value of estimated expected
future cash flows (using a discount rate commensurate with the risks involved).
Based upon the transitional impairment test performed upon adoption of SFAS No.
142, the Company recorded a goodwill impairment loss of $25.3 million ($13.5
million in its aluminum segment and $11.8 million in its 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 nine months ended
September 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 nine months ended September 30 are as follows (in thousands):
Three months ended
September 30,
2004 2003
---- ----
Components of net pension expense:
Service cost $ 750 $ 727
Interest cost 1,767 1,708
Expected return on plan assets (1,686) (1,477)
Amortization of prior service cost (benefit) 45 22
Recognized net actuarial loss 367 419
------ ------
Net pension expense $1,243 $1,399
====== ======
Nine months ended
September 30,
2004 2003
---- ----
Components of net pension expense:
Service cost $2,392 $2,180
Interest cost 5,278 5,125
Expected return on plan assets (5,099) (4,412)
Amortization of prior service cost (benefit) 135 67
Recognized net actuarial loss 1,083 1,238
------ ------
Net pension expense $3,789 $4,198
====== ======
Included in the net pension expense above is $0.06 million and $0.13 million for
the three months ended September 30, 2004 and 2003, respectively, and $0.30
million and $0.39 million for the nine months ended September 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 to the plans in the year ended December 31, 2004,
however, in the third quarter of 2004 the Company elected to exercise a
permissive funding option that required an increase in the Company's 2004
contributions to $9.6 million, but had a corresponding effect of reducing
otherwise required aggregate contributions for the years 2004 and 2005 by a net
amount of $5.0 million. As of September 30, 2004, the Company had made
contributions of $9.6 million and does not anticipate making any additional
contributions in 2004.
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 nine months ended
September 30 are as follows (in thousands):
Three months ended
September 30,
2004 2003
---- ----
Components of net postretirement benefit expense:
Service cost $ 94 $ 118
Interest cost 639 776
Amortization of prior service cost (benefit) (2,372) (2,524)
Recognized net actuarial gain (174) (85)
------- -------
Net postretirement benefit expense (income) ($1,813) ($1,715)
======= =======
Nine months ended
September 30,
2004 2003
---- ----
Components of net postretirement benefit expense:
Service cost $ 283 $ 418
Interest cost 1,918 2,769
Amortization of prior service cost (benefit) (7,118) (4,001)
Recognized net actuarial gain (522) (211)
Curtailment gain - (2,516)
------- -------
Net postretirement benefit expense (income) ($5,439) ($3,541)
======= =======
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 to the plan in the year ended December 31, 2004. As of September 30,
2004, $3.3 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.sectors. 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 stockholderssectors. See 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-owned100% owned subsidiaries (collectively the "Subsidiary Guarantors"),
other than Commonwealth Financing Corp. ("CFC"), a Securitization Subsidiary (as
defined in the Indenture with respect to such debt) and certain subsidiaries of
the Company without substantial assets or operations. Such guarantees are full,
unconditional and joint and several. Separate financial statements of the
Subsidiary Guarantors are not presented because management has determined that
they would not be material to investors. The following supplemental financial
information sets forth on a condensed combined basis for the Parent Company
Only, Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company, a
combining balance sheet as of September 30, 20032004 and December 31, 2002,2003,
statement of operations for the three months and nine months ended September 30,
20032004 and 20022003 and statement of cash flows for the nine months ended September
30, 20032004 and 2002.
2003.
Combining Balance Sheet at September 30, 2004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 16,856 $ -- $ -- $ 16,856
Accounts receivable, net -- 325,073 -- (324,932) 141
Inventories -- 111,555 -- -- 111,555
Net residual interest in receivables sold -- -- 91,140 -- 91,140
Prepayments and other current assets 435 24,035 -- -- 24,470
Current assets of discontinued operations -- 243 -- -- 243
--------- --------- --------- --------- ---------
Total current assets 435 477,762 91,140 (324,932) 244,405
Property, plant and equipment, net -- 117,790 -- -- 117,790
Other noncurrent assets 387,671 7,400 -- (387,235) 7,836
Noncurrent assets of discontinued operations -- -- -- -- --
--------- --------- --------- --------- ---------
Total assets $ 388,106 $ 602,952 $ 91,140 $(712,167) $ 370,031
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Accounts payable $ 181,574 $ 50,672 $ 143,358 $(324,932) $ 50,672
Accrued liabilities 9,307 25,770 (793) -- 34,284
Current liabilities of discontinued operations -- 1,918 -- -- 1,918
--------- --------- --------- --------- ---------
Total current liabilities 190,881 78,360 142,565 (324,932) 86,874
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 3,256 -- -- 3,256
Accrued pension benefits -- 23,533 -- -- 23,533
Accrued postretirement benefits -- 58,368 -- -- 58,368
Noncurrent liabilities of discontinued operations -- 775 -- -- 775
--------- --------- --------- --------- ---------
Total liabilities 315,881 164,292 142,565 (324,932) 297,806
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 166 1 -- (1) 166
Additional paid-in capital 410,103 486,727 5,000 (491,727) 410,103
Accumulated deficit (326,596) (38,678) (56,425) 95,103 (326,596)
Unearned compensation (2,058) -- -- -- (2,058)
Accumulated other comprehensive income:
Minimum pension liability adjustment (21,276) (21,276) -- 21,276 (21,276)
Effects of cash flow hedges 11,886 11,886 -- (11,886) 11,886
--------- --------- --------- --------- ---------
Total stockholders' equity 72,225 438,660 (51,425) (387,235) 72,225
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 388,106 $ 602,952 $ 91,140 $(712,167) $ 370,031
========= ========= ========= ========= =========
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 September 30, 2004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ ----------------- --------- --------- ---------
Assets
Current assets:
Cash and cash equivalentsNet sales $ -- $ 13,211308,497 $ -- $ -- $ 13,211
Accounts receivable, net308,497
Cost of goods sold -- 286,847 -- (286,781) 66
Inventories -- 125,348287,022 -- -- 125,348
Net residual interest in receivables sold -- -- 81,195 -- 81,195
Prepayments and other current assets 435 6,698 -- -- 7,133287,022
--------- --------- --------- --------- ---------
Total current assets 435 432,104 81,195 (286,781) 226,953
Property, plant and equipment, netGross profit -- 146,96821,475 -- -- 146,968
Goodwill, net -- 48,87221,475
Selling, general and administrative expenses 97 9,720 -- -- 48,872
Other noncurrent assets 419,913 4,9139,817
Restructuring charges -- (418,715) 6,1115,243 -- -- 5,243
--------- --------- --------- --------- ---------
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) (97) 6,512 -- 28,527-- 6,415
Other income (expense), net 6,120 459 -- (6,120) 459
Interest income (expense), net (3,466) 846 (1,610) -- (4,230)
--------- --------- --------- --------- ---------
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 2,557 7,817 (1,610) (6,120) 2,644
Income tax expense -- 87 -- -- -- 125,000
Other long-term liabilities -- 5,183 -- -- 5,183
Accrued pension benefits -- 26,743 -- -- 26,743
Accrued postretirement benefits -- 76,670 -- -- 76,67087
--------- --------- --------- --------- ---------
Total liabilities 292,517 191,705 124,276 (286,781) 321,717Income (loss) from continuing operations 2,557 7,730 (1,610) (6,120) 2,557
Discontinued operations:
Income (loss) from operations before income taxes (752) (752) -- 752 (752)
(Loss) on disposition 11 11 -- (11) 11
Income tax expense (benefit) (292) (292) -- 292 (292)
--------- --------- --------- --------- ---------
Commitments and contingenciesIncome (loss) from discontinued operations (449) (449) -- -- -- -- --
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 -- -- 747449 (449)
--------- --------- --------- --------- ---------
Total stockholders' equity 127,831 441,152 (43,081) (418,715) 107,187
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equityNet income (loss) $ 420,3482,108 $ 632,8577,281 $ 81,195 $(705,496)(1,610) $ 428,904(5,671) $ 2,108
========= ========= ========= ========= =========
Combining Statement of Operations for the three months ended September 30, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 248,117221,213 $ -- $ -- $ 248,117221,213
Cost of goods sold -- 231,760207,870 -- -- 231,760207,870
--------- --------- --------- --------- ---------
Gross profit -- 16,35713,343 -- -- 16,35713,343
Selling, general and administrative expenses 52 10,0427,057 -- -- 10,0947,109
--------- --------- --------- --------- ---------
Operating income (loss) (52) 6,3156,286 -- -- 6,2636,234
Other income (expense), net 6,4286,277 423 -- (6,428)(6,277) 423
Interest income (expense), net (3,468) 652513 (912) -- (3,728)(3,867)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle 2,908 7,3902,757 7,222 (912) (6,428) 2,958(6,277) 2,790
Income tax expense -- 5033 -- -- 5033
--------- --------- --------- --------- ---------
Income (loss) from continuing operations 2,757 7,189 (912) (6,277) 2,757
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 168 168 -- (168) 168
(Loss) on disposition -- -- -- -- --
Income tax expense (benefit) 17 17 -- (17) 17
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations 151 151 -- (151) 151
--------- --------- --------- --------- ---------
Net income (loss) $ 2,908 $ 7,340 $ (912) $ (6,428) $ 2,908
========= ========= ========= ========= =========
Combining Statement of IncomeOperations for the threenine months ended September 30, 20022004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 253,933834,385 $ -- $ -- $ 253,933834,385
Cost of goods sold -- 234,571793,744 -- -- 234,571793,744
--------- --------- --------- --------- ---------
Gross profit -- 19,36240,641 -- -- 19,36240,641
Selling, general and administrative expenses 51 12,473400 30,328 -- -- 12,524
Amortization of goodwill30,728
Restructuring charges -- 18,580 -- -- -- -- --18,580
--------- --------- --------- --------- ---------
Operating income (loss) (51) 6,889(400) (8,267) -- -- 6,838(8,667)
Other income (expense), net 6,904 332 -- (6,904) 332(9,449) 1,217 111 9,449 1,328
Interest income (expense), net (3,469) 807 (1,042)(10,403) 2,115 (4,495) -- (3,704)(12,783)
--------- --------- --------- --------- ---------
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(20,252) (4,935) (4,384) 9,449 (20,122)
Income tax expense (benefit) (2,692) 82-- 130 -- -- (2,610)130
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (20,252) (5,065) (4,384) 9,449 (20,252)
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 4,412 4,412 -- (4,412) 4,412
(Loss) on disposition (1,559) (1,559) -- 1,559 (1,559)
Income tax expense (benefit) 720 720 -- (720) 720
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations 2,133 2,133 -- --(2,133) 2,133
--------- --------- --------- --------- ---------
Net income (loss) $ 6,076(18,119) $ 7,946(2,932) $ (1,042)(4,384) $ (6,904)7,316 $ 6,076(18,119)
========= ========= ========= ========= =========
Combining Statement of Operations for the nine months ended September 30, 2003
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 675,205598,598 $ -- $ -- $ 675,205598,598
Cost of goods sold -- 637,316568,890 -- -- 637,316568,890
--------- --------- --------- --------- ---------
Gross profit -- 37,88929,708 -- -- 37,88929,708
Selling, general and administrative expenses 224 33,08723,889 -- -- 33,31124,113
--------- --------- --------- --------- ---------
Operating income (loss) (224) 4,8025,819 -- -- 4,5785,595
Other income (expense), net 5,1715,832 1,331 -- (5,171)(5,832) 1,331
Interest income (expense), net (10,403) 1,8071,401 (2,619) -- (11,215)(11,621)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle (5,456) 7,940(4,795) 8,551 (2,619) (5,171) (5,306)(5,832) (4,695)
Income tax expense -- 150100 -- -- 150100
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (4,795) 8,451 (2,619) (5,832) (4,795)
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 (611) (611) -- 611 (611)
(Loss) on disposition -- -- -- -- --
Income tax expense (benefit) 50 50 -- (50) 50
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations (661) (661) -- 661 (661)
--------- --------- --------- --------- ---------
Net income (loss) $ (5,456) $ 7,790 $ (2,619) $ (5,171) $ (5,456)
========= ========= ========= ========= =========
Combining Statement of IncomeCash Flows for the nine months ended September 30, 20022004
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- --------- --------- -------------------
Cash flows from operating activities:
Net salesincome (loss) $(18,119) $ (2,932) $ (4,384) $ 7,316 $(18,119)
(Income) loss from discontinued operations (2,133) (2,133) -- 2,133 (2,133)
Adjustments to reconcile net income (loss) to
net cash (used in) operations:
Depreciation 2 15,484 -- -- 15,486
Amortization 353 730 55 -- 1,138
Loss on disposal of property, plant and equipment -- 604 -- -- 604
Issuance of common stock in connection with stock awards 212 -- -- -- 212
Equity in undistributed net income of subsidiaries 9,449 -- -- (9,449) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (55,553) -- 55,719 166
Decrease in inventories -- 4,595 -- -- 4,595
(Increase) in net residual interest in receivables sold -- -- (46,340) -- (46,340)
(Increase) in prepayments and other current assets -- (614) -- -- (614)
Decrease (increase) in other noncurrent assets 327 (1,091) -- -- (764)
Increase (decrease) in accounts payable 4,742 6,501 50,972 (55,719) 6,496
Increase (decrease) in accrued liabilities 3,384 9,944 (303) -- 13,025
(Decrease) in other liabilities -- (14,851) -- -- (14,851)
-------- -------- -------- -------- --------
Net cash (used in) continuing operations (1,783) (39,316) -- -- (41,099)
Net cash (used in) discontinued operations -- (652) -- -- (652)
-------- -------- -------- -------- --------
Net cash (used in) operating activities (1,783) (39,968) -- -- (41,751)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Proceeds from sale of electrical products segment -- 64,041 -- -- 64,041
Purchases of property, plant and equipment -- (6,452) -- -- (6,452)
Proceeds from sale of property, plant and equipment -- 182 -- -- 182
-------- -------- -------- -------- --------
Net cash provided by investing activities -- 57,771 -- -- 57,771
-------- -------- -------- -------- --------
Cash flows from financing activities:
(Decrease) in outstanding checks in excess of deposits -- (947) -- -- (947)
Proceeds from long-term debt -- 167,879 -- -- 167,879
Repayments of long-term debt -- (167,879) -- -- (167,879)
Proceeds from issuance of common stock 1,783 -- -- -- 1,783
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 1,783 (947) -- -- 836
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 16,856 -- -- 16,856
Cash and cash equivalents at beginning of period -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 727,51916,856 $ -- $ -- $ 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)
========= ========= ========= ========= =========16,856
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the nine months ended September 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) $ 7,790 $ (2,619) $ (5,171) $ (5,456)
Loss from discontinued operations 661 661 -- (661) 661
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation -- 15,41713,740 -- -- 15,41713,740
Amortization -- 666 -- -- 666
Loss on disposal of property, plant and equipment -- 68 -- -- 68
Issuance of common stock in connection with stock awards 90 -- -- -- 90
Equity in undistributed net income of subsidiaries (5,171)(5,832) -- -- 5,1715,832 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (11,619)(11,454) -- 11,373 (246)(81)
Decrease in inventories -- 9,2818,358 -- -- 9,281
(Increase)8,358
Decrease in net residual interest in receivables sold -- -- (438)1,672 -- (438)
Decrease1,672
(Increase) in prepayments and other current assets -- 25(286) -- -- 25(286)
Decrease (increase) in other noncurrent assets 327 (305) -- -- 22
Increase (decrease) in accounts payable 8,405 (12,443) 2,968(11,923) 858 (11,373) (12,443)(14,033)
Increase (decrease) in accrued liabilities 3,406 (3,409)(4,137) 89 -- 86(642)
(Decrease) in other liabilities -- (7,547)(7,157) -- -- (7,547)(7,157)
-------- -------- -------- -------- --------
Net cash provided by (used in) continuing operations 1,601 (3,979) -- -- (2,378)
Net cash provided by discontinued operations -- 1,567 -- -- 1,567
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 1,601 (2,076)(2,412) -- -- (475)(811)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (11,543)(11,198) -- -- (11,543)(11,198)
Proceeds from sale of property, plant and equipment -- 158 -- -- 158
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (11,385)(11,040) -- -- (11,385)(11,040)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt -- 75,168 -- -- 75,168
Repayments of long-term debt -- (71,978) -- -- (71,978)
Cash dividends paid (1,601) -- -- -- (1,601)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (1,601) 3,190 -- -- 1,589
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (10,271)(10,262) -- -- (10,271)(10,262)
Cash and cash equivalents at beginning of period -- 13,21113,199 -- -- 13,21113,199
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 2,9402,937 $ -- $ -- $ 2,9402,937
======== ======== ======== ======== ========
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 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 annual disclosures about an employer's pension plans and
postretirement benefits plans such as: the types of plan assets, investment
strategy, measurement date, plan obligations and cash flows. In addition, the
Statement requires interim disclosures of the components of net periodic benefit
cost recognized during the interim periods. See notes 9 and 10 to the condensed
consolidated financial statements for the required additional disclosures for
the 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 was
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. The Company has determined that the effects
of the Act are not significant to the Company's postretirement health care plan
and thus no interim remeasurement for the third quarter of 2004 is required.
Accordingly, the Company is allowed to wait until the fourth quarter of 2004,
which is the Company's next remeasurement date, to reflect the effects of the
Act on the Company's plan.
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. 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.) Summary operating
results for the discontinued operations follows (in thousands):
Three months ended
September 30,
2004 2003
---- ----
Net sales $11,070 $26,904
======= =======
Income (loss) from discontinued operations before income taxes ($752) $168
Income tax expense 8 17
------ ------
Income (loss) from discontinued operations, net (760) 151
------ ------
(Loss) on disposal of discontinued operations 11 -
Income tax expense (benefit) (300) -
------ ------
(Loss) on disposal of discontinued operations, net 311 -
------ ------
Income (loss) on discontinued operations, net ($449) $ 151
====== ======
Nine months ended
September 30,
2004 2003
---- ----
Net sales $72,748 $76,607
======= =======
Income (loss) from discontinued operations before income taxes $4,412 ($611)
Income tax expense 20 50
------ ------
Income (loss) from discontinued operations, net 4,392 (661)
------ ------
(Loss) on disposal of discontinued operations (1,559) -
Income tax expense 700 -
------ ------
(Loss) on disposal of discontinued operations, net (2,259) -
------ ------
Income (loss) on discontinued operations, net $2,133 ($661)
======= =======
Summarized balance sheet information for the discontinued operations is as
follows (in thousands):
September 30, December 31,
2004 2003
---- ----
Current assets $ 243 $35,704
Property, plant and equipment, net - 14,425
Goodwill - 19,265
Current liabilities (1,918) (9,458)
Accrued pension benefits (775) (1,130)
16. 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, refinancing of indebtedness and other customary
closing conditions.
17. Restructuring and Other Charges
During the third quarter of 2004, the Company recorded restructuring and other
charges of $5.2 million after having recorded restructuring and other charges of
$15.2 million in the second quarter of 2004, inclusive of $2.2 million of
inventory write-downs included in cost of goods sold on the condensed
consolidated statement of operations. Total restructuring and other charges for
the nine months ended September 30, 20022004 were $20.8 million. The restructuring
and other costs are related to new management's continuing 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 second 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. Costs for the closure were approximately $7.1 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 and $1.3 million in
the third quarter.
The departure of the former chief executive officer and other key executives,
represented the initial steps in overhead costs streamlining, and resulted in a
charge of $6.4 million for severance costs in the second quarter of 2004 with
additional overhead costs streamlining of $3.0 million recorded in the third
quarter of 2004. In addition, the Company recorded $1.0 million of
merger-related charges in the third quarter of 2004 after having recorded $3.0
million 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 and other charges
for the three months and nine months ended September 30, 2004 is as follows (in
thousands):
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations TotalsMerger Closure Of Tube
Related Manufacturing Overhead
Three months ended September 30, 2004 Costs Facility Streamlining Total
- ------------------------------------- --------- ---------- ---------- --------- ----------
Cash flows from operating activities:--------------- ------------- -------
Severance costs $ - $ (23) $2,297 $2,274
Lease termination costs - 1,115 - 1,115
Asset write-downs - 105 750 855
Professional fees 961 - - 961
Other costs - 38 - 38
------ ----- ------ ------
Total 961 1,235 3,047 5,243
Inventory write-downs (included in cost of goods sold) - - - -
------ ----- ------ ------
Total $ 961 $1,235 $3,047 $5,243
====== ===== ====== ======
Merger Closure Of Tube
Related Manufacturing Overhead
Nine months ended September 30, 2004 Costs Facility Streamlining Total
- ------------------------------------- --------- --------------- ------------- -------
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 disposal489 $8,664 $ 9,153
Lease termination costs - 3,366 - 3,366
Asset write-downs - 897 750 1,647
Professional fees 4,312 - - 4,312
Other costs - 102 - 102
------ ----- ------ ------
Total 4,312 4,854 9,414 18,580
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 $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========4,312 $7,062 $9,414 $20,788
====== ===== ====== ======
Accruals for the restructuring and other charges are included in accrued
liabilities on the condensed consolidated balance sheet and amounted to $7.2
million at September 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 and other charges
accrual is as follows (in thousands):
Total
-----
Restructuring and other charges accrual at March 31, 2004 $ 250
Restructuring and other charges (1) 12,151
Payments (5,425)
------
Restructuring and other charges accrual at June 30, 2004 6,976
Restructuring and other charges (2) 4,388
Payments (4,175)
------
Restructuring and other charges accrual at September 30, 2004 $7,189
======
Note (1) - represents severance, lease termination costs, professional fees and
other costs included in the restructuring and other charges accrual. The
remaining restructuring and other charges of $792 consist of asset write-downs
and are not included in the restructuring and other charges accrual.
Note (2) - represents severance, lease termination costs, professional fees and
other costs included in the restructuring and other charges accrual. The
remaining restructuring and other charges of $855 consist of asset write-downs
and are not included in the restructuring and other charges accrual.
18. Stock Incentives
During June and September of 2004, the Company awarded 260,246 shares of
restricted common stock to certain 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 $2.4 million with a corresponding charge to unearned
compensation. The unearned compensation amount is being amortized over the
vesting period of the restricted stock. The vesting periods vary from one to
three years from the date of grant. The unearned compensation balance at
September 30, 2004 was $2.1 million.
19. Revolving Credit Agreement
The Company has a $30 million revolving credit facility that expires on March
31, 2005. At September 30, 2004, $26.9 million was available, as the only
outstanding amounts against the credit facility were $3.1 million of standby
letters. 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.
20. Subsequent Event
On October 21, 2004, the Company announced that it had commenced a cash tender
offer to purchase all of its outstanding $125 million aggregate principal amount
of 10 3/4 % senior subordinated notes due 2006. The purchase price for validly
tendered notes is $1,000 per $1,000 principal amount of notes. In addition, the
Company will pay accrued and unpaid interest on validly tendered notes up to but
excluding the settlement date. Furthermore, under certain circumstances, the
Company will pay a consent payment of $10.00 per $1,000 principal amount of
notes to tendering holders of notes. The consummation of the tender offer is
subject to certain conditions including the consummation of the Company's
proposed merger with IMCO.
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 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) and the proceeds were
used to pay down $6.2 million outstanding under the Company's revolving credit
agreement and $50.0 million outstanding under the Company's receivables purchase
agreement with the remainder used for other corporate purposes.
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 (and amendments thereto) 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 and other 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 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 were shown as a " restructuring
and other charges" line item and $2.2 million was included in cost of goods
sold. During the third quarter of 2004 the Company incurred an additional $5.2
million of restructuring and other charges. See note 17 "Restructuring and Other
Charges" in the condensed consolidated financial statements for additional
information.
The Company also announced in its July 21, 2004 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 and third quarter of 2004 were $2.3
million (inclusive of $0.7 million income tax expense), or $1.0 million lower
than estimated by the Company, as the result of the Company's incurring lower
employee severance costs and lower income tax expense than estimated. See note
15 "Discontinued Electrical Products Segment Operations" in the condensed
consolidated financial statements for additional information.
Business Overview
The Company operates one business, the aluminum common alloy 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 for use in building and construction, transportation, construction and
consumer durables and welded tube products. However, the Company closed its tube
manufacturing facility at the end use marketsof June 2004 and electrical flexible conduitexited that product line. See
note 17 "Restructuring an Other 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 and primary aluminum, copper and steel.aluminum.
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 prices for primary aluminum. 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 quarterthree 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 three 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 full year 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, when the $1.1hedged transactions occur 2004 material margins 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 quarter, $1.7 million in the
second quarter, $1.2 million in the third quarter and $0.8 million in the fourth
quarter. During the first three quarters of 2004, mark-to-market changes in the
carrying value of the existing futures contracts and new transactions that were
entered into increased material margins, pretax income and net income by
approximately $8.3 million, the effect of which was to partially offset the $6.2
million loss carried over from 2003. At September 30, 2004, the cumulative
mark-to-market adjustments described herein have the effect of reducing future
period material margins by approximately $9.1 million (excluding the effects of
new mark-to-market adjustments arising in the future). The Company estimates
that the $9.1 million adverse impact will be distributed approximately $7.2
million in the fourth quarter of 2004, $1.0 million in the first quarter of
2005, $0.5 million in the second quarter of 2005, $0.3 million in the third
quarter of 2005 and $0.1 million in the fourth quarter of 2005.
During the third quarter and first nine months of 2003. Shipments were down 6% compared to2004, shipments of the
first nine months of 2002
reflecting weakness in key markets in the electricalCompany's aluminum sheet products sector,
particularly commercial construction, however third quarter 2003 shipments
increased 12% compared to shipments for the second quarter of 2003 reflecting a
strengthening of demand in the commercial construction market even though net
selling prices were lower. Material margins for the first nine months of 2003
decreased 15%by 30% and 32%, respectively, from
the first nine months of 2002. Lower net selling pricesprior year periods due to the competitive price environment combined with higher material costs
resultedstrengthening in the decrease in material margins for the first nine months of 2003
versus the first nine months of 2002. While manufacturing costs per foot were up
for the nine-month period 2003 versus the same period in 2002, manufacturing
costs per foot for the third quarter 2003 were down compared to the third
quarter of 2002 and the second quarter of 2003 primarily due to lower overtime
labor, group insurance and workers compensation insurance costs.certain sectors.
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 the second and third quarter of 2003, the Company
realized a benefit of approximately $2.1 million after tax or $0.13 per share in
each of the first three quarters of 2004 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 the Company's 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 nine months ended
September 30, 20032004 and 20022003
Net Sales. Net sales for the quarter ended September 30, 2003 decreased 2%2004, increased 37% to
$248$309.3 million (including $27$0.8 million sales to the discontinued electrical
products segment) from Alflex) from $254$225.1 million (including $30$3.9 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 sectors. Unit sales volume of aluminum decreased 16%increased 30% to 195.4261.5
million pounds (including 0.7 million pounds sold to the discontinued electrical
products segment) for the third quarter of 20032004 from 232.8200.6 million pounds
(including 4.1 million pounds sold to the discontinued electrical products
segment) for the third 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-month period
ended September 30, 2003,2004, were $675$847.1 million (including $77$12.7 million from Alflex)sales to
the discontinued electrical products segment), a 7% decrease39% increase from the $728$611.0
million (including $12.4 million sales to the discontinued electrical products
segment) recorded in the first nine months 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 557.3756.4 million pounds
for(including 11.5 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 months of 2002. Alflex unit sales volume was 350.92004, an increase of 32% from the 572.5
million feetpounds (including 15.2 million pounds sold to the discontinued
electrical products segment) for the first nine months of 2003, a decrease of 6%, versus 374.8 million feet for the comparable
period in 2002. As mentioned previously, the decreased aluminum and electrical
product shipments were due to difficult business conditions in both businesses.2003.
Gross Profit. (All gross profit comparisons exclude Alflex, which is reported
under discontinued operations) Gross profit for the quarter ended September 30,
2003, decreased2004 increased to $16.4$21.5 million (6.6%(7.0% of net sales) from $19.4$13.3 million (7.6%(6.0% of
net sales) for the same period in 2002.2003. The gross profit increase is due to a
combination of factors, including the favorable effects of the mark-to-market
hedge adjustments mentioned previously and the net favorable effect of the 30%
increase in shipment volume, including the impact of the volume increase in
reducing manufacturing and freight unit costs by spreading the fixed component
of those costs over the larger volume base. Material margins (exclusive of the
hedge effects in both periods) increased to $0.336 per pound from $0.332 per
pound in the prior year quarter. Gross profit for the nine months ended
September 30, 20032004 increased to $40.6 million (4.9% of sales) from $29.7 million
(5.0% of sales) in the prior year period. The nine months gross profit increase
includes the favorable effect of the same factors that affected the 2004 third
quarter in addition to the unfavorable effect of a $2.2 million inventory
write-down related to the closure of the tube product line in the second quarter
of 2004. The 2004 nine month material margin declined (exclusive of hedge and
tube inventory write-down) by $0.034 per pound to $0.314 per pound from $0.348
per pound in the prior year period. The decrease was $37.9 million (5.6%principally related to
selling price reductions granted by the Company in the first two quarters of
net sales) versus $45.6 million (6.3%2004 in order to increase 2004 shipment volume and regain sales lost in 2003.
The decrease in material margin was more than offset by the beneficial effects
of net
sales) for the comparable periodresulting volume increase on gross profit and more recently with price
increases obtained in 2002. Contributing to the third quarter and
nine-month decreases in 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 primarily
due to lower shipment volumes, partially offset by the combined effects of improved material margins, the mark-to-market hedge adjustments mentioned
previously and by cost of goods sold reductions related to the aforementioned
changes to the Company's postretirement medical insurance program. The third
quarter and nine-month gross profit decreases at Alflex reflect the net effects
of lower shipment 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.2004.
Operating Income. The Company had operating income of $6.3$6.4 million for the third
quarter of 20032004 compared with operating income of $6.8$6.2 million for the third
quarter of 2002.2003. For the nine-month period ended September 30, 2003,2004, the Company
had an operating incomeloss of $4.6$8.7 million, versus operating income of $10.8$5.6 million
for the first nine months of 2002. The decreases in operating income for the
third quarter and nine-month period were primarily due to reduced operating
income at both Alflex and the Aluminum business 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 third quarter of 2004 and changes in selling,
general and administrative expenses. The Company incurred restructuring and
other charges during the third quarter of 2004 of $5.2 million and $18.6 million
for the nine months ended September 30, 2004 relating to new management's
continuing efforts to improve profitability by eliminating under-performing
operations and streamlining overhead, as well as costs associated with the
planned merger with IMCO Recycling Inc. See note 17 "Restructuring and Other
Charges" in the condensed consolidated financial statements for additional
information. There were no similar charges in the comparable periods in 2003.
Selling, general and administrative expenses during the third quarter of 20032004
were $10.1$9.8 million, compared with $12.5$7.1 million for the same period in 20022003 and
were $33.3$30.7 million for the nine months ended September 30, 2003,2004, compared with
$34.8$24.1 million for the same period in 2002.2003. The third
quarter and nine-month decreasesincrease in selling, general and
administrative expenses werewas primarily due to a reduction in postretirement medical expense relating to
the changes made in the postretirement medical program during the second quarter
of 2003 and lowerhigher accruals for employee
incentive plans, which more than offsetincreased depreciation expense due to the information
technology systems upgrade and increased professional service costs.
Income (Loss) From Continuing Operations. The Company had income from continuing
operations of $2.6 million for the quarter ended September 30, 2004, compared to
income from continuing operations of $2.8 million for the same period in 2003
and a loss from continuing operations of $20.3 million for the nine months ended
September 30, 2004 compared to a loss from continuing operations of $4.8 million
for the first nine months of 2003 due principally to the factors described in
the previous sections. Interest expense, net was $4.2 million for the quarter
ended September 30, 2004, compared to $3.9 million recorded in the third quarter
of 2003 and $12.8 million for the nine months ended September 30, 2004, compared
with $11.6 million for the first nine months of 2003. The quarter and nine-month
increase were primarily due to an increase in professional service costs principally associated withamounts outstanding under the
Company's project to upgradereceivables purchase agreement and an increase in interest rates under
the agreement, partially offset by an increase in investment interest income.
Discontinued Operations. The Company disposed of its information technology systems.
Cumulative effectelectrical products
business in July 2004 and all periods shown have reclassified the results of
change in accounting principle. A non-cash goodwill
impairment charge of $25.3 million was recordedthis business as a cumulative effect of change
in accounting principle as of January 1, 2002 under SFAS No.142.discontinued operations including the loss on disposition. See
note 8 to15 "Discontinued Electrical Products Segment Operations" in the condensed
consolidated financial statements for additional information. Net Income. The Company had netLoss from
operations before income of $2.9taxes was $0.8 million for the quarter ended September
30, 2003,2004, compared with netto income from operations before taxes of $6.1$0.2 million for
the same period in 2002. The Company's net loss for the nine months ended September 30, 2003 was
$5.5 million compared with a net loss 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 September 30, 2003 and 2002 and $11.2income from operations before income taxes of $4.4
million for the nine months ended September 30, 2003,2004 compared with $11.4to a loss from
operations before income taxes of $0.6 million for the first nine months of
2002.2003. The nine-month
decrease was primarily dueloss on disposition for the nine months ended September 30, 2004 of
$1.6 million ($2.3 million after $0.7 million of income tax expense) relates to
a reduction in interest rates undertransaction costs including severance, professional fees and certain other
transaction costs.
Net Income (Loss). The Company had net income of $2.1 million for the Company's
receivables purchase agreement which more than offset the combined effect of an
increase in amounts outstanding under the agreement and a reduction in
investment interest income. Income tax expense was $0.05 million in the third
quarter
of 2003ended September 30, 2004, compared to annet income tax benefit of $2.6$2.9 million for the same
period in 20022003 and an income tax expensea net loss of $0.2$18.1 million for the nine months ended
September 30, 20032004 compared to an income tax benefita net loss of $2.5$5.5 million for the same period in 2002. The increase in income tax expense wasfirst nine
months 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 September 30, 20032004 and 2002,December 31, 2003,
the Company had outstanding under the agreement $40.0$50.0 million and $20.0$60.0 million,
respectively, and had $81.6$91.1 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 $19.3 million at 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 nine months ended September 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$50.0
million and 37.0$46.0 million, respectively, under the agreement. 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$41.1 million for the
nine months ended September 30, 20032004 compared to providingusing cash flows of $4.2$2.4
million for the first nine months of 2003. The increase in the nine months ended September 30, 2002.cash flows used
in continuing operations is primarily the result of an increase in the net
residual interest in receivables sold during the same period. Working capital
relating to continuing operations increased to $131.3$159.2 million at September 30,
20032004 from $129.5$108.9 million at September 30, 2002.December 31, 2003 also affected by the increase in
the net residual interest in receivables sold. See the condensed consolidated
statement of cash flows for information on the sources and uses of cash relating
to the individual components of working capital.
Capital expenditures were $4.4 million during the three months ended September
30, 2003 and $11.5$6.5 million during the nine months ended September
30, 20032004 compared to $6.9 million during the three months ended September 30, 2002 and
$10.1$11.2 million during the nine months ended September 30,
2002.2003. At September 30, 2003,2004, the Company had commitments of $4.9$7.0 million for the
purchase or construction of capital assets. Total capital expenditures for the
year 20032004 are estimated to be approximately $15.4$10.7 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. TheBoth the receivables purchase agreement and
the revolving credit facility expiresexpire on March 31, 2005. Availability of advances
under the $30 million revolving credit facility is dependent on the continued
satisfaction of certain financial covenants contained in the revolving credit
agreement. While the Company is currently in full compliance with such financial
covenants there is no assurance that the Company will be able to continue
meeting such covenants, as currently structured, at all times during the next
twelve months. In the event the Company does not meet the requisite covenants it
may seek to obtain waivers or amendments of applicable covenant provisions from
the participating lenders. In any event, the Company believes it has sufficient
liquidity available from operating cash flows and amounts available under its
receivables purchase agreement to fund its working capital requirements, capital
expenditures, debt service, and if necessary, to satisfy any outstanding amounts
under its revolving credit facility for at least the next twelve months.
The Company's revolving credit facility permits borrowings and letters of credit
up to $30.0 million outstanding at any time. As noted in the previous paragraph,
availability is subject to satisfaction of certain covenants and other
requirements. At September 30, 20032004, $26.9 million was available, as the only
outstanding amounts underagainst the credit facility consisted of $3.2 million of borrowings andwere $3.1 million of standby
letters of credit. The Company received cash proceeds of $64.0 million on July
30, 2004 related to the sale of its Alflex electrical products business and used
the proceeds to reduce amounts outstanding on its revolving credit leaving $23.7 million available at September 30, 2003.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 September 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 $ -- $3,190 $125,000 $ --
Operating- $125,000 $ - $ -
Capital and operating leases 10,715 3,303 3,400 1,450 2,5628,261 2,786 2,415 931 2,129
Standby letters of credit 3,111 3,111 -- -- --
Outstanding obligation under
receivables purchase
agreement 40,000 40,000 -- -- --
----------------------------------------------------------------------3,066 3,066 - - -
---------------------------------------------------------------------
Total contractual cash obligations $182,016 $46,414 $6,590 $126,450 $2,562
======================================================================$136,327 $ 5,852 $127,415 $931 $2,129
=====================================================================
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 $26,934 $26,934 $ 23,699- $ -- $23,699- $ -- $ --
Unused availability under
receivables purchase
agreement 55,000(1) 55,000(1) -- -- --
-----------------------------------------------------------------------
---------------------------------------------------------------------
Total available $26,934 $26,934 $ 78,699(2) $55,000(1) $23,699- $ --- $ --
======================================================================
(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 1/4 years remaining on a 10-year guaranteed supply agreement
with Glencore Ltd. ("Glencore"), a leading diversified trading and industrial
company, for the purchase of primary aluminum. Under the agreement, the Company
committed to purchase a minimum of 1.2 billion120 million pounds of P1020/99.7% aluminum at
current market prices from Glencore each year over the 10-year term. The Company
has met or exceeded the minimum purchase quantity for each year of the contract.
At September 30, 2003,2004, the Company held forward firm-priced aluminum purchase
and sales commitmentsorders through MayDecember 2005 totaling $7$30 million and $131$194 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 three 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 three 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 September 30, 2003,2004, the Company had
$0.2$11.9 million of deferred net lossesgains recorded in accumulated other comprehensive
income. Over the next twelve months, approximately $0.6$7.8 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 gain of $3.7 million and $2.1 million was recognized in cost of goods sold
during the three months and nine months ended September 30, 2004, respectively,
and a net gain of $1.1 million and $1.5 million was recognized in cost of goods
sold during the three months and nine months ended September 30, 2003,
respectively, and a net loss of $0.05 million and $0.16 million was recognized
in cost of goods sold during the three months and nine months ended September
30, 2002, respectively, representing the amount of the hedges' ineffectiveness. As of
September 30, 2003,2004, the Company held open aluminum and natural gas futures and
forward contracts and aluminum options having maturity dates extending through
December 2005.October 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.
Status of Management's Report on Internal Control Over Financial Reporting
The Securities and Exchange Commission's rules under Section 404 of the
Sarbanes-Oxley Act of 2002 require that reporting companies provide in their
annual report on Form 10-K for fiscal years ending December 31, 2004 and
thereafter, an internal control report of management. This report must contain
statements that the company's management has evaluated and assessed its internal
control over financial reporting for that company, concluding whether or not the
company's internal control over financial reporting is effective, including
disclosure of any "material weaknesses" in internal control identified by
management. If there are any material weaknesses, management is not permitted to
conclude that the company's internal control over financial reporting is
effective. The Form 10-K must also contain a statement that the company's
independent auditors have issued an attestation report on management's
assessment, and that attestation report must be filed with the Form 10-K.
If we file an Annual Report on Form 10-K for the year ending December 31, 2004
(a "2004 Form 10-K"), the requirement to provide an internal control report and
an auditor's attestation report will be applicable. We would be required to file
a 2004 Form 10-K if either party terminated our proposed merger with IMCO (which
is currently permitted under certain circumstances after December 15, 2004), or
if we are not deregistered under the Securities Exchange Act of 1934 for any
reason by the time a 2004 Form 10-K is due to be filed (which is March 16,
2005), including if the shareholders of either Commonwealth or IMCO fail to
approve the proposed merger or the proposed merger with IMCO has not been
consummated for any other reason.
In light of our proposed merger with IMCO (which would result in our company
becoming a subsidiary of IMCO and being deregistered under the Securities
Exchange Act of 1934), IMCO has made the decision to omit from its report
management's assessment of the internal control over financial reporting of
Commonwealth and its consolidated subsidiaries as of December 31, 2004. Based on
the "frequently asked questions" interpretive release issued by the SEC's Office
of Chief Accountant and Division of Corporation Finance (which indicated that
the staff of the Division would not object to an issuer's management's report on
internal control over financial reporting that excludes an acquired business,
such as Commonwealth, from management's assessment under circumstances that are
applicable to our proposed merger with IMCO), we suspended our efforts to
prepare to issue an internal control report over financial reporting for
Commonwealth and its subsidiaries at December 31, 2004. As a result, if the
proposed merger is not consummated by March 16, 2005 or if we are not
deregistered under the Exchange Act for any other reason, we do not believe that
we would be able to complete in a timely manner the work necessary to provide
the internal control report of management that is a required part of the 2004
Form 10-K and, as a result, we believe we would not be able to file a compliant
2004 Form 10-K. Our failure to file a compliant 2004 Form 10-K may constitute a
default under the indenture for our senior subordinated notes, and may lead to a
default under our credit agreement and the acceleration of all of our
indebtedness.
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 LiabilitiesNo.-132 (revised 2003), "Employers' Disclosures
about Pensions and Equity" ("SFAS No.
150")Other Postretirement Benefits". The Statement establishes standardsrequires
additional annual disclosures about an employer's pension plans and
postretirement benefits plans such as: the types of plan assets, investment
strategy, measurement date, plan obligations and cash flows. In addition, the
Statement requires interim disclosures of the components of net periodic benefit
cost recognized during the interim periods. See notes 9 and 10 to the condensed
consolidated financial statements for how an issuer classifiesthe required additional disclosures for
the 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 was
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. The Company has determined that the effects
of the Act are not significant to the Company's postretirement health care plan
and thus no interim remeasurement for the third quarter of 2004 is required.
Accordingly, the Company is allowed to wait until the fourth quarter of 2004,
which is the Company's next remeasurement date, to reflect the effects of the
Act on the Company's plan.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company's management carried out an evaluation, with
the participation of the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures as of the end of the quarter ended September 30, 2003.2004. 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
There have not been any changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
during the quarter ended September 30, 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
10.1 First Amendment, dated October 14, 2003, 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 as of March 21, 2002.
31 Rule 13a-14(a)13a-14 (a) /15d-14(a) 15d-14 (a) Certifications
("Section 302 Certifications").
32 Section 1350 Certifications ("Section 906 Certifications").
(b) Reports on Form 8-K
The following reports on Form 8-K were furnished or filed with the Securities
and Exchange Commission during the quarter ended September 30, 2003:2004:
A Form 8-K datedfiled July 22, 2003 reporting21, 2004 announcing that the Company was taking
special charges in the second quarter of 2004.
A Form 8-K filed August 2, 2004 announcing the Company's results of
operations for the Second Quartersecond quarter of 2003.2004 and the completion of the
divestiture of the Company's Alflex electrical products unit.
A Form 8-K filed August 6, 2004 relating to the disposition of the
Alflex electrical products unit and included pro forma financial
statements.
A Form 8-K filed August 13, 2004 relating to a joint press release,
dated JulyAugust 12, 2004, issued by IMCO Recycling Inc. and the Company
announcing executive retirements as well as appointments following the
proposed merger.
A Form 8-K filed August 19, 2004 that supplemented Item 6 "Selected
Financial Data", Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Item 8 "Financial
Statements and Supplementary Data" of the
Company's Annual Report on Form 10-K for the year ended December 31,
2003 reporting thatas filed on March 12, 2004. The additions were made to restate the
Consolidated Financial Statements of the Company was
suspending quarterly cash dividend payments on its common stock.for the year ended
December 31, 2003 to reflect the Company's Alflex electrical products
unit as a discontinued operation.
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, 20035, 2004
Exhibit Index
-------------
Exhibit
Number Description
- ------- ---------------------------------------------------------
10.1 First Amendment, dated October 14, 2003, 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 as of March 21, 2002.------------------------------------------------------
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").