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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
--------------
Commission File No. 0-25642
COMMONWEALTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3245741
(State of incorporation) (I.R.S. Employer Identification No.)
500 West Jefferson Street
19th Floor
Louisville, Kentucky 40202-2823
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 589-8100
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
The registrant had 16,459,468 shares of common stock outstanding at May 1, 2001.
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COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended March 31, 2001
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
-----------
Condensed Consolidated Balance Sheet as of March 31, 2001
and December 31, 2000 3
Condensed Consolidated Statement of Income for the three
months ended March 31, 2001 and 2000 4
Condensed Consolidated Statement of Comprehensive Income
for the three months ended March 31, 2001 and 2000 5
Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7-15
Item 2. Management's Discussion and Analysis of Financial Condition 16-18
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
March 31, December 31,
2001 2000
-------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 12,901 $ 11,514
Accounts receivable, net 322 111
Inventories 132,676 137,685
Prepayments and other current assets 90,087 83,730
-------------- -------------
Total current assets 235,986 233,040
Property, plant and equipment, net 253,108 258,963
Goodwill, net 159,015 160,134
Other noncurrent assets 2,859 3,203
-------------- -------------
Total assets $ 650,968 $ 655,340
============== =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ -
Accounts payable 62,740 53,522
Accrued liabilities 35,226 41,056
-------------- -------------
Total current liabilities 97,966 94,578
Long-term debt 125,000 125,000
Other long-term liabilities 6,343 6,369
Accrued pension benefits 9,165 9,085
Accrued postretirement benefits 81,484 81,915
-------------- -------------
Total liabilities 319,958 316,947
-------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,452,268 and 16,528,051 shares outstanding at
March 31, 2001 and December 31, 2000, respectively 165 165
Additional paid-in capital 408,130 408,505
Accumulated deficit (68,566) (61,688)
Unearned compensation - (7)
Notes receivable from sale of common stock (7,063) (8,582)
Accumulated other comprehensive income:
Effects of cash flow hedges (1,656) -
-------------- -------------
Total stockholders' equity 331,010 338,393
-------------- -------------
Total liabilities and stockholders' equity $ 650,968 $ 655,340
============== =============
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Income
(in thousands except per share data)
Three months ended March 31,
----------------------------------------
2001 2000
--------------- --------------
Net sales $ 230,191 $ 320,965
Cost of goods sold 219,327 298,425
--------------- --------------
Gross profit 10,864 22,540
Selling, general and administrative expenses 11,742 14,645
Amortization of goodwill 1,119 1,119
--------------- --------------
Operating income (loss) (1,997) 6,776
Other income (expense), net 240 240
Interest expense, net (4,073) (5,327)
--------------- --------------
Income (loss) before income taxes (5,830) 1,689
Income tax expense 225 439
--------------- --------------
Net income (loss) $ (6,055) $ 1,250
=============== ==============
Basic and diluted net income (loss) per share $ (0.37) $ 0.08
=============== ==============
Weighted average shares outstanding
Basic 16,455 16,612
Diluted 16,455 16,637
Dividends paid per share $ 0.05 $ 0.05
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Comprehensive Income
(in thousands)
Three months ended March 31,
----------------------------------------
2001 2000
------------- ----------------
Net income (loss) $ (6,055) $ 1,250
Other comprehensive income, net of tax:
Net change related to cash flow hedges (1,656) -
-------------- --------------
Comprehensive income (loss) $ (7,711) $ 1,250
============== ==============
See notes to consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
Three months ended March 31,
----------------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
Net income (loss) $(6,055) $ 1,250
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operations:
Depreciation and amortization 9,700 9,814
Loss on disposal of property, plant and equipment 478 -
Issuance of common stock in connection with stock awards 75 75
Changes in assets and liabilities:
(Increase) in accounts receivable, net (211) (3)
Decrease in inventories 5,009 2,414
(Increase) decrease in prepayments and other current assets (6,357) 7,387
Decrease (increase) in other noncurrent assets 44 (15)
Increase (decrease) in accounts payable 9,218 (15,888)
(Decrease) in accrued liabilities (5,830) (7,563)
(Decrease) in other liabilities (2,033) (319)
----------- -----------
Net cash provided by (used in) operating activities 4,038 (2,848)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,897) (6,801)
Proceeds from sale of property, plant and equipment - 4
----------- -----------
Net cash (used in) investing activities (2,897) (6,797)
----------- -----------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits - 9,688
Proceeds from long-term debt 32,000 40,400
Repayments of long-term debt (32,000) (40,400)
Repayments of notes receivable from sale of common stock 1,069 788
Cash dividends paid (823) (831)
----------- -----------
Net cash provided by financing activities 246 9,645
----------- -----------
Net increase in cash and cash equivalents 1,387 -
Cash and cash equivalents at beginning of period 11,514 -
----------- -----------
Cash and cash equivalents at end of period $12,901 $ -
=========== ===========
Supplemental disclosures:
Interest paid $ 900 $ 1,845
Income taxes paid (refund received) (388) 103
Non-cash activities:
Repayment of notes receivable from sale of common stock with 450 -
common stock and subsequent retirement of common stock
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying condensed consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all the disclosures normally required by generally accepted accounting
principles. The condensed consolidated financial statements have been prepared
in accordance with Commonwealth Industries, Inc.'s (the "Company's") customary
accounting practices and have not been audited. In the opinion of management,
all adjustments necessary to fairly present the results of operations for the
reporting interim periods have been made and were of a normal recurring nature.
2. Inventories
The Company uses the last-in, first-out (LIFO), first-in, first-out (FIFO) and
average-cost accounting methods for valuing its inventories.
(in thousands) March 31, 2001 December 31, 2000
- -------------- --------------- -----------------
Raw materials $ 31,843 $ 50,154
Work in process 56,362 49,473
Finished goods 41,223 33,899
Expendable parts and supplies 15,724 15,850
--------- ---------
145,152 149,376
LIFO reserve (12,476) (11,691)
--------- ---------
$ 132,676 $ 137,685
========= =========
Inventories of approximately $109.7 million and $116.5 million, included in the
above totals (before the LIFO reserve) at March 31, 2001 and December 31, 2000,
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.
3. Provision for Income Taxes
The Company recognized income tax expense of $0.2 million for the three months
ended March 31, 2001 compared to income tax expense of $0.4 million for the
three months ended March 31, 2000.
4. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:
Three months ended
March 31,
2001 2000
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Net income (loss) $(6,055) $1,250
======== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,455 16,612
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,455 16,612
Plus: dilutive effect of stock options - 25
------ ------
Adjusted weighted average shares 16,455 16,637
====== ======
Net income (loss) per share data:
Basic and diluted $(0.37) $0.08
======= =====
Options to purchase 310,000 common shares, which equate to 54,140 incremental
common equivalent shares, were excluded from the calculation above for the three
months ended March 31, 2001 as their effect would have been antidilutive. In
addition, options to purchase 812,000 and 773,500 common shares for the three
months ended March 31, 2001 and 2000, respectively, were excluded from the
calculations above because the exercise prices on the options were greater than
the average market price for the periods.
5. Financial Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", including Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133" ("SFAS No. 133"). The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in net income unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. The Company recorded a cumulative-effect-type deferred net
gain transition adjustment of $6.6 million in accumulated other comprehensive
income to recognize at fair value all derivatives that are designated as
cash-flow hedging instruments upon adoption of SFAS No. 133 on January 1, 2001.
The Company expects to reclassify this deferred net gain from other
comprehensive income into net income as cost of goods sold before December 31,
2001.
The Company enters into futures contracts and options to manage exposures to
price risk related to aluminum and natural gas purchases. The Company has
designated these futures and option contracts as cash flow hedges of anticipated
aluminum raw material and natural gas requirements.
Gains, losses and premiums on these instruments that are recorded in other
comprehensive income will be reclassified into net income as cost of goods sold
in the periods when the related inventory is sold or gas used. As of March 31,
2001, approximately $0.9 million of the $1.7 million of deferred net losses are
expected to be reclassified from other comprehensive income into net income as
cost of goods sold over the next twelve months. A net loss of $0.4 million was
recognized in cost of goods sold during the three months ended March 31, 2001
representing the amount of the hedges' ineffectiveness. As of March 31, 2001,
the Company held open aluminum and natural gas futures contracts and options
having maturity dates extending through December 2003.
In order to hedge a portion of its interest rate risk, the Company is party to
an interest rate swap agreement with a notional amount of $5 million under which
the Company pays a fixed rate of interest and receives a LIBOR-based floating
rate. The Company's interest rate swap agreement at March 31, 2001 did not
qualify for hedge accounting under SFAS 133 and as such the change in the fair
value of the interest rate swap agreement is recognized currently as interest
expense, net in the Company's consolidated income statement. The amount of such
change in the fair value of the interest rate swap agreement was immaterial for
the three months ended March 31, 2001.
6. Information Concerning Business Segments
The Company has determined it has two reportable segments: aluminum and
electrical products. The aluminum segment manufactures aluminum sheet for
distributors and the transportation, construction, and consumer durables end-use
markets. The electrical products segment manufactures flexible electrical wiring
products for the commercial construction and do-it-yourself markets.
The accounting policies of the reportable segments are the same as those
described in Note 1, "Basis of Presentation and Summary of Significant
Accounting Policies" in the Company's annual report to stockholders for the year
ended December 31, 2000. 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 ended March 31, 2001 and 2000.
The "Other" column includes corporate related items, including elimination of
intersegment transactions, and as it relates to segment operating income, income
and expense not allocated to reportable segments.
Electrical
Aluminum Products Other Total
-------- ---------- -------- ----------
Three months ended March 31, 2001
- ---------------------------------
Net sales to external customers $199,845 $30,346 $ -- $230,191
Intersegment net sales 7,981 -- (7,981) --
Operating income (loss) 903 1,042 (3,942) (1,997)
Depreciation and amortization 8,716 977 7 9,700
Total assets 552,586 95,606 2,776 650,968
Capital expenditures 2,807 90 -- 2,897
Three months ended March 31, 2000
- ---------------------------------
Net sales to external customers $285,346 $35,619 $ -- $320,965
Intersegment net sales 7,041 -- (7,041) --
Operating income 11,526 (897) (3,853) 6,776
Depreciation and amortization 8,685 1,022 107 9,814
Total assets 596,153 97,401 75 693,629
Capital expenditures 6,698 103 -- 6,801
7. Guarantor Financial Statements
The $125 million of 10.75% senior subordinated notes due 2006 issued by the
Company, and the $100 million revolving credit facility are guaranteed by the
Company's wholly-owned subsidiaries (collectively the "Subsidiary Guarantors"),
other than Commonwealth Financing Corp. ("CFC"), a Securitization Subsidiary (as
defined in the Indenture with respect to such debt) and certain subsidiaries of
the Company without substantial assets or operations. Such guarantees are full,
unconditional and joint and several. Separate financial statements of the
Subsidiary Guarantors are not presented because management has determined that
they would not be material to investors. The following supplemental financial
information sets forth on a condensed combined basis for the Parent Company
Only, Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company,
combining balance sheet as of March 31, 2001 and December 31, 2000, statement of
income and statement of cash flows for the three months ended March 31, 2001 and
2000.
Combining Balance Sheet at March 31, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 12,901 $ -- $ -- $ 12,901
Accounts receivable, net -- 257,987 -- (257,665) 322
Inventories -- 132,676 -- -- 132,676
Prepayments and other current assets 816 3,014 86,257 -- 90,087
--------- --------- --------- --------- ---------
Total current assets 816 406,578 86,257 (257,665) 235,986
Property, plant and equipment, net -- 253,108 -- -- 253,108
Goodwill, net -- 159,015 -- -- 159,015
Other noncurrent assets 602,381 899 -- (600,421) 2,859
--------- --------- --------- --------- ---------
Total assets $ 603,197 $ 819,600 $ 86,257 $(858,086) $ 650,968
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ -- $ -- $ -- $ --
Accounts payable 136,671 62,740 120,994 (257,665) 62,740
Accrued liabilities 8,860 26,907 (541) -- 35,226
--------- --------- --------- --------- ---------
Total current liabilities 145,531 89,647 120,453 (257,665) 97,966
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 6,343 -- -- 6,343
Accrued pension benefits -- 9,165 -- -- 9,165
Accrued postretirement benefits -- 81,484 -- -- 81,484
--------- --------- --------- --------- ---------
Total liabilities 270,531 186,639 120,453 (257,665) 319,958
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 165 1 -- (1) 165
Additional paid-in capital 408,130 486,727 5,000 (491,727) 408,130
Accumulated deficit (68,566) 147,889 (39,196) (108,693) (68,566)
Notes receivable from sale of common stock (7,063) -- -- -- (7,063)
Accumulated other comprehensive income:
Effects of cash flow hedges -- (1,656) -- -- (1,656)
--------- --------- --------- --------- ---------
Total stockholders' equity 332,666 632,961 (34,196) (600,421) 331,010
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 603,197 $ 819,600 $ 86,257 $(858,086) $ 650,968
========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 11,514 $ -- $ -- $ 11,514
Accounts receivable, net -- 242,176 -- (242,065) 111
Inventories -- 137,685 -- -- 137,685
Prepayments and other current assets 797 10,566 72,367 -- 83,730
--------- --------- --------- --------- ---------
Total current assets 797 401,941 72,367 (242,065) 233,040
Property, plant and equipment, net -- 258,963 -- -- 258,963
Goodwill, net -- 160,134 -- -- 160,134
Other noncurrent assets 605,054 1,135 -- (602,986) 3,203
--------- --------- --------- --------- ---------
Total assets $ 605,851 $ 822,173 $ 72,367 $(845,051) $ 655,340
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ -- $ -- $ -- $ --
Accounts payable 137,384 53,522 104,681 (242,065) 53,522
Accrued liabilities 5,074 36,288 (306) -- 41,056
--------- --------- --------- --------- ---------
Total current liabilities 142,458 89,810 104,375 (242,065) 94,578
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 6,369 -- -- 6,369
Accrued pension benefits -- 9,085 -- -- 9,085
Accrued postretirement benefits -- 81,915 -- -- 81,915
--------- --------- --------- --------- ---------
Total liabilities 267,458 187,179 104,375 (242,065) 316,947
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 165 1 -- (1) 165
Additional paid-in capital 408,505 486,727 5,000 (491,727) 408,505
Accumulated deficit (61,688) 148,266 (37,008) (111,258) (61,688)
Unearned compensation (7) -- -- -- (7)
Notes receivable from sale of common stock (8,582) -- -- -- (8,582)
--------- --------- --------- --------- ---------
Total stockholders' equity 338,393 634,994 (32,008) (602,986) 338,393
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 605,851 $ 822,173 $ 72,367 $(845,051) $ 655,340
========= ========= ========= ========= =========
Combining Statement of Income for the three months ended March 31, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 230,191 $ -- $ -- $ 230,191
Cost of goods sold -- 219,327 -- -- 219,327
--------- --------- --------- --------- ---------
Gross profit -- 10,864 -- -- 10,864
Selling, general and administrative expenses 129 11,613 -- -- 11,742
Amortization of goodwill -- 1,119 -- -- 1,119
--------- --------- --------- --------- ---------
Operating income (loss) (129) (1,868) -- -- (1,997)
Other income (expense), net (2,565) 240 -- 2,565 240
Interest income (expense), net (3,361) 1,476 (2,188) -- (4,073)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (6,055) (152) (2,188) 2,565 (5,830)
Income tax expense -- 225 -- -- 225
--------- --------- --------- --------- ---------
Net income (loss) $ (6,055) $ (377) $ (2,188) $ 2,565 $ (6,055)
========= ========= ========= ========= =========
Combining Statement of Income for the three months ended March 31, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 320,965 $ -- $ -- $ 320,965
Cost of goods sold -- 298,425 -- -- 298,425
--------- --------- --------- --------- ---------
Gross profit -- 22,540 -- -- 22,540
Selling, general and administrative expenses 222 14,423 -- -- 14,645
Amortization of goodwill -- 1,119 -- -- 1,119
--------- --------- --------- --------- ---------
Operating income (loss) (222) 6,998 -- -- 6,776
Other income (expense), net 4,789 240 -- (4,789) 240
Interest income (expense), net (3,317) 916 (2,926) -- (5,327)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 1,250 8,154 (2,926) (4,789) 1,689
Income tax expense (benefit) -- 439 -- -- 439
--------- --------- --------- --------- ---------
Net income (loss) $ 1,250 $ 7,715 $ (2,926) $ (4,789) $ 1,250
========= ========= ========= ========= =========
Combining Statement of Cash Flows for the three months ended March 31, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ (6,055) $ (377) $ (2,188) $ 2,565 $ (6,055)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 7 9,693 -- -- 9,700
Loss on disposal of property, plant and equipment -- 478 -- -- 478
Issuance of common stock in connection with stock awards 75 -- -- -- 75
Equity in undistributed net income of subsidiaries -- 2,565 -- (2,565) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (15,811) -- 15,600 (211)
Decrease in inventories -- 5,009 -- -- 5,009
(Increase) decrease in prepayments and other current assets (19) 7,552 (13,890) -- (6,357)
Decrease (increase) in other noncurrent assets 2,673 (2,629) -- -- 44
(Decrease) increase in accounts payable (713) 9,218 16,313 (15,600) 9,218
Increase (decrease) in accrued liabilities 3,786 (9,381) (235) -- (5,830)
(Decrease) in other liabilities -- (2,033) -- -- (2,033)
-------- -------- -------- -------- --------
Net cash (used in) provided by operating activities (246) 4,284 -- -- 4,038
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (2,897) -- -- (2,897)
Proceeds from sale of property, plant and equipment -- -- -- -- --
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (2,897) -- -- (2,897)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt -- 32,000 -- -- 32,000
Repayments of long-term debt -- (32,000) -- -- (32,000)
Repayments of notes receivable from sale of common stock 1,069 -- -- -- 1,069
Cash dividends paid (823) -- -- -- (823)
-------- -------- -------- -------- --------
Net cash provided by financing activities 246 -- -- -- 246
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 1,387 -- -- 1,387
Cash and cash equivalents at beginning of period -- 11,514 -- -- 11,514
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 12,901 $ -- $ -- $ 12,901
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the three months ended March 31, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ 1,250 $ 7,715 $ (2,926) $ (4,789) $ 1,250
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 216 9,598 -- -- 9,814
Issuance of common stock in connection with stock awards 75 -- -- -- 75
Equity in undistributed net income of subsidiaries -- (4,789) -- 4,789 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net 2,255 (4,130) -- 1,872 (3)
Decrease in inventories -- 2,414 -- -- 2,414
Decrease (increase) in prepayments and other current assets 117 8,820 (1,550) -- 7,387
(Increase) decrease in other noncurrent assets (4,940) 4,925 -- -- (15)
(Decrease) increase in accounts payable -- (18,143) 4,127 (1,872) (15,888)
Increase (decrease) in accrued liabilities 1,070 (8,982) 349 -- (7,563)
(Decrease) in other liabilities -- (319) -- -- (319)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 43 (2,891) -- -- (2,848)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (6,801) -- -- (6,801)
Proceeds from sale of property, plant and equipment -- 4 -- -- 4
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (6,797) -- -- (6,797)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 9,688 -- -- 9,688
Proceeds from long-term debt -- 40,400 -- -- 40,400
Repayments of long-term debt -- (40,400) -- -- (40,400)
Repayments of notes receivable from sale of common stock 788 -- -- -- 788
Cash dividends paid (831) -- -- -- (831)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (43) 9,688 -- -- 9,645
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents -- -- -- -- --
Cash and cash equivalents at beginning of period -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains statements which are forward-looking rather
than historical fact. These forward-looking statements are made pursuant to the
safe harbor provisions of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act, as amended and involve risks and
uncertainties that could render them materially different, including, but not
limited to, the effect of global economic conditions, the impact of competitive
products and pricing, product development and commercialization, availability
and cost of critical raw materials, the rate of technological change, product
demand and market acceptance risks, capacity and supply constraints or
difficulties, the success of the Company in implementing its business strategy,
and other risks as detailed in the Company's various Securities and Exchange
Commission filings.
Overview
The Company manufactures non-heat treat coiled aluminum sheet for distributors
and the transportation, construction and consumer durables end use markets and
electrical flexible conduit and prewired armored cable for the commercial
construction and renovation markets. The Company's principal raw materials are
aluminum scrap, primary aluminum, copper and steel. Trends in the demand for
aluminum sheet products in the United States and in the prices of aluminum
primary metal, aluminum scrap and copper commodities affect the business of the
Company. The Company's operating results also are affected by factors specific
to the Company, such as the margins between selling prices for its products and
its cost of raw material ("material margins") and its unit cost of converting
raw material into its products ("conversion cost"). While changes in aluminum
and copper prices can cause the Company's net sales to change significantly from
period to period, net income is more directly impacted by the fluctuation in
material margins.
During the first quarter of 2001, shipments of the Company's aluminum sheet
products decreased by 31% from the first quarter of 2000. Demand for the
Company's aluminum sheet products decreased in the first quarter of 2001 due to
the Company's customers reducing inventories built last year and the
increasingly soft business conditions generally throughout the economy and
specifically across the Company's various markets. Despite the softness in
demand, material margins increased slightly in the first quarter compared to the
first quarter of 2000. Part of the increase in the material margins is due to
improvements in product mix and the Company's ability to utilize lower-cost raw
materials.
Demand for the Company's electrical products also decreased during the first
quarter of 2001. Shipments were down 22% compared to the first quarter of 2000
due to the weak customer demand. Material margins, however, increased due to
increased selling prices on armored cable products. The higher material margins
more than offset the effect of the decline in shipment volume and higher
manufacturing unit costs compared to the first quarter of 2000 and returned the
Company's electrical products business unit to an operating profit for the first
quarter of 2001.
Results of Operations for the three months ended March 31, 2001 and 2000
Net Sales. Net sales for the quarter ended March 31, 2001, decreased 28% to
$230.2 million (including $30.3 million from Alflex) from $321.0 million
(including $35.6 million from Alflex) for the same period in 2000. The decrease
is due to continued weak customer demand affecting virtually all of the
Company's markets versus a strong first quarter of 2000. Unit sales volume of
aluminum decreased 31% to 190.0 million pounds for the first quarter of 2001
from 274.3 million pounds for the first quarter of 1999. Alflex unit sales
volume was 128.4 million feet for the first quarter of 2001 versus 164.5 million
feet for the comparable period in 2000, a decline of 22%.
Gross Profit. Gross profit for the quarter ended March 31, 2001, decreased to
$10.9 million (4.7% of net sales) from $22.5 million (7.0% of net sales) for the
same period in 2000. This decrease was related entirely to the aluminum business
unit as manufacturing inefficiencies related to lower volume, severance charges
of approximately $2.0 million related to workforce reductions and significantly
higher energy costs more than offset the slight improvement in material margins.
Despite the higher energy costs, the Alflex business unit increased its gross
profit for the first quarter of 2001 versus the first quarter of 2000 due to
improved material margins.
Operating Income. The Company had an operating loss of $2.0 million for the
first quarter of 2001 compared with operating income of $6.8 million for the
first quarter of 2000. The decrease was related entirely to the aluminum
business unit's gross profit decline as described in the preceding paragraph as
the Alflex business unit had operating income of $1.0 million in the first
quarter of 2001 compared to an operating loss of $0.9 million in the first
quarter of 2000. Selling, general and administrative expenses during the first
quarter of 2001 were $11.7 million, compared with $14.6 million for the same
period in 2000. Contributing to the decrease were reduced incentive compensation
expenses and lower selling expenses.
Net Income. The Company had a net loss of $6.1 million for the quarter ended
March 31, 2001, compared to net income of $1.3 million for the same period in
2000. Interest expense was $4.1 million for the quarter ended March 31, 2001,
compared $5.3 million recorded in the first quarter of 2000. The decrease was
primarily due to a reduction in amounts outstanding under the Company's accounts
receivable securitization facility. There was income tax expense of $0.2 million
in the first quarter of 2001 compared to income tax expense of $0.4 million for
the same period in 2000.
Liquidity and Capital Resources
The Company's sources of liquidity are cash flows from operations, the Company's
accounts receivable securitization facility described below and borrowings under
its $100 million revolving credit facility. The Company believes these sources
will be sufficient to fund its working capital requirements, capital
expenditures, debt service and dividend payments at least through 2001.
During 1997, the Company sold all of its trade accounts receivables to a 100%
owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously, CFC
entered into a three-year accounts receivable securitization facility with a
financial institution and its affiliate, whereby CFC sells, on a revolving
basis, an undivided interest in certain of its receivables and receives up to
$150.0 million from an unrelated third party purchaser at a cost of funds linked
to commercial paper rates plus a charge for administrative and credit support
services. During 2000, the Company and the financial institution extended the
accounts receivable securitization facility for an additional three-year period
ending in September 2003. At March 31, 2001, the Company had outstanding $49.0
million under the agreement and had $86.3 million of net residual interest in
the securitized receivables which is included in other current assets in the
Company's consolidated financial statements. The fair value of the net residual
interest is measured at the time of the sale and is based on the sale of similar
assets. In the first quarter of 2001, the Company received gross proceeds of
$30.0 million from the sale of receivables and made gross payments of $50.0
million under the agreement.
The Company's operations provided cash flows of $4.0 million for the three
months ended March 31, 2001 compared to using $2.8 million in the three months
ended March 31, 2000. Working capital increased to $138.0 million at March 31,
2001 from $127.0 million at March 31, 2000.
Capital expenditures were $2.9 million during the quarter ended March 31, 2001.
At March 31, 2001, the Company had commitments of $0.4 million for the purchase
or construction of capital assets. Total capital expenditures for the year 2001
are expected to be approximately $15 million, all generally related to upgrading
and expanding the Company's manufacturing and other facilities and meeting
environmental requirements.
Risk Management
The price of aluminum is subject to fluctuations due to unpredictable factors on
the worldwide market. To reduce this market risk, the Company follows a policy
of hedging its anticipated raw material purchases based on firm-priced sales and
purchase orders by purchasing and selling futures contracts and options on the
London Metal Exchange ("LME"). At March 31, 2001, the Company held purchase and
sales commitments through September 2002 totaling $45 million and $160 million,
respectively. The Company also uses futures contracts and options to reduce its
risks associated with its natural gas requirements.
As described in note 5 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") effective
January 1, 2001 and has designated its aluminum and natural gas futures
contracts and options as cash flow hedges.
Before entering into futures contracts and options, the Company reviews the
credit rating of the counterparty and assesses any possible credit risk. While
the Company is exposed to certain losses in the event of non-performance by the
counterparties to these agreements, the Company does not anticipate
non-performance by such counterparties.
In order to hedge a portion of its interest rate risk, the Company is party to
an interest rate swap agreement with a notional amount of $5 million under which
the Company pays a fixed rate of interest and receives a LIBOR-based floating
rate. The Company's interest rate swap agreement at March 31, 2001 did not
qualify for hedge accounting under SFAS 133 and as such the change in the fair
value of the interest rate swap agreement is recognized currently as interest
expense, net in the Company's consolidated income statement. The amount of such
change in the fair value of the interest rate swap agreement was immaterial for
the three months ended March 31, 2001.
Recently Issued Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 140"). The
Statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after March 31, 2001. SFAS No. 140 also
includes provisions that require additional disclosures in the financial
statements for fiscal years ending after December 15, 2000. Additional
disclosures were included in note 2 to the consolidated financial statements
included in the Company's annual report to stockholders. This Statement is not
expected to have a material impact on the Company's results of operations or
financial position.
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
There are no exhibits.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMONWEALTH INDUSTRIES, INC.
By: /s/ Donald L. Marsh, Jr.
------------------------
Donald L. Marsh, Jr.
Executive Vice President, Chief Financial
Officer and Secretary
Date: May 4, 2001