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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 June 30, 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
----------
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 July 27,
2001.
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COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended June 30, 2001
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
-----------
Condensed Consolidated Balance Sheet as of June 30, 2001
and December 31, 2000 3
Condensed Consolidated Statement of Income for the three
months and six months ended June 30, 2001 and 2000 4
Condensed Consolidated Statement of Comprehensive Income
for the three months and six months ended June 30, 2001
and 2000 5
Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7-17
Item 2. Management's Discussion and Analysis of Financial Condition 18-21
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
June 30, December 31,
2001 2000
-------------- -------------
Assets
Current assets:
Cash and cash equivalents $ - $ 11,514
Accounts receivable, net 805 111
Inventories 127,512 137,685
Prepayments and other current assets 107,165 83,730
-------------- -------------
Total current assets 235,482 233,040
Property, plant and equipment, net 246,384 258,963
Goodwill, net 157,896 160,134
Other noncurrent assets 2,734 3,203
-------------- -------------
Total assets $ 642,496 $ 655,340
============== =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ 1,243 $ -
Accounts payable 62,720 53,522
Accrued liabilities 40,153 41,056
-------------- -------------
Total current liabilities 104,116 94,578
Long-term debt 125,000 125,000
Other long-term liabilities 6,829 6,369
Accrued pension benefits 8,527 9,085
Accrued postretirement benefits 80,780 81,915
-------------- -------------
Total liabilities 325,252 316,947
-------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,459,468 and 16,528,051 shares outstanding at
June 30, 2001 and December 31, 2000, respectively 165 165
Additional paid-in capital 408,161 408,505
Accumulated deficit (74,289) (61,688)
Unearned compensation - (7)
Notes receivable from sale of common stock (6,519) (8,582)
Accumulated other comprehensive income:
Effects of cash flow hedges (10,274) -
-------------- -------------
Total stockholders' equity 317,244 338,393
-------------- -------------
Total liabilities and stockholders' equity $ 642,496 $ 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 Six months ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------- ------------ ------------
Net sales $ 235,505 $ 304,021 $ 465,696 $ 624,986
Cost of goods sold 224,197 278,319 443,524 576,744
------------ ------------- ------------ ------------
Gross profit 11,308 25,702 22,172 48,242
Selling, general and administrative expenses 11,086 13,799 22,828 28,444
Amortization of goodwill 1,119 1,119 2,238 2,238
------------ ------------- ------------ ------------
Operating income (loss) (897) 10,784 (2,894) 17,560
Other income (expense), net 118 425 358 665
Interest expense, net (3,946) (5,251) (8,019) (10,578)
------------ ------------- ------------ ------------
Income (loss) before income taxes (4,725) 5,958 (10,555) 7,647
Income tax expense 175 1,549 400 1,988
------------ ------------- ------------ ------------
Net income (loss) $ (4,900) $ 4,409 $ (10,955) $ 5,659
============ ============= ============ ============
Basic and diluted net income (loss) per share $ (0.30) $ 0.27 $ (0.67) $ 0.34
============ ============= ============ ============
Weighted average shares outstanding
Basic 16,458 16,602 16,456 16,607
Diluted 16,458 16,602 16,456 16,620
Dividends paid per share $ 0.05 $ 0.05 $ 0.10 $ 0.10
See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Comprehensive Income
(in thousands)
Three months ended Six months ended
June 30, June 30,
----------------------------------- -------------------------------
2001 2000 2001 2000
-------------- --------------- ------------ -------------
Net income (loss) $ (4,900) $ 4,409 $ (10,955) $ 5,659
Other comprehensive income, net of tax:
Net change related to cash flow hedges (8,618) - (10,274) -
-------------- --------------- ------------ -------------
Comprehensive income (loss) $ (13,518) $ 4,409 $ (21,229) $ 5,659
============== =============== ============ =============
See notes to consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
Six months ended June 30,
-------------------------------------
2001 2000
------------ -------------
Cash flows from operating activities:
Net income (loss) $ (10,955) $ 5,659
Adjustments to reconcile net income (loss) to net cash (used in)
operations:
Depreciation and amortization 19,341 19,597
Loss on disposal of property, plant and equipment 238 699
Issuance of common stock in connection with stock awards 106 121
Changes in assets and liabilities:
(Increase) in accounts receivable, net (694) (41)
Decrease in inventories 10,173 11,354
(Increase) in prepayments and other current assets (23,435) (14,034)
(Increase) decrease in other noncurrent assets (131) 94
Increase (decrease) in accounts payable 9,198 (20,780)
(Decrease) in accrued liabilities (903) (3,426)
(Decrease) in other liabilities (11,507) (206)
------------ -------------
Net cash (used in) operating activities (8,569) (963)
------------ -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,161) (13,038)
Proceeds from sale of property, plant and equipment 6 4
------------ -------------
Net cash (used in) investing activities (4,155) (13,034)
------------ -------------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits 1,243 9,482
Proceeds from long-term debt 32,000 47,550
Repayments of long-term debt (32,000) (42,800)
Repayments of notes receivable from sale of common stock 1,613 1,426
Cash dividends paid (1,646) (1,661)
------------ -------------
Net cash provided by financing activities 1,210 13,997
------------ -------------
Net (decrease) in cash and cash equivalents (11,514) -
Cash and cash equivalents at beginning of period 11,514 -
------------ -------------
Cash and cash equivalents at end of period $ - $ -
============ =============
Supplemental disclosures:
Interest paid $ 8,237 $ 10,788
Income taxes paid 101 521
Non-cash activities:
Repayment of notes receivable from sale of common stock with
common stock and subsequent retirement of common stock 450 503
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) June 30, 2001 December 31, 2000
- -------------- ------------- -----------------
Raw materials $ 32,764 $ 50,154
Work in process 49,819 49,473
Finished goods 37,528 33,899
Expendable parts and supplies 16,795 15,850
--------- ---------
136,906 149,376
LIFO reserve (9,394) (11,691)
--------- ---------
$ 127,512 $ 137,685
========= =========
Inventories of approximately $116.6 million and $116.5 million, included in the
above totals (before the LIFO reserve) at June 30, 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 an income tax expense of $0.2 million and $0.4 million
for the three months and six months ended June 30, 2001, respectively, compared
to an income tax expense of $1.5 million and $2.0 million for the three months
and six months ended June 30, 2000, respectively.
4. 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
June 30,
2001 2000
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Net income (loss) $(4,900) $4,409
======== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,458 16,602
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,458 16,602
Plus: dilutive effect of stock options - -
------ ------
Adjusted weighted average shares 16,458 16,602
====== ======
Net income (loss) per share data:
Basic and diluted $(0.30) $0.27
======= =====
Six months ended
June 30,
2001 2000
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Net income (loss) $(10,955) $5,659
========= ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,456 16,607
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,456 16,607
Plus: dilutive effect of stock options - 13
------ ------
Adjusted weighted average shares 16,456 16,620
====== ======
Net income (loss) per share data:
Basic and diluted $(0.67) $0.34
======= =====
Options to purchase 310,000 and 317,500 common shares, which equate to 30,431
and 42,286 incremental common equivalent shares, respectively, were excluded
from the diluted calculation above for the three months and six months ended
June 30, 2001 as their effect would have been antidilutive. In addition, options
to purchase 799,500 common shares for both the three months and six months ended
June 30, 2001 and 957,500 and 952,500 for the three months and six months ended
June 30, 2000, respectively, were excluded from the diluted calculations above
because the exercise prices on the options were greater than the average market
price for the periods.
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 the futures 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 June 30,
2001, approximately $8.2 million of the $10.3 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 gain of $0.4 million
and a net loss of $0.03 million was recognized in cost of goods sold during the
three months and six months ended June 30, 2001, respectively, representing the
amount of the hedges' ineffectiveness. As of June 30, 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 June 30, 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 and six months ended June 30, 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 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 and six months ended June 30,
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 June 30, 2001
- --------------------------------
Net sales to external customers $203,379 $32,126 $ -- $235,505
Intersegment net sales 6,452 -- (6,452) --
Operating income (loss) 824 1,621 (3,342) (897)
Depreciation and amortization 8,664 977 -- 9,641
Total assets 541,440 98,729 2,327 642,496
Capital expenditures 1,168 96 -- 1,264
Three months ended June 30, 2000
- --------------------------------
Net sales to external customers $271,127 $32,894 $ -- $304,021
Intersegment net sales 7,074 -- (7,074) --
Operating income (loss) 16,020 (735) (4,501) 10,784
Depreciation and amortization 8,898 1,021 (136) 9,783
Total assets 605,037 93,728 2,893 701,658
Capital expenditures 6,190 47 -- 6,237
Six months ended June 30, 2001
- ------------------------------
Net sales to external customers $403,224 $62,472 $ -- $465,696
Intersegment net sales 14,433 -- (14,433) --
Operating income (loss) 1,727 2,663 (7,284) (2,894)
Depreciation and amortization 17,380 1,954 7 19,341
Total assets 541,440 98,729 2,327 642,496
Capital expenditures 3,975 186 -- 4,161
Six months ended June 30, 2000
- ------------------------------
Net sales to external customers $556,473 $68,513 $ -- $624,986
Intersegment net sales 14,115 -- (14,115) --
Operating income (loss) 27,546 (1,632) (8,354) 17,560
Depreciation and amortization 17,583 2,043 (29) 19,597
Total assets 605,037 93,728 2,893 701,658
Capital expenditures 12,888 150 -- 13,038
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 June 30, 2001 and December 31, 2000, statement of
income for the three months and six months ended June 30, 2001 and 2000 and
statement of cash flows for the six months ended June 30, 2001 and 2000.
Combining Balance Sheet at June 30, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ -- $ -- $ -- $ --
Accounts receivable, net -- 284,737 -- (283,932) 805
Inventories -- 127,512 -- -- 127,512
Prepayments and other current assets 476 2,705 103,984 -- 107,165
--------- --------- --------- --------- ---------
Total current assets 476 414,954 103,984 (283,932) 235,482
Property, plant and equipment, net -- 246,384 -- -- 246,384
Goodwill, net -- 157,896 -- -- 157,896
Other noncurrent assets 600,747 883 -- (598,896) 2,734
--------- --------- --------- --------- ---------
Total assets $ 601,223 $ 820,117 $ 103,984 $(882,828) $ 642,496
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ 1,243 $ -- $ -- $ 1,243
Accounts payable 143,332 62,720 140,600 (283,932) 62,720
Accrued liabilities 5,373 35,391 (611) -- 40,153
--------- --------- --------- --------- ---------
Total current liabilities 148,705 99,354 139,989 (283,932) 104,116
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 6,829 -- -- 6,829
Accrued pension benefits -- 8,527 -- -- 8,527
Accrued postretirement benefits -- 80,780 -- -- 80,780
--------- --------- --------- --------- ---------
Total liabilities 273,705 195,490 139,989 (283,932) 325,252
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 165 1 -- (1) 165
Additional paid-in capital 408,161 486,727 5,000 (491,727) 408,161
Accumulated deficit (74,289) 148,173 (41,005) (107,168) (74,289)
Notes receivable from sale of common stock (6,519) -- -- -- (6,519)
Accumulated other comprehensive income:
Effects of cash flow hedges -- (10,274) -- -- (10,274)
--------- --------- --------- --------- ---------
Total stockholders' equity 327,518 624,627 (36,005) (598,896) 317,244
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 601,223 $ 820,117 $ 103,984 $(882,828) $ 642,496
========= ========= ========= ========= =========
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 June 30, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 235,505 $ -- $ -- $ 235,505
Cost of goods sold -- 224,197 -- -- 224,197
--------- --------- --------- --------- ---------
Gross profit -- 11,308 -- -- 11,308
Selling, general and administrative expenses 47 11,039 -- -- 11,086
Amortization of goodwill -- 1,119 -- -- 1,119
--------- --------- --------- --------- ---------
Operating income (loss) (47) (850) -- -- (897)
Other income (expense), net (1,525) 118 -- 1,525 118
Interest income (expense), net (3,328) 1,191 (1,809) -- (3,946)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (4,900) 459 (1,809) 1,525 (4,725)
Income tax expense -- 175 -- -- 175
--------- --------- --------- --------- ---------
Net income (loss) $ (4,900) $ 284 $ (1,809) $ 1,525 $ (4,900)
========= ========= ========= ========= =========
Combining Statement of Income for the three months ended June 30, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 304,021 $ -- $ -- $ 304,021
Cost of goods sold -- 278,319 -- -- 278,319
--------- --------- --------- --------- ---------
Gross profit -- 25,702 -- -- 25,702
Selling, general and administrative expenses (80) 13,879 -- -- 13,799
Amortization of goodwill -- 1,119 -- -- 1,119
--------- --------- --------- --------- ---------
Operating income (loss) 80 10,704 -- -- 10,784
Other income (expense), net 7,654 425 -- (7,654) 425
Interest income (expense), net (3,325) 1,272 (3,198) -- (5,251)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 4,409 12,401 (3,198) (7,654) 5,958
Income tax expense -- 1,549 -- -- 1,549
--------- --------- --------- --------- ---------
Net income (loss) $ 4,409 $ 10,852 $ (3,198) $ (7,654) $ 4,409
========= ========= ========= ========= =========
Combining Statement of Income for the six months ended June 30, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 465,696 $ -- $ -- $ 465,696
Cost of goods sold -- 443,524 -- -- 443,524
--------- --------- --------- --------- ---------
Gross profit -- 22,172 -- -- 22,172
Selling, general and administrative expenses 176 22,652 -- -- 22,828
Amortization of goodwill -- 2,238 -- -- 2,238
--------- --------- --------- --------- ---------
Operating income (loss) (176) (2,718) -- -- (2,894)
Other income (expense), net (4,090) 358 -- 4,090 358
Interest income (expense), net (6,689) 2,667 (3,997) -- (8,019)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (10,955) 307 (3,997) 4,090 (10,555)
Income tax expense -- 400 -- -- 400
--------- --------- --------- --------- ---------
Net income (loss) $ (10,955) $ (93) $ (3,997) $ 4,090 $ (10,955)
========= ========= ========= ========= =========
Combining Statement of Income for the six months ended June 30, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 624,986 $ -- $ -- $ 624,986
Cost of goods sold -- 576,744 -- -- 576,744
--------- --------- --------- --------- ---------
Gross profit -- 48,242 -- -- 48,242
Selling, general and administrative expenses 142 28,302 -- -- 28,444
Amortization of goodwill -- 2,238 -- -- 2,238
--------- --------- --------- --------- ---------
Operating income (loss) (142) 17,702 -- -- 17,560
Other income (expense), net 12,443 665 -- (12,443) 665
Interest income (expense), net (6,642) 2,188 (6,124) -- (10,578)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 5,659 20,555 (6,124) (12,443) 7,647
Income tax expense -- 1,988 -- -- 1,988
--------- --------- --------- --------- ---------
Net income (loss) $ 5,659 $ 18,567 $ (6,124) $ (12,443) $ 5,659
========= ========= ========= ========= =========
Combining Statement of Cash Flows for the six months ended June 30, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $(10,955) $ (93) $ (3,997) $ 4,090 $(10,955)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 7 19,334 -- -- 19,341
Loss on disposal of property, plant and equipment -- 238 -- -- 238
Issuance of common stock in connection with stock awards 106 -- -- -- 106
Equity in undistributed net income of subsidiaries -- 4,090 -- (4,090) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (42,561) -- 41,867 (694)
Decrease in inventories -- 10,173 -- -- 10,173
Decrease (increase) in prepayments and other current assets 321 7,861 (31,617) -- (23,435)
Decrease (increase) in other noncurrent assets 4,307 (4,438) -- -- (131)
Increase (decrease) in accounts payable 5,948 9,198 35,919 (41,867) 9,198
Increase (decrease) in accrued liabilities 299 (897) (305) -- (903)
(Decrease) in other liabilities -- (11,507) -- -- (11,507)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 33 (8,602) -- -- (8,569)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (4,161) -- -- (4,161)
Proceeds from sale of property, plant and equipment -- 6 -- -- 6
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (4,155) -- -- (4,155)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 1,243 -- -- 1,243
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 1,613 -- -- -- 1,613
Cash dividends paid (1,646) -- -- -- (1,646)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (33) 1,243 -- -- 1,210
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (11,514) -- -- (11,514)
Cash and cash equivalents at beginning of period -- 11,514 -- -- 11,514
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the six months ended June 30, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ 5,659 $ 18,567 $ (6,124) $(12,443) $ 5,659
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operations:
Depreciation and amortization (29) 19,626 -- -- 19,597
Loss on disposal of property, plant and equipment -- 699 -- -- 699
Issuance of common stock in connection with stock awards 121 -- -- -- 121
Equity in undistributed net income of subsidiaries -- (12,443) -- 12,443 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 2,434 (25,972) -- 23,497 (41)
Decrease in inventories -- 11,354 -- -- 11,354
Decrease (increase) in prepayments and other current assets 20 6,043 (20,097) -- (14,034)
(Increase) decrease in other noncurrent assets (11,981) 12,075 -- -- 94
(Decrease) increase in accounts payable -- (23,214) 25,931 (23,497) (20,780)
Increase (decrease) in accrued liabilities 4,011 (7,727) 290 -- (3,426)
(Decrease) in other liabilities -- (206) -- -- (206)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 235 (1,198) -- -- (963)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (13,038) -- -- (13,038)
Proceeds from sale of property, plant and equipment -- 4 -- -- 4
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (13,034) -- -- (13,034)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 9,482 -- -- 9,482
Proceeds from long-term debt -- 47,550 -- -- 47,550
Repayments of long-term debt -- (42,800) -- -- (42,800)
Repayments of notes receivable from sale of common stock 1,426 -- -- -- 1,426
Cash dividends paid (1,661) -- -- -- (1,661)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (235) 14,232 -- -- 13,997
-------- -------- -------- -------- --------
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 half of 2001, shipments of the Company's aluminum sheet
products decreased by 28% from the first half of 2000. Demand for the Company's
aluminum sheet products decreased in the first half of 2001 reflecting ongoing
weak business conditions throughout the economy generally and specifically
across the Company's various markets. In addition, material margins which had
trended higher over the past few quarters, also eased somewhat in the second
quarter due to a highly competitive marketplace.
Demand for the Company's electrical products also decreased during the first
half of 2001. Shipments were down 14% compared to the first half of 2000 due to
the weak customer demand. While material margins for the second quarter of 2001
were down slightly from the first quarter of 2001, material margins for the
first six months of 2001 increased versus the margins experienced in the first
half of 2000 due to increased selling prices on armored cable products and a
reduction in material costs per foot. The higher material margins for the six
months of 2001 more than offset the effect of the decline in shipment volume and
higher manufacturing unit costs compared to the first half of 2000 and returned
the Company's electrical products business unit to an operating profit during
the first quarter of 2001 and continuing in the second quarter.
Results of Operations for the three months and six months ended June 30, 2001
and 2000
Net Sales. Net sales for the quarter ended June 30, 2001, decreased 23% to $236
million (including $32.1 million from Alflex) from $304 million (including $32.9
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 second quarter of 2000. Unit sales volume of aluminum decreased
25% to 198.3 million pounds for the second quarter of 2001 from 264.1 million
pounds for the second quarter of 2000. Alflex unit sales volume was 138.2
million feet for the second quarter of 2001, a decrease of 4% versus 144.6
million feet for the comparable period in 2000. Net sales for the six-month
period ended June 30, 2001, were $466 million (including $62.5 million from
Alflex), a 25% decrease from the $625 million recorded in the first half of 2000
(including $68.5 million from Alflex). As stated previously, the decrease is due
to ongoing weak business conditions throughout the economy generally and
specifically across the Company's various markets. Unit sales volume of aluminum
was 387.6 million pounds for the first half of 2001, a decrease of 28% from the
538.5 million pounds for the first half of 2000. Alflex unit sales volume was
266.6 million feet for the first six months of 2001, a decrease of 14%, versus
309.1 million feet for the comparable period in 2000.
Gross Profit. Gross profit for the quarter ended June 30, 2001, decreased to
$11.3 million (4.8% of net sales) from $25.7 million (8.5% of net sales) for the
same period in 2000. Gross profit for the six months ended June 30, 2001 was
$22.2 million (4.8% of net sales) versus $48.2 million (7.7% of net sales) for
the comparable 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
in the first quarter of 2001 and significantly higher energy costs more than
offset the slight improvement in material margins for the six months of 2001
versus the same period in 2000. Despite the higher energy costs, the Alflex
business unit increased its gross profit for the first six months of 2001 versus
the first half of 2000 due to improved material margins.
Operating Income. The Company had an operating loss of $0.9 million for the
second quarter of 2001 compared with operating income of $10.8 million for the
second quarter of 2000. For the six-month period ended June 30, 2001, the
Company had an operating loss of $2.9 million, versus operating income of $17.6
million for the first half of 2000. The decreases were 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 $1.6 million and
$2.7 million in the second quarter and first half of 2001, respectively,
compared to an operating loss of $0.7 million and $1.6 million in the second
quarter and first six months of 2000. Selling, general and administrative
expenses during the second quarter of 2001 were $11.1 million, compared with
$13.8 million for the same period in 2000 and were $22.8 million for the six
months ended June 30, 2001, compared with $28.4 million for the same period in
2000. Contributing to the decrease were reduced incentive compensation expenses,
lower selling expenses, lower professional services and lower overall salary
expense due to workforce reductions. This was partially offset by higher medical
insurance costs.
Net Income. The Company had a net loss of $4.9 million for the quarter ended
June 30, 2001, compared with net income of $4.4 million for the same period in
2000. The Company's net loss for the six months ended June 30, 2001 was $11.0
million compared with net income of $5.7 million for the first half of 2000.
Interest expense was $3.9 million for the quarter ended June 30, 2001, compared
to $5.3 million for the same period in 2000 and $8.0 million for the six months
ended June 30, 2001, compared with $10.6 million for the first half of 2000.
These decreases were primarily due to a reduction in amounts outstanding under
the Company's accounts receivable securitization facility. Income tax expense
was $0.2 million in the second quarter of 2001 compared to income tax expense of
$1.5 million for the same period in 2000 and an income tax expense of $0.4
million for the six months ended June 30, 2001, compared to income tax expense
of $2.0 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 June 30, 2001, the Company had outstanding $32.0
million under the agreement and had $104.0 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 half of 2001, the Company received gross proceeds of $30.0
million from the sale of receivables and made gross payments of $67.0 million
under the agreement.
The Company's operations used cash flows of $8.6 million for the six months
ended June 30, 2001 compared to using $1.0 million in the six months ended June
30, 2000. Working capital decreased to $131.4 million at June 30, 2001 from
$140.5 million at June 30, 2000.
Capital expenditures were $1.3 million during the quarter ended June 30, 2001
and $4.2 million for the six months ended June 30, 2001. At June 30, 2001, the
Company had commitments of $0.9 million for the purchase or construction of
capital assets. Total capital expenditures for the year 2001 are expected to be
approximately $11 million, all generally related to maintaining, 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 June 30, 2001, the Company held purchase and
sales commitments through September 2002 totaling $49 million and $195 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 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 June 30, 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 and six months ended June 30, 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 adoption of this
Statement did not have a material impact on the Company's results of operations
or financial position.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No.
141"). The Statement addresses financial accounting and reporting for business
combinations and supercedes Accounting Principles Board Opinion No. 16,
"Business Combinations", and Statement of Financial Accounting Standards No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises". All
business combinations in the scope of SFAS No. 141 are to be accounted for using
one method - the purchase method. SFAS No. 141 is effective to all business
combinations initiated after June 30, 2001.
Also in July 2001, the Financial Accounting Standards Board issued 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 supercedes Accounting
Principles Board Opinion No. 17, "Intangible Assets". The Statement addresses
how intangible assets that are acquired individually or with a group of other
assets (but not those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. This Statement also
addresses how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. The Company
currently expects to adopt SFAS No. 142 in the Company's first quarter 2002
reporting, as required. Management is currently evaluating the impact of SFAS
No. 142 on the Company's future financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to non-environmental legal proceedings and administrative
actions all of which are of an ordinary routine nature incidental to the
operations of the Company. Although it is impossible to predict the outcome of
any legal proceeding, in the opinion of management such proceedings and actions
should not, individually or in aggregate, have a material adverse effect on the
Company's financial condition, results of operations or cash flows, although
resolution in any year or quarter could be material to the results of operation
for that period.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders (the "Meeting"), held April 20,
2001, the following matters were submitted for a vote by the security holders:
Paul E. Lego and John E. Merow were elected directors for terms
expiring in 2004. There were 12,997,608 and 13,002,594, respectively,
votes cast for and 149,228 and 144,242, respectively, abstentions. The
terms of office of Catherine G. Burke, C. Frederick Fetterolf, Mark V.
Kaminski and Larry E. Kittelberger continued after the meeting.
Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for 2001. There were 13,070,040 votes
for and 70,523 votes against and 6,273 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment, dated as of June 29, 2001, to Second Amended and
Restated Credit Agreement among the Company, subsidiaries of
the Company, the several lenders from time to time parties
thereto, and Bank One Indiana, N.A., as agent, dated as of
December 19, 1997.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30, 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: August 3, 2001
Exhibit Index
Exhibit
Number Description
- ------- -----------------
10.1 Amendment, dated as of June 29, 2001, to Second Amended and
Restated Credit Agreement among the Company, subsidiaries of
the Company, the several lenders from time to time parties
thereto, and Bank One Indiana, N.A., as agent, dated as of
December 19, 1997.