================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 29, 2004
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 Floor
Louisville, Kentucky 40202-2823
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (502) 589-8100
================================================================================
Item 12. Results of Operations and Financial Condition.
See the following press release, dated January 29, 2004, announcing
Commonwealth Industries, Inc.'s results of operations for the Fourth Quarter
and Full Year 2003:
Contact: Kim S. Knotts
Director of Investor Relations
(502) 588-8207
COMMONWEALTH INDUSTRIES REPORTS FOURTH QUARTER
AND FULL YEAR 2003 FINANCIAL RESULTS
o Fourth quarter aluminum shipments strongest for the year
o Lead times in 2004 the longest in four years
o Full-year and quarter periods impacted by goodwill impairment charges
o Accounting-related hedge gain recorded in quarter
o Estimated aluminum shipments for the first six months of 2004 are
440-480m lbs.
LOUISVILLE, KENTUCKY (January 29, 2004) - Commonwealth Industries, Inc.
(NASDAQ/NM: CMIN) today announced results for the fourth quarter and year ended
December 31, 2003. The resurgence in aluminum shipments that began in the 2003
third quarter accelerated in the fourth quarter, as indicated by a further 10%
increase in aluminum shipments over the 2003 third quarter, from 195.4 million
pounds to 215.2 million pounds, the highest level of the year. It is also
notable that while aluminum shipments declined 4% from the prior year's robust
224.8 million pound fourth quarter, the year-to-year volume decline for the
quarter includes the effects of the Company's planned annual maintenance outages
at all of the Company's aluminum plants in the 2003 fourth quarter. (The last
prior maintenance shutdowns had been planned and were taken in the 2003 first
quarter instead of the 2002 fourth quarter.)
Fourth quarter 2003 operating results were also affected by two significant
non-cash accounting-related effects. Inclusive of those effects, the Company
reported a net loss of $25.6 million or $1.60 per share versus net income of
$6.4 million or $0.40 per share in the fourth quarter of 2002. The first of
those effects is a charge of $29.6 million, or $1.85 per share, resulting from
impairment of the carrying value of goodwill relating to the Company's
electrical products business. Also included in the fourth quarter 2003 results
is a gain of approximately $5.6 million, or $0.35 per share, relating to certain
aluminum hedge transactions.
Impairment of the carrying value of goodwill was determined in accordance
with the annual review conducted by the Company in the fourth quarter as called
for under Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS No. 142). The $29.6 million charge reduces the
remaining goodwill balance as of December 31, 2003, to $19.3 million, all of
which is associated with the Company's electrical products business. This
adjustment to the goodwill carrying value follows a $25.3 million charge
previously recorded as a cumulative change in accounting principle as of January
1, 2002, in accordance with the transitional test required under the initial
implementation of SFAS No. 142. The fourth quarter 2003 goodwill impairment
charge reflects a more conservative long-term outlook by the Company of a
continuing highly competitive, commodity/volume/cost-driven environment for its
electrical products business.
The $5.6 million, or $0.35 per share, gain relating to aluminum hedge
transactions resulted from a determination by the Company that hedges in place
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, as required by the provisions of
SFAS No. 133, the Company recognized the full gain by marking-to-market the
London Metal Exchange-based derivative contracts held by the Company as hedges.
Notwithstanding the mandated recognition of the $5.6 million gain in the
2003 fourth quarter, the Company takes care to caution that as the physical
metal purchases represented by these contracts are priced in the market and
delivered to the Company for processing in future periods, the related higher
metal prices will result in future lower margins and corresponding offsets to
the $5.6 million gain being recorded. Further, the Company estimates that an
additional $1.4 million gain from "ineffectiveness" in prior 2003 quarters will
also be offset by higher costs in future periods, resulting in an aggregate cost
carry-over of $7.0 million into future periods (predominantly in the first half
of 2004). The Company retains the strong conviction that hedges in place to
reduce its exposure to aluminum price fluctuations are effective and highly
suitable in an economic sense, but recognizes that adherence to the provisions
of SFAS No. 133 requires that the hedges meet certain mandated "effectiveness"
requirements to receive deferred accounting treatment.
For the year, net sales fell 5% to $920.0 million from $966.2 million in
2002. Gross profit for the 2003 year decreased 15% to $57.4 million versus $67.3
million for 2002. Including the 2003 goodwill impairment charge of $29.6 million
and the $25.3 million goodwill impairment charge recorded as a cumulative effect
of change in accounting principle in 2002, the Company reported a net loss for
2003 of $31.1 million, or $1.94 per share, compared with a net loss in 2002 of
$16.2 million, or $1.00, per diluted share.
As mentioned at the outset, aluminum shipments in the 2003 fourth quarter
reached the highest level of the year at 215.2 million pounds, 10% over the
third quarter, 21% over the second quarter and 17% over the first quarter.
Aluminum shipments were just 4% below the 2002 fourth quarter despite the annual
maintenance shutdown taken during the 2003 quarter. For the full year, aluminum
shipments declined 15% from 905.0 million pounds to 772.5 million pounds,
reflecting the relative weakness in the earlier quarters of 2003. Electrical
product shipments declined 7% in the 2003 fourth quarter to 104.0 million feet
from 111.9 million feet in the prior-year quarter, consistent with the full year
7% decline to 454.8 million feet from 486.7 million feet in 2002, and indicative
of the persistent softness that prevailed throughout 2003 in the commercial
construction markets served by the Company.
The Company's gross profit margin for the fourth quarter declined to 8.0%
from 9.1% in the year-earlier period. Aluminum business gross profit margin fell
to 7.2% from 8.4% in the year-earlier quarter due to the net effects of higher
net selling prices offset by higher metal purchase prices, the hedge gains
described earlier, higher manufacturing unit costs associated with lower
shipment levels and costs related to the planned outages. In the Company's
electrical products business, gross profit margin improved to 15.1% in the
fourth quarter of 2003 from 12.6% in the same period last year, reflecting
reduced costs from the Company's Lean Manufacturing initiatives that more than
offset higher raw material costs.
For the year, the Company's gross profit margin declined to 6.2% from 7.0%
in 2002. The gross profit margin for the Company's aluminum products business
was flat at 5.5% year-over-year. The gross profit margin for Alflex declined to
11.7% in 2003 from 16.1% in 2002, primarily reflecting the impact of lower
volume and the related impact on manufacturing efficiency, and continued
pressure on selling prices resulting from a sustained decline in commercial
construction activity and the competitive price environment.
Selling, general and administrative expenses (SG&A) for the fourth quarter
of 2003 were essentially flat at $12.3 million versus $12.2 million in the
fourth quarter of 2002. For the year, SG&A declined 3% to $45.6 million, 5.0% of
net sales in 2003 versus 4.9% of net sales in 2002.
At December 31, 2003, Commonwealth had $379.8 million in total assets
compared with $428.9 million last year, and stockholders' equity of $76.0
million versus $107.2 million at the end of 2002. The Company's
debt-to-capitalization was 62% at December 31, 2003, compared with 54% one year
ago. Each of the foregoing changes reflected the impact of the Company's
goodwill impairment charges recorded in 2003 and 2002.
President and Chief Executive Officer Mark V. Kaminski said, "We are
heartened by the fact that the fourth quarter was our strongest quarter of the
year in terms of aluminum shipments, and we are optimistic as current bookings
indicate a strong market through mid-year. Gross profit at our Alflex business
also improved in the fourth quarter versus the prior-year quarter, and I believe
that by taking a more conservative outlook for our electrical products business,
as reflected in the fourth quarter goodwill impairment charge, we are setting
the stage for future stability and growth in that business sector.
"Although the Company would have strongly preferred to defer the hedge gain
of $5.6 million recorded in the 2003 fourth quarter, aggregating to $7.0 million
for the full year, in order to achieve a closer match to the increased raw
material costs that will now depress our margins in 2004, we are mindful of the
exacting provisions set forth in SFAS No. 133 that require the treatment
accorded these transactions.
"We worked very hard in 2003 at helping our customers improve their
businesses and gear their production more closely to demand," Kaminski
continued. "Through innovations such as short lead-time programs, Rapid Response
Depot and Solutions Engineering, Commonwealth is looking at its customers'
individual needs, providing the ability for our customers to buy material closer
to actual requirements. In addition, we are working on ways to share the
benefits of reduced inventory, higher inventory turns and shorter lead times."
Kaminski concluded, "While we cannot predict when and to what extent the
looming economic recovery will benefit our businesses, we are highly encouraged
by the strengthening outlook taking shape as we begin 2004. We estimate the
first six months of 2004 aluminum shipments to be 440 to 480 million pounds. We
will continue to concentrate on improving customer service support, reducing
costs through Lean Manufacturing and creating innovative solutions to meet our
customers' needs. Helping our customers grow their businesses allows us to be a
better strategic supplier and positions us for improved market share as the
economy improves."
Commonwealth's management will discuss the Company's fourth quarter and
year-end results during an online Web simulcast on Thursday, January 29, 2004,
at 10:00 a.m. Eastern Time. The Web simulcast can be accessed at
www.ciionline.com by selecting "Investor Relations", then "Live Webcast Q4 2003
Commonwealth Industries Earnings Conference Call." An online replay of the
simulcast will be available approximately two hours following the conclusion of
the live broadcast and will continue through February 28, 2004, at the Company's
web site.
Commonwealth Industries is one of North America's leading manufacturers of
aluminum sheet for distributors and the transportation, construction, and
consumer durables end-use markets. The Company has direct-chill casting
facilities in Kentucky and continuous casting mini-mills in Ohio and California.
Commonwealth also is a leading manufacturer of innovative electrical products
through its Alflex operations in California and North Carolina. For more
information about the Company, visit Commonwealth's web site at
www.ciionline.com.
Certain statements set forth above, may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. All statements regarding the Company's and its subsidiaries' expected
future financial position, results of operations, cash flows, funds from
operations, dividends, financing plans, business strategy, budgets, projected
costs, capital expenditures, competitive positions and growth opportunities are
forward-looking statements. Such forward-looking statements are based on
management's current expectations and include known and unknown risks,
uncertainties and other factors, many of which the Company is unable to predict
or control, that may cause the Company's actual results or performance to
materially differ from any future results or performance expressed or implied by
such statements. Such factors may include, without limitation, the success of
the implementation of the company-wide information system, the effect of global
economic conditions, the ability to achieve the level of cost savings or
productivity improvements anticipated by management, the effect (including
possible increases in the cost of doing business) resulting from war or
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.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Operations
(in thousands except per share data)
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
----------- ----------- ---------- -----------
Net sales $ 244,837 $ 238,719 $ 920,042 $ 966,238
Cost of goods sold 225,303 216,994 862,619 898,927
----------- ---------- ----------- ----------
Gross profit 19,534 21,725 57,423 67,311
Selling, general and administrative expenses 12,253 12,198 45,564 46,977
Goodwill impairment charges 29,607 -- 29,607 --
----------- ---------- ----------- ----------
Operating income (loss) (22,326) 9,527 (17,748) 20,334
Other income (expense), net 440 818 1,771 1,636
Interest expense, net (3,700) (3,740) (14,915) (15,146)
----------- ---------- ----------- ----------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (25,586) 6,605 (30,892) 6,824
Income tax expense (benefit) 34 240 184 (2,292)
----------- ---------- ----------- ----------
Income (loss) before cumulative effect of
change in accounting principle (25,620) 6,365 (31,076) 9,116
Cumulative effect of change in accounting principle -- -- -- (25,327)
----------- ---------- ----------- ----------
Net income (loss) $ (25,620) $ 6,365 $ (31,076) $ (16,211)
=========== ========== =========== ==========
Basic net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle $ (1.60) $ 0.40 $ (1.94) $ 0.57
Cumulative effect of change in accounting principle -- -- -- (1.58)
----------- ----------- ----------- -----------
Net income (loss) $ (1.60) $ 0.40 $ (1.94) $ (1.01)
=========== =========== =========== ===========
Diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle $ (1.60) $ 0.40 $ (1.94) $ 0.57
Cumulative effect of change in accounting principle -- -- -- (1.57)
----------- ----------- ----------- -----------
Net income (loss) $ (1.60) $ 0.40 $ (1.94) $ (1.00)
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 16,011 15,998 16,011 15,994
Diluted 16,011 16,086 16,011 16,097
Dividends paid per share $ -- $ 0.05 $ 0.10 $ 0.20
COMMONWEALTH INDUSTRIES, INC.
Operating and Financial Statistics
(dollars in thousands except per share data)
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales volume:
Aluminum products $ 220,759 $ 212,768 $ 819,357 $ 853,849
Electrical products $ 24,078 $ 25,951 $ 100,685 $ 112,389
Shipment volume:
Aluminum products (millions lbs.) 215.2 224.8 772.5 905.0
Electrical products (millions ft.) 104.0 111.9 454.8 486.7
Production volume:
Aluminum products (millions lbs.) 224.8 231.9 773.3 925.4
Electrical products (millions ft.) 115.5 108.4 457.7 482.7
Gross profit percent
Aluminum products 7.2% 8.4% 5.5% 5.5%
Electrical products 15.1% 12.6% 11.7% 16.1%
Consolidated Company 8.0% 9.1% 6.2% 7.0%
Operating income percent
Aluminum products 5.5% 6.5% 4.2% 4.1%
Electrical products (118.6%) 1.9% (29.4%) 4.9%
Consolidated Company (9.1%) 4.0% (1.9%) 2.1%
Current ratio 2.7x 2.6x 2.7x 2.6x
Interest coverage ratio (EBITDA excluding non-cash
goodwill impairment charges of $29.6 million in 2003
and non-cash goodwill impairment charges of $25.3
million in 2002 to interest expense) 3.5x 4.2x 2.3x 2.8x
Interest coverage ratio (EBITDA including non-cash
goodwill impairment charges of $29.6 million in 2003
and non-cash goodwill impairment charges of $25.3
million in 2002 to interest expense) (4.5x) 4.2x 0.3x 1.2x
Return on average stockholders' equity (annualized) (116.9%) 22.7% (32.2%) (13.9%)
Debt-to-capitalization 62% 54% 62% 54%
EBITDA (1) (excluding non-cash goodwill impairment
charges of $29.6 million in 2003 and non-cash
goodwill impairment charges of $25.3 million in 2002) $ 12,926 $ 15,547 $ 34,252 $ 43,112
EBITDA (1) (including non-cash goodwill impairment
charges of $29.6 million in 2003 and non-cash
goodwill impairment charges of $25.3 million in 2002) $ (16,681) $ 15,547 $ 4,645 $ 17,785
Note (1) Earnings before interest, income taxes, depreciation and amortization. See EBITDA Calculation on Page 6.
COMMONWEALTH INDUSTRIES, INC.
EBITDA Calculation (1)
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net cash provided by operating activities $ 4,285 $ 20,594 $ 3,810 $ 24,754
Adjustments to reconcile net cash provided by
operations to net income (loss):
Depreciation (5,205) (5,202) (20,622) (21,142)
Amortization (229) (222) (895) (984)
Goodwill impairment charges (29,607) -- (29,607) (25,327)
Loss on disposal of property, plant and equipment (486) (129) (554) (325)
Issuance of common stock in connection with stock awards -- -- (90) (170)
Change in working capital and other net assets 5,622 (8,676) 16,882 6,983
------------ ----------- ------------ -----------
Net income (loss) $ (25,620) $ 6,365 $ (31,076) $ (16,211)
Add back depreciation 5,205 5,202 20,622 21,142
Add back amortization (2) -- -- -- --
Add back tax expense / subtract tax benefit 34 240 184 (2,292)
Add back interest expense, net (2) 3,700 3,740 14,915 15,146
----------- ----------- ----------- -----------
EBITDA including non-cash goodwill impairment charges (16,681) 15,547 4,645 17,785
Add back non-cash goodwill impairment charges 29,607 -- 29,607 25,327
----------- ----------- ----------- -----------
EBITDA excluding non-cash goodwill impairment charges $ 12,926 $ 15,547 $ 34,252 $ 43,112
=========== =========== =========== ===========
Note (1) EBITDA is used in the calculation of certain covenants under the Company's credit agreement.
(2) Amortization of financing costs for the three months ended December 31, 2003 and 2002
of $229 and $222, respectively, and the year ended December 31, 2003 and 2002 of
$895 and $984, respectively, is included in interest expense, net instead of in
amortization in the above calculation.
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
Year Ended
December 31,
2003 2002
------------ -----------
Cash flows from operating activities:
Net income (loss) $ (31,076) $ (16,211)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation 20,622 21,142
Amortization 895 984
Goodwill impairment charges 29,607 25,327
Loss on disposal of property, plant and equipment 554 325
Issuance of common stock in connection with stock awards 90 170
Change in working capital and other net assets (16,882) (6,983)
------------ -----------
Net cash provided by operating activities 3,810 24,754
------------ -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (16,237) (16,321)
Proceeds from sale of property, plant and equipment 158 23
----------- -----------
Net cash (used in) investing activities (16,079) (16,298)
----------- -----------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits 659 --
Proceeds from long-term debt 108,970 77,270
Repayments of long-term debt (108,970) (77,270)
Repayments of notes receivable from sale of common stock -- 1,561
Cash dividends paid (1,601) (3,199)
----------- -----------
Net cash (used in) financing activities (942) (1,638)
----------- -----------
Net (decrease) increase in cash and cash equivalents (13,211) 6,818
Cash and cash equivalents at beginning of period 13,211 6,393
----------- -----------
Cash and cash equivalents at end of period $ -- $ 13,211
=========== ===========
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
December 31,
--------------------------
2003 2002
----------- -----------
Assets
Cash and cash equivalents $ -- $ 13,211
Accounts receivable, net 248 66
Inventories 131,552 125,348
Net residual interest in receivables sold 65,860 81,195
Prepayments and other current assets 13,227 7,133
----------- -----------
Total current assets 210,887 226,953
Property, plant and equipment, net 141,871 146,968
Goodwill 19,265 48,872
Other noncurrent assets 7,802 6,111
----------- -----------
Total assets $ 379,825 $ 428,904
=========== ===========
Liabilities
Outstanding checks in excess of deposits $ 659 $ --
Accounts payable 53,399 59,594
Accrued liabilities 23,806 28,527
----------- -----------
Total current liabilities 77,864 88,121
Long-term debt 125,000 125,000
Other long-term liabilities 3,672 5,183
Accrued pension benefits 30,147 26,743
Accrued postretirement benefits 67,146 76,670
----------- -----------
Total liabilities 303,829 321,717
----------- -----------
Commitments and contingencies -- --
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,010,971 and 15,997,651 shares outstanding at
December 31, 2003 and 2002, respectively 160 160
Additional paid-in capital 405,703 405,613
Accumulated deficit (310,619) (277,942)
Accumulated other comprehensive income:
Unrealized gain on security 34 --
Minimum pension liability adjustment (21,276) (21,391)
Effects of cash flow hedges 1,994 747
----------- -----------
Total stockholders' equity 75,996 107,187
----------- -----------
Total liabilities and stockholders' equity $ 379,825 $ 428,904
=========== ===========
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 hereunto duly authorized.
COMMONWEALTH INDUSTRIES, INC.
By /s/ Mark V. Kaminski
---------------------------------------
Mark V. Kaminski, President and
Chief Executive Officer
Date: January 29, 2004