United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 0-25642
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COMMONWEALTH ALUMINUM CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 13-3245741
(State of incorporation) (IRS employer identification number)
1200 Meidinger Tower 40202
Louisville, Kentucky (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code (502) 589-8100
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The registrant had 10,200,000 shares of common stock outstanding at July 17,
1996.
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 ____
COMMONWEALTH ALUMINUM CORPORATION
Index to Quarterly Report Form 10-Q
For the Quarter Ended June 30, 1996
Part I - Financial Information
Item 1 - Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheets as of June 30, 1996 3
and December 31, 1995
Condensed Consolidated Statements of Income for the three 4
months and six months ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the six 5
months ended June 30, 1996 and 1995
Notes to the Condensed Consolidated Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition 7-8
and Results of Operations
Part II - Other Information
Item 1 - Legal Proceedings 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
COMMONWEALTH ALUMINUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
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(in thousands)
Assets
Current assets:
Cash and cash equivalents .................................. $ 802 $ 2,665
Accounts receivable ........................................ 102,410 92,355
Inventories ................................................ 106,067 125,683
Due (to) from broker ....................................... (2,316) 440
Prepayments and other current assets ....................... 5,925 6,032
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Total current assets .................................. 212,888 227,175
Property, plant and equipment .................................. 185,669 189,562
Other noncurrent assets ........................................ 3,737 3,947
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Total assets .......................................... $ 402,294 $ 420,684
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings ...................................... $ -- $ 4,000
Current portion of long-term debt .......................... 6,862 10,504
Accounts payable ........................................... 36,408 44,284
Accrued liabilities ........................................ 12,907 14,655
Deferred (loss) gain ....................................... (2,316) 440
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Total current liabilities ............................. 53,861 73,883
Long-term debt ................................................. 30,307 33,871
Payable to Lockheed Martin ..................................... 3,492 3,492
Accrued pension benefits ....................................... 18,788 18,480
Accrued postretirement benefits ................................ 79,061 77,895
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Total liabilities ..................................... 185,509 207,621
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Commitments and contingencies .................................. -- --
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
10,200,000 and 10,190,000 shares outstanding at
June 30, 1996 and December 31, 1995, respectively .... 102 102
Additional paid-in capital ................................ 301,324 301,114
Accumulated deficit ....................................... (80,075) (83,549)
Unearned compensation ..................................... (2,297) (2,335)
Minimum pension adjustment ................................ (2,269) (2,269)
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Total stockholders' equity ............................ 216,785 213,063
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Total liabilities and stockholders' equity ............ $ 402,294 $ 420,684
========= =========
The accompanying notes are an integral part
of the condensed consolidated financial statements
COMMONWEALTH ALUMINUM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
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(in thousands, except per share amount)
Net sales $ 159,672 $ 192,229 $ 327,216 $ 366,136
Cost of goods sold 150,802 171,505 308,535 327,822
-------------- ------------ ------------ ------------
Gross profit 8,870 20,724 18,681 38,314
Selling, general and administrative expenses 6,224 5,540 12,200 11,509
-------------- ------------ ------------ ------------
Operating income 2,646 15,184 6,481 26,805
Halco income - 960 - 1,263
Other (expense) income, net (9) 3,076 (247) 2,942
Interest expense, net (443) (1,457) (1,122) (1,849)
-------------- ------------ ------------ ------------
Income before income taxes 2,194 17,763 5,112 29,161
Provision for income taxes 92 4,846 617 7,582
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============== ============ ============ ============
Net income $ 2,102 $ 12,917 $ 4,495 $ 21,579
============== ============ ============ ============
Earnings per share $ 0.21 $ 1.27 $ 0.44 $ 2.12
Weighted average shares outstanding 10,196 10,190 10,196 10,190
Dividends per share $ 0.05 $ 0.05 $ 0.10 $ 0.05
The accompanying notes are an integral part
of the condensed consolidated financial statements
COMMONWEALTH ALUMINUM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30,
--------------------------------
1996 1995
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(in thousands)
Cash flows from operating activities:
Net income $ 4,495 $ 21,579
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 8,963 9,111
Provision for losses on accounts receivable 24 4
Changes in assets and liabilities:
Increase in accounts receivable (10,079) (25,062)
Decrease (increase) in inventories 19,616 (7,148)
Decrease (increase) in prepayments
and other current assets 107 (1,360)
Decrease in accounts payable (7,876) (12,076)
(Decrease) increase in accrued liabilities (1,748) 3,484
Increase in other liabilities 1,474 1,874
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Net cash provided by (used for) operating activities 14,976 (9,594)
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Cash flows from investing activities:
Additions to property, plant and equipment (4,822) (11,330)
Disposals of property, plant and equipment 210 208
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Net cash used in investing activities (4,612) (11,122)
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Cash flows from financing activities:
Dividends paid on common stock (1,021) (509)
Proceeds from short-term borrowings 9,050 25,000
Repayments of short-term borrowings (13,050) (2,400)
Proceeds from long-term debt - 50,000
Repayments of long-term debt (7,206) (1,875)
Payment to prior sole shareholder - (50,000)
Miscellaneous receipts from prior sole shareholder - 500
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Net cash (used for) provided by financing activities (12,227) 20,716
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Decrease in cash and cash equivalents (1,863) -
Cash and cash equivalents, beginning of period 2,665 -
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Cash and cash equivalents, end of period $ 802 $ -
============ =============
The accompanying notes are an integral part
of the condensed consolidated financial statements
COMMONWEALTH ALUMINUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying 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 statements have been prepared in accordance with
Commonwealth Aluminum Corporation'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. The adjustments made were of a normal
recurring nature.
2. Inventories
The Company uses the first-in, first-out (FIFO) method for determining
the cost of inventory.
(in thousands) June 30, 1996 December 31, 1995
Raw Materials $ 12,734 $ 26,438
Work in Process 60,685 55,585
Finished Goods 21,193 32,676
Expendable Parts and Supplies 11,455 10,984
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Total $ 106,067 $ 125,683
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On June 30, 1996, the Company had deferred realized losses of $2.4
million on closed futures contracts which are recorded as an increase to the
carrying value of inventory. The Company had deferred realized gains of $0.2
million at December 31, 1995.
3. Provision for Income Taxes
The effective rate for the quarter ended June 30, 1996 is less than the
rate for the quarter ended June 30, 1995 as a result of the increased effect
upon taxable income of the expected utilization of the Company's net operating
loss carryforward.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company manufactures non-heat treat coiled aluminum sheet for the
transportation, construction and consumer durables end use markets. The Company
produces coiled sheet from aluminum scrap and primary aluminum. Three factors
generally determine the financial performance of the Company, 1) sales volume,
2) material margin (the selling price of the coiled sheet less the cost of raw
materials) and 3) conversion costs (the direct cost of converting raw material
into finished product). While changes in aluminum 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 second quarter, the marketplace remained highly competitive as
material margins fell to their lowest levels in over two years. This continues a
trend that began during the third quarter of 1995, when, in anticipation of
falling metal prices, customers began shortening their lead times for new
orders. Comparing pounds shipped for the first six months of 1996 to the similar
1995 period shows a decline of 1%. By contrast, the industry experienced a
greater decline. Thus, the Company increased its market share during the first
six months. This has helped lessen the impact of lower material margins.
Results of Operations for the three months and six months ended June 30, 1996
and 1995
Net Sales. Net sales for the quarter ended June 30, 1996, decreased 17% to
$159.7 million from $192.2 million for the same period in 1995. Net sales for
the six month period ended June 30, 1996, were $327.2 million, an 11% decrease
from the year earlier comparable period. This decrease was due primarily to
lower selling prices and generally lower metal costs. Average selling prices for
the quarter ended June 30, 1996, were $1.02 per pound, a decrease of 14% from
$1.18 per pound for the quarter ended June 30, 1995. Average selling prices for
the six months ended June 30, 1996 were $1.04 per pound, a decrease of 10% from
the $1.15 per pound for the comparable year earlier period. This decrease can be
primarily attributed to lower overall demand for finished products leading to
downward pressure on prices. Unit sales volume decreased 4% to 156.6 million
pounds for the second quarter of 1996 from 162.4 million pounds for the second
quarter of 1995. There was a smaller decrease of 1% for the first half of the
year as compared to the first half of 1995.
Gross Profit. Gross profit for the quarter ended June 30, 1996, decreased to
$8.9 million from $20.7 million for the same period in 1995. Gross profit for
the six months ended June 30, 1996 was $18.7 million, a 51% decrease from the
$38.3 million in the year earlier comparable period. This decrease was
attributable primarily to the lower material margins resulting from reduced
sales prices. Material margins dropped 17% for the six months ended June 30,
1996 when compared to the year earlier period. The Company's unit costs rose, as
compared to the same period in 1995, as a result of the lower unit volumes, a
more difficult product mix, and the stable fixed cost nature of the business.
Operating Income. The Company produced operating income of $2.6 million for the
second quarter of 1996 compared with $15.2 million for the second quarter of
1995. For the six month period ended June 30, 1996, operating income was $6.5
million, down from $26.8 million for the year earlier comparable period.
Selling, general and administrative expenses during the second quarter of 1996
were $6.2 million, compared with $5.5 million for the same period in 1995 and
$12.2 million for the six months ended June 30, 1996, compared with $11.5 for
the same period in 1995. This increase generally related to staffing changes,
professional services and one-time miscellaneous payments.
Net Income. Net income was $2.1 million for the quarter ended June 30, 1996,
compared with $12.9 million for the same period in 1995. Net income for the six
months ended June 30, 1996 was $4.5 million compared with $21.6 million for the
comparable year earlier period. The Company had income of $1 million during the
second quarter of 1995 and $1.3 million for the six months ended June 30, 1995
associated with an investment in Halco, which was assigned to the former parent
company when the Company went public. Also included in the second quarter of
1995 was a reversal of accrued energy taxes as a result of a tax settlement with
the Kentucky Revenue Cabinet which totaled $2.0 million of income after tax.
Interest expense was $0.4 million for the quarter ended June 30, 1996 and $1.5
million for the comparable period in 1995. This decrease is a result of the
Company's reduction of both its short-term and long-term debt. Provision for
income taxes was $0.1 million in the second quarter of 1996 and $4.8 million for
the same period in 1995, primarily due to lower pre-tax income and a lower
effective tax rate. The effective rate for the quarter ended and six months
ended June 30, 1996 is less than the rate for the quarter ended and six months
June 30, 1995 as a result of the increased impact of the tax loss carryforward
on this year's earnings.
Liquidity and Capital Resources
The Company's sources of liquidity are cash flows from operating activities and
borrowings under its $100 million revolving credit facility. There were no
borrowings outstanding under this facility on June 30, 1996. The Company
believes that these sources will be sufficient to fund its working capital
needs, capital expenditures, debt service and dividend payments in 1996.
Working capital increased to $159 million at June 30, 1996 from $153 million at
December 31, 1995.
Capital expenditures were $2.9 million during the quarter ended June 30, 1996
and $4.8 million year-to-date. At June 30, 1996, the Company had commitments of
$8.6 million for the purchase or construction of capital assets. Total capital
expenditures for the year 1996 are expected to be approximately $18 million,
principally related to upgrading the Company's manufacturing facilities.
Commodity Risk Management
The Company offers its customers multiple pricing methods, including fixed firm
prices. Purchases of metal for forward delivery as well as hedging with futures
contracts and options are used to reduce the Company's aggregate exposure to the
risk of changes in metal prices. This is accomplished by establishing at the
time of a customer's order a fixed margin between the cost of the metal and the
Company's price of the product to the customer. Gains and losses resulting from
changes in the market value of these futures contracts and options increase or
decrease cost of sales at the time of revenue recognition. At June 30, 1996, the
Company held purchase and sales commitments through 1997 totaling $32.7 million
and $84.9 million, respectively. The Company held futures contracts,
marked-to-market at June 30, 1996, with a net unrealized loss of $2.3 million.
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.
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 or 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 the Company's management, such
proceedings and actions should not, individually or in aggregate, have a
material adverse effect on the Company's financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, held April 18, 1996, the
following two matters were submitted for a vote by the security holders:
Mr. Mark V. Kaminski was elected as a Director for a term expiring in 1999.
There were 8,814,632 votes cast for and 55,494 abstentions. The terms of
office of Paul E. Lego, Catherine G. Burke, John E. Merow and Victor Torasso
continued after the meeting.
Coopers & Lybrand L.L.P. were selected to be the Company's independent
accountants for 1996. There were 8,828,607 votes cast for and 16,608 votes cast
against with 24,911 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Deferred Compensation Plan
11.1 Calculation of Earnings Per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
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 Aluminum Corporation
By: /s/ Donald L. Marsh, Jr.
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Donald L. Marsh, Jr.
Vice President, Chief Financial
Officer and Secretary
Date: July 17, 1996