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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
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Commission File No. 0-25642
COMMONWEALTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3245741
(State of incorporation) (I.R.S. Employer Identification No.)
500 West Jefferson Street
19th Floor
Louisville, Kentucky 40202-2823
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 589-8100
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
The registrant had 15,944,000 shares of common stock outstanding at July 29,
1999.
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COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended June 30, 1999
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
Condensed Consolidated Balance Sheet as of June 30, 1999
and December 31, 1998 3
Condensed Consolidated Statement of Income for the three
months and six months ended June 30, 1999 and 1998 4
Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition 9-12
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
June 30, December 31,
1999 1998
-------------- -------------
Assets
Current assets:
Cash and cash equivalents $ - $ 6
Accounts receivable, net 338 228
Inventories 169,114 174,968
Prepayments and other current assets 75,377 25,367
-------------- -------------
Total current assets 244,829 200,569
Property, plant and equipment, net 275,626 269,837
Goodwill, net 166,848 169,086
Other noncurrent assets 8,470 8,907
-------------- -------------
Total assets $ 695,773 $ 648,399
============== =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ 132 $ -
Accounts payable 80,563 54,244
Accrued liabilities 34,500 31,133
-------------- -------------
Total current liabilities 115,195 85,377
Long-term debt 133,100 125,000
Other long-term liabilities 8,772 8,859
Accrued pension benefits 17,281 15,930
Accrued postretirement benefits 87,528 86,704
-------------- -------------
Total liabilities 361,876 321,870
-------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
15,944,000 shares outstanding at
June 30, 1999 and December 31, 1998, respectively 159 159
Additional paid-in capital 398,768 398,794
Accumulated deficit (62,479) (69,621)
Unearned compensation (420) (672)
Accumulated other comprehensive income:
Minimum pension adjustment (2,131) (2,131)
-------------- -------------
Total stockholders' equity 333,897 326,529
-------------- -------------
Total liabilities and stockholders' equity $ 695,773 $ 648,399
============== =============
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,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------- ------------ ------------
Net sales $ 271,525 $ 258,346 $ 510,275 $ 507,273
Cost of goods sold 244,338 244,560 462,206 475,046
------------ ------------- ------------ ------------
Gross profit 27,187 13,786 48,069 32,227
Selling, general and administrative expenses 13,013 10,125 24,975 20,357
Amortization of goodwill 1,119 1,119 2,238 2,238
------------ ------------- ------------ ------------
Operating income 13,055 2,542 20,856 9,632
Other income (expense), net 28 79 453 404
Interest expense, net (4,746) (5,550) (10,045) (11,216)
------------ ------------- ------------ ------------
Income (loss) before income taxes 8,337 (2,929) 11,264 (1,180)
Income tax expense (benefit) 1,766 (286) 2,527 (1,331)
------------ ------------- ------------ ------------
Net income (loss) $ 6,571 $ (2,643) $ 8,737 $ 151
============ ============= ============ ============
Basic and diluted net income (loss) per share $ 0.41 $ (0.17) $ 0.55 $ 0.01
============ ============= ============ ============
Weighted average shares outstanding
Basic 15,948 15,944 15,949 15,944
Diluted 15,992 15,944 15,984 15,951
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 Cash Flows
(in thousands)
Six months ended June 30,
-------------------------------------
1999 1998
------------ -------------
Cash flows from operating activities:
Net income $ 8,737 $ 151
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 17,660 17,233
Issuance of common stock in connection with stock awards 44 72
Loss on disposal of property, plant and equipment - 259
Changes in assets and liabilities:
(Increase) in accounts receivable, net (110) (127)
Decrease (increase) in inventories 5,854 (23,765)
(Increase) decrease in prepayments and other current assets (50,010) 1,833
(Increase) in other noncurrent assets (163) (2)
Increase in accounts payable 26,319 9,557
Increase in accrued liabilities 3,367 4,146
Increase in other liabilities 2,088 2,571
------------ -------------
Net cash provided by operating activities 13,786 11,928
------------ -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (20,429) (14,404)
------------ -------------
Net cash (used in) investing activities (20,429) (14,404)
------------ -------------
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits 132 (879)
Proceeds from long-term debt 43,800 23,425
Repayments of long-term debt (35,700) (18,475)
Cash dividends paid (1,595) (1,595)
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Net cash provided by financing activities 6,637 2,476
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Net (decrease) in cash and cash equivalents (6) -
Cash and cash equivalents at beginning of period 6 -
------------ -------------
Cash and cash equivalents at end of period $ - $ -
============ =============
Supplemental disclosures:
Interest paid 9,796 11,328
Income taxes paid 1,841 275
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
Effective January 1, 1999, the Company changed its inventory accounting method
for certain inventories from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method and modified the LIFO calculation for the
inventories historically recorded under the LIFO method. The Company believes
the adoption of the LIFO method for all aluminum sheet inventories is preferable
as LIFO is the inventory method most prevalent in the industry, provides a
consistent inventory accounting method for aluminum sheet inventories, and
results in more appropriate matching of cost of goods sold with related
revenues.
The effect of this change in accounting principle was to increase net income
reported for the three months and six months ended June 30, 1999 by $0.2 million
and $1.4 million, or $0.02 and $0.09 per basic and diluted share, respectively.
The Company has omitted the disclosure of the cumulative effect of this change
on retained earnings as of the date of the change and the pro forma effects of
retroactive application due to such amounts not being determinable.
(in thousands) June 30, 1999 December 31, 1998
- -------------- ------------- -----------------
Raw materials $ 38,753 $ 34,908
Work in process 61,181 74,960
Finished goods 49,918 49,079
Expendable parts and supplies 15,774 14,910
--------- ---------
165,626 173,857
LIFO reserve 3,708 3,659
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169,334 177,516
Lower of cost or market reserve (220) (2,548)
--------- ---------
$ 169,114 $ 174,968
========= =========
Inventories of approximately $132.3 million and $38.1 million, included in the
above totals (before the LIFO reserve and lower of cost or market reserve) at
June 30, 1999 and December 31, 1998, 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.
On June 30, 1999, the Company had deferred realized gains of $0.6 million on
closed futures contracts which are recorded as an increase to the carrying value
of inventory. The Company had deferred realized losses of $2.2 million at
December 31, 1998.
3. Provision for Income Taxes
The Company recognized an income tax expense of $1.8 million and $2.5 million
for the three months and six months ended June 30, 1999, respectively, compared
to an income tax benefit of $0.3 million and $1.3 million for the three months
and six months ended June 30, 1998, respectively. Included in the income tax
benefit for the six months ended June 30, 1998 is a $1.5 million favorable
adjustment recorded in the first quarter of 1998 as the result of the filing of
amended federal income tax returns for prior years.
4. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:
Three months ended
------------------
June 30,
--------
1999 1998
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Net income (loss) $6,571 $(2,643)
====== ========
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 15,948 15,944
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 15,948 15,944
Plus: dilutive effect of stock options 44 -
------ ------
Adjusted weighted average shares 15,992 15,944
====== ======
Net income (loss) per share data:
Basic and diluted $0.41 $(0.17)
===== =======
Six months ended
----------------
June 30,
--------
1999 1998
---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Net income $ 8,737 $151
======= ====
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 15,949 15,944
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 15,949 15,944
Plus: dilutive effect of stock options 35 7
------ ------
Adjusted weighted average shares 15,984 15,951
====== ======
Net income per share data:
Basic and diluted $0.55 $0.01
===== =====
Options to purchase 276,500 common shares, which equate to 3,401 incremental
common equivalent shares, were excluded from the calculation above for the three
months ended June 30, 1998 as their effect would have been antidilutive. In
addition, options to purchase 541,000 and 286,500 common shares were excluded
from the calculations above for the three months and six months ended June 30,
1999 and the three and six months ended June 30, 1998, respectively, because the
exercise prices on the options were greater than the average market price for
the periods.
5. Information Concerning Business Segments
The Company has adopted Statement of Financial Accounting Standards No.131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). Under SFAS No. 131, the Company has determined it has two reportable
segments: aluminum and electrical conduit. The aluminum segment manufactures
aluminum sheet for distributors and the transportation, construction, and
consumer durables end-use markets. The electrical conduit 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, 1998. 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,
1999 and 1998. 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 Conduit Other Total
-------- ---------- ----- ----------
Three months ended June 30, 1999
- --------------------------------
Net sales to external customers $240,282 $31,243 $ -- $271,525
Intersegment net sales 7,213 -- (7,213) --
Operating income 13,213 2,420 (2,578) 13,055
Depreciation and amortization 7,902 911 61 8,874
Total assets 583,042 112,731 -- 695,773
Capital expenditures 5,719 5,013 -- 10,732
Three months ended June 30, 1998
- --------------------------------
Net sales to external customers $228,443 $29,903 $ -- $258,346
Intersegment net sales 6,364 -- (6,364) --
Operating income 957 3,231 (1,646) 2,542
Depreciation and amortization 7,827 778 120 8,725
Total assets 589,419 97,061 137 686,617
Capital expenditures 6,303 1,411 -- 7,714
Six months ended June 30, 1999
- ------------------------------
Net sales to external customers $449,126 $61,149 $ -- $510,275
Intersegment net sales 13,341 -- (13,341) --
Operating income 20,812 4,919 (4,875) 20,856
Depreciation and amortization 15,693 1,785 182 17,660
Total assets 583,042 112,731 -- 695,773
Capital expenditures 12,682 7,747 -- 20,429
Six months ended June 30, 1998
- ------------------------------
Net sales to external customers $446,677 $60,596 $ -- $507,273
Intersegment net sales 12,840 -- (12,840) --
Operating income 5,869 7,577 (3,814) 9,632
Depreciation and amortization 15,455 1,556 222 17,233
Total assets 589,419 97,061 137 686,617
Capital expenditures 12,497 1,907 -- 14,404
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 the Private Securities Litigation Reform Act of 1995
and involve risks and uncertainties that could render them materially different,
including, but not limited to, the 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, and other risks 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 non-residential
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 six months of 1999, shipments of the Company's aluminum sheet
products increased by 13% from the first six months of 1998. These increased
shipments were provided by capital projects at the Company's Uhrichsville, Ohio
rolling mill and productivity gains at the Company's Lewisport, Kentucky rolling
mill. While overall demand for aluminum sheet products remained strong, material
margins for the first half of 1999 declined from the fourth quarter of 1998
levels due to higher acquisition costs for scrap aluminum. The Company increased
its maintenance spending in its aluminum operations during the first half of
1999, especially in the hot mill department, to support higher volumes, increase
machine reliability, and increase the probability of excellent quality and
service to the Company's customers.
Demand for the Company's electrical conduit and cable products continued to
exceed the Company's capacity to supply these products during the first six
months of 1999. Despite this strength in demand, the material margins for the
Company's electrical conduit and cable products came under pressure during the
first half of 1999 and are below the levels achieved last year. While the
Company has been adding additional electrical cable armoring capacity since the
second quarter of 1997, this capacity only reached full production in the latter
part of 1998 due to substantial labor turnover and the time involved in employee
skills training. The strong market for electrical conduit also allowed the
Company to concentrate on higher margin products during the first six months of
1999. Value added products such as MC cable represented a higher ratio of
Alflex's first half 1999 sales compared to the same period in the prior year. In
addition, the Company opened a new plant in Rocky Mount, North Carolina during
the second quarter of 1999. This move increased production and enhanced the
Company's competitive position by placing that capacity closer to attractive
markets along the eastern United States.
Results of Operations for the three months and six months ended June 30, 1999
and 1998
Net Sales. Net sales for the quarter ended June 30, 1999, increased 5% to $272
million (including $31.2 million from Alflex) from $258 million (including $29.9
million from Alflex) for the same period in 1998. Net sales for the six month
period ended June 30, 1999, were $510 million (including $61.1 million from
Alflex), a 1% increase from the $507 million recorded in the first half of 1998
(including $60.6 million from Alflex). The increase is due to higher shipments
which was partially offset by lower aluminum and copper prices. Unit sales
volume of aluminum increased 17% to 274.8 million pounds for the second quarter
of 1999 from 234.7 million pounds for the second quarter of 1998. Unit sales
volume of aluminum was 512.7 million pounds for the first half of 1999, an
increase of 13% from the 453.6 million pounds for the first half of 1998. Alflex
unit sales volume was 147.4 million feet for the second quarter of 1999 and
282.4 million feet for the first six months of 1999, increases of 16% and 12%,
respectively, over 127.1 million feet and 252.7 million feet, respectively, for
the comparable periods in 1998.
Gross Profit. Gross profit for the quarter ended June 30, 1999, increased to
$27.2 million from $13.8 million for the same period in 1998. Gross profit for
the six months ended June 30, 1999 was $48.1 million versus $32.2 million for
the comparable period in 1998. This increase was attributable to increased sales
volumes and higher material margins. The Company's unit manufacturing costs
decreased compared to the same period in 1998 as a result of the higher volumes
and material margins were higher in the first half of 1999 than in the first
half of 1998.
Operating Income. The Company produced operating income of $13.1 million for the
second quarter of 1999 compared with $2.5 million for the second quarter of
1998. For the six month period ended June 30, 1999, operating income was $20.9,
up from $9.6 million for the first half of 1998. Selling, general and
administrative expenses during the second quarter of 1999 were $13.0 million,
compared with $10.1 million for the same period in 1998 and were $25.0 million
for the six months ended June 30, 1999, compared with $20.4 million for the same
period in 1998. The increase was due to increases at Alflex associated with
higher sales volume and the infrastructure required to support the growth of
this business. Other factors contributing to the increase in selling, general
and administrative expenses were an increase in pension expense, a new variable
compensation plan and additional office expenses due to renovation and expansion
of office facilities.
Net Income. Net income was $6.6 million for the quarter ended June 30, 1999,
compared with a net loss of $2.6 million for the same period in 1998. Net income
for the six months ended June 30, 1999 was $8.7 million compared with $0.2
million for the first half of 1998. Interest expense was $4.7 million for the
quarter ended June 30, 1999, compared to $5.6 million for the same period in
1998 and $10.0 million for the six months ended June 30, 1999, compared with
$11.2 million for the first half of 1998. These decreases in the Company's
interest expense are primarily due to the reduction in amounts outstanding under
the Company's accounts receivable securitization facility. Income tax expense
was $1.8 million in the second quarter of 1999 compared to an income tax benefit
of $0.3 million for the same period in 1998 and an income tax expense of $2.5
million for the six months ended June 30, 1999, compared to an income tax
benefit of $1.3 million for the same period in 1998. The change between quarters
is primarily a result of the expected increase in the Company's taxable income
for the year 1999 compared to the year 1998, while the change in the six month
periods is a result of the expected increase in the Company's taxable income and
a $1.5 million favorable adjustment recorded in the first quarter of 1998 to the
prior year's tax expense. The adjustment resulted from the filing of amended
federal income tax returns for prior years.
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 1999.
On September 26, 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. At June 30, 1999, the Company had outstanding $105.0 million under the
agreement and had $67.4 million of net residual interest in the securitized
receivables. The net residual interest in the securitized receivables is
included in other current assets in the Company's consolidated financial
statements.
Capital expenditures were $10.7 million during the quarter ended June 30, 1999
and $20.4 million for the six months ended June 30, 1999. At June 30, 1999, the
Company had commitments of $8.7 million for the purchase or construction of
capital assets. Total capital expenditures for the year 1999 are expected to be
approximately $36 million, all generally related to upgrading and expanding the
Company's manufacturing and other facilities, including the completion of
Alflex's new production and distribution facility in North Carolina, and meeting
environmental requirements.
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 product price 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, 1999, the Company
held purchase and sales commitments through 1999 totaling $77 million and $324
million, respectively. The Company held futures contracts, marked-to-market at
June 30, 1999, with a net unrealized gain of $4.3 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.
The Company has entered into interest rate swap agreements with a notional
amount of $38 million. With respect to these agreements, the Company pays a
fixed rate of interest and receives a LIBOR-based floating rate.
Year 2000 Readiness Disclosure
The Company is entering the final stages of a company-wide program to make its
computer systems year 2000 compliant. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a major system failure or miscalculations.
As of June 30, 1999, approximately 97 percent of the Company's core business
computer systems were Year 2000 compliant, with all computer systems, which
includes mainframe, server, desktop and portable computers, embedded systems, in
addition to the core business applications, expected to be compliant by the end
of the third quarter of 1999 as planned. The total cost of the program is
estimated to be $8.0 million, of which the Company has incurred approximately
$7.6 million through June 30, 1999, and is being funded through operating cash
flows. Maintenance or modification costs are expensed as incurred, while the
cost of systems being replaced is capitalized and amortized over the new
system's useful life. The Company presently believes that, with these
modifications and replacements, the Year 2000 issues will not pose significant
operational problems for the Company. However, if such modifications and
replacements in critical operations are not completed timely, the Year 2000
issues may have a material impact on the results of operations or financial
condition of the Company.
The Company recognizes the importance of readiness for potential worst case
scenarios relating to the Year 2000 issues. The Company is working to identify
scenarios requiring contingency plans and is assessing the Year 2000 compliance
efforts of external parties. The Company relies on a number of customers and
suppliers, including banks, telecommunication providers, utilities, and other
providers of goods and services. The inability of these third parties to conduct
their business for a significant period of time due to the Year 2000 issue could
have a material adverse impact on the Company's operations. The Company is
currently assessing the Year 2000 readiness of its most critical customers and
suppliers and planning a due diligence study of those customers and suppliers.
There can be no assurance that the systems of other companies that interact with
the Company will be sufficiently Year 2000 compliant. If a major supplier or
customer is unable to supply raw materials or receive the Company's products,
the Company's results of operations or financial condition could be materially
impacted.
The Company has notified recipients of previously made Year 2000 statements that
these statements, and any other Year 2000 statements released by the Company,
are retroactively identified and labeled in their entirety as Year 2000
Readiness Disclosures pursuant to Section 7(b) of the Year 2000 Information and
Readiness Disclosure Act of 1998. By doing so, these prior statements are
relieved from tort liability.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("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
currently expects to adopt SFAS No. 133 in the Company's first quarter 2001
reporting, as required by the Financial Accounting Standards Board's Statement
of Financial Accounting Standard No. 137, issued in June 1999, which defers SFAS
No. 133's effective date by one year. Management is currently evaluating the
impact of SFAS No. 133 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, held April 23, 1999, the
following matters were submitted for a vote by the security holders:
Mr. Mark V. Kaminski and Mr. C. Frederick Fetterolf were elected directors
for terms expiring in 2002. There were 13,652,905 and 13,656,772, respectively,
votes cast for and 1,738,287 and 1,734,420,respectively, abstentions. The terms
of office of Catherine G. Burke, Paul E. Lego, John E. Merow and Victor Torasso
continued after the meeting.
Ratification of an amendment of the 1997 Stock Incentive Plan to increase
the number of shares authorized for awards of options and restricted stock to
key employees and options and unrestricted stock to non-employee directors.
There were 12,260,044 votes for, 2,254,516 votes against and 60,875 abstentions.
Ratification of additional amendments to the 1997 Stock Incentive Plan to
permit the sale of up to 1,250,000 shares of unrestricted stock at market value
to key employees financed by full-recourse loans from the Company and of a
related 1999 Executive Incentive Plan. There were 12,388,900 votes for,
2,125,360 votes against and 61,175 abstentions.
Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for 1999. There were 15,341,407 votes for and
22,556 votes against and 27,229 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30, 1999.
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/ William G. Toler
--------------------
William G. Toler
Vice President - Finance and Administration
(Principal Accounting Officer)
Date: July 29, 1999
Exhibit Index
Exhibit
Number Description
27 Financial Data Schedule.