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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, 1997
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 10,211,500 shares of common stock outstanding at July 20,
1997.
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<PAGE>
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended June 30, 1997
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the three
months and six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7-9
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 1,944
Accounts receivable, net 194,883 146,091
Inventories 165,987 173,911
Prepayments and other current assets 7,761 10,056
------------- -------------
Total current assets 368,631 332,002
Property, plant and equipment, net 268,121 274,095
Goodwill, net 175,800 175,146
Other noncurrent assets 12,182 13,339
------------- -------------
Total assets $ 824,734 $ 794,582
============= =============
Liabilities
Current liabilities:
Current portion of long-term debt $ 8,750 $ 6,250
Accounts payable 112,167 82,340
Accrued liabilities 28,139 36,351
------------- -------------
Total current liabilities 149,056 124,941
Long-term debt 332,500 336,000
Other long-term liabilities 15,465 14,584
Accrued pension benefits 11,924 10,610
Accrued postretirement benefits 82,752 81,224
------------- -------------
Total liabilities 591,697 567,359
------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $.01 par value, 50,000,000 shares authorized,
10,207,500 and 10,197,500 shares outstanding at
June 30, 1997 and December 31, 1996, respectively 102 102
Additional paid-in capital 301,467 301,289
Accumulated deficit (66,877) (72,188)
Unearned compensation (1,655) (1,980)
------------- -------------
Total stockholders' equity 233,037 227,223
------------- -------------
Total liabilities and stockholders' equity $ 824,734 $ 794,582
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Income
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 287,240 $ 159,672 $ 559,431 $ 327,216
Cost of goods sold 262,993 150,802 511,138 308,535
------------ ------------ ------------ ------------
Gross profit 24,247 8,870 48,293 18,681
Selling, general and administrative expenses 9,884 6,224 21,687 12,200
Amortization of goodwill 1,121 - 2,240 -
------------ ------------ ------------ ------------
Operating income 13,242 2,646 24,366 6,481
Other income (expense), net 318 (9) 497 (247)
Interest expense, net (8,088) (443) (16,421) (1,122)
------------ ------------ ------------ ------------
Income before income taxes 5,472 2,194 8,442 5,112
Income tax expense 1,309 92 2,111 617
------------ ------------ ------------ ------------
Net income $ 4,163 $ 2,102 $ 6,331 $ 4,495
============ ============ ============ ============
Net income per share $ 0.41 $ 0.21 $ 0.62 $ 0.44
============ ============ ============ ============
Weighted average shares outstanding 10,208 10,196 10,207 10,196
============ ============ ============ ============
Dividends per share $ 0.05 $ 0.05 $ 0.10 $ 0.10
============ ============ ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------
1997 1996
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,331 $ 4,495
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 18,293 8,963
Issuance of common stock in connection with stock awards 84 -
Changes in assets and liabilities:
(Increase) in accounts receivable, net (48,792) (10,055)
Decrease in inventories 7,924 19,616
Decrease (increase) in prepayments and other current assets 2,295 (1,769)
Decrease in other noncurrent assets 341 -
Increase (decrease) in accounts payable 29,827 (7,876)
(Decrease) increase in accrued liabilities (8,212) 128
Increase in other liabilities 3,723 1,474
------------ ----------
Net cash provided by operating activities 11,814 14,976
------------ ----------
Cash flows from investing activities:
Net cash and cash equivalents (outflow) from acquisition (2,894) -
Additions to property, plant and equipment (8,929) (4,822)
Disposals of property, plant and equipment 3 210
------------ ----------
Net cash (used in) investing activities (11,820) (4,612)
------------ ----------
Cash flows from financing activities:
Proceeds from short-term borrowings - 9,050
Repayments of short-term borrowings - (13,050)
Proceeds from long-term debt 54,050 -
Repayments of long-term debt (55,050) (7,206)
Proceeds from issuance of common stock 82 -
Cash dividends paid (1,020) (1,021)
------------ ----------
Net cash (used in) financing activities (1,938) (12,227)
------------ ----------
Net (decrease) in cash and cash equivalents (1,944) (1,863)
Cash and cash equivalents at beginning of period 1,944 2,665
------------ ----------
Cash and cash equivalents at end of period $ - $ 802
============ ==========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
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 (formerly Commonwealth
Aluminum Corporation) (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. Acquisition
On September 20, 1996, the Company acquired CasTech Aluminum Group Inc.
("CasTech") for a purchase price of $285 million. The excess of the purchase
price over the acquired net assets of $179 million was recorded as goodwill and
is being amortized over 40 years. The acquisition was recorded under the
purchase method of accounting and accordingly, the results of operations of
CasTech prior to the date of acquisition have not been included in the
accompanying consolidated financial statements.
3. Inventories
The Company uses the first-in, first-out (FIFO) and the last-in, first-out
(LIFO) methods for valuing its inventories.
(in thousands) June 30, 1997 December 31, 1996
- -------------- ------------- -----------------
Raw materials $ 32,376 $ 29,458
Work in process 77,919 82,205
Finished goods 44,728 46,959
Expendable parts and supplies 15,223 15,338
--------- ---------
170,246 173,960
LIFO reserve (4,259) (49)
--------- ---------
$ 165,987 $ 173,911
========= =========
Inventories of approximately $41 million and $38 million, included in the above
totals at June 30, 1997 and December 31, 1996, respectively, are accounted for
under the LIFO method of accounting.
On June 30, 1997, the Company had deferred realized losses of $1.1 million on
closed futures contracts which are recorded as an increase to the carrying value
of inventory. The Company had deferred realized gains of $0.4 million at
December 31, 1996.
4. Provision for Income Taxes
The effective income tax rate for the six months ended June 30, 1997 is greater
than the rate for the six months ended June 30, 1996 as a result of the expected
increase in the Company's taxable income for the year 1997 compared to the year
1996.
<PAGE>
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 the
distibutors 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 the Company's aluminum sheet products in the United States and in the
prices of aluminum primary metal, aluminum scrap and copper 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 1997, shipments of the Company's products, both
aluminum sheet and electrical conduit and cable, continued to increase as demand
for those products remained strong. However this business expansion has not
translated into stronger material margins as these margins contracted slightly
in the second quarter of 1997 compared to the first quarter of 1997.
The sales and production throughput at all of the Company's facilities increased
from the previous year due to product mix optimization, debottlenecking and
increased electrical conduit and cable capacity.
The cash price of primary aluminum generally trended up in the first half of
1997 from $0.69 per pound on December 31, 1996 up to $0.73 per pound on March
31, 1997 and back down to $0.71 per pound on June 30, 1997. However aluminum
prices experienced a great deal of volatility during this time period both up
and down. The price of aluminum scrap has not moved exactly with the cash price
of primary aluminum resulting in narrower scrap margins in the second quarter of
1997 compared to the first quarter of 1997.
On September 20, 1996, the Company acquired CasTech Aluminum Group Inc.
("CasTech") in a transaction that was accounted for under the purchase method of
accounting. CasTech was the nation's leading manufacturer of continuous cast
aluminum sheet and a leading manufacturer of electrical flexible conduit and
prewired armored cable. Concurrent with the acquisition, the Company prepaid its
existing indebtedness and that of CasTech. The acquisition and prepayment were
financed with a new $325 million senior secured bank credit facility and the
proceeds from the issue and sale of $125 million principal amount of 10.75%
Senior Subordinated Notes Due 2006.
Results of Operations for the three months and six months ended June 30, 1997
and 1996
Net Sales. Net sales for the quarter ended June 30, 1997, increased 80% to $287
million from $160 million for the same period in 1996. Net sales for the six
month period ended June 30, 1997, were $559 million, a 71% increase from the
first half of 1996. The increase is due to the CasTech acquisition along with
increased sales volumes at all facilities. Unit sales volume of aluminum
increased 68% to 263.1 million pounds for the second quarter of 1997 from 156.6
million pounds for the second quarter of 1996. Unit sales volume of aluminum was
524.4 million pounds for the first half of 1997, an increase of 67% over the
314.6 million pounds for the first half of 1996.
Gross Profit. Gross profit for the quarter ended June 30, 1997, increased to
$24.2 million from $8.9 million for the same period in 1996. Gross profit for
the six months ended June 30, 1997 was $48.3 million, a 159% increase from the
$18.7 million reported for the six months ended June 30, 1996. This increase was
attributable to the CasTech acquisition , increased unit sales volumes and lower
manufacturing unit costs. The Company's unit manufacturing costs decreased
compared to the same period in 1996 as a result of the higher unit volumes and
mill optimization practices.
Operating Income. The Company produced operating income of $13.2 million for the
second quarter of 1997 compared with $2.6 million for the second quarter of
1996. For the six month period ended June 30, 1997, operating income was $24.4
million, up from $6.5 million for the first half of 1996. Selling, general and
administrative expenses during the second quarter of 1997 were $9.9 million,
compared with $6.2 million for the same period in 1996 and $21.7 for the six
months ended June 30, 1997, compared with $12.2 million for the same period in
1996. This increase along with the amortization of goodwill recorded in the
second quarter and first six months of 1997 of $1.1 and $2.2 million,
respectively, is due to the CasTech acquisition. Contributing to the increase
were corporate relocation, severance and other costs related to the integration
of the businesses.
Net Income. Net income was $4.2 million for the quarter ended June 30, 1997,
compared with $2.1 million for the same period in 1996. Net income for the six
months ended June 30, 1997 was $6.3 million compared with $4.5 million for the
first half of 1996. Interest expense was $8.1 million for the quarter ended June
30, 1997 and $0.4 million for the comparable period in 1996 and $16.4 million
for the six months ended June 30, 1997, compared with $1.1 million for the same
period in 1996. The increase in the Company's interest expense is due to
borrowings associated with the CasTech acquisition. Income tax expense was $1.3
million in the second quarter quarter of 1997 compared to $0.1 million for the
same period in 1996 and $2.1 million for the six months ended June 30, 1997,
compared to $0.6 for the same period in 1996.
Liquidity and Capital Resources
The Company's sources of liquidity are cash flows from operations and borrowings
under its $225 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 1998.
Capital expenditures were $4.6 million during the quarter ended June 30, 1997
and $8.9 million for the six months ended June 30, 1997. At June 30, 1997, the
Company had commitments of $8.6 million for the purchase or construction of
capital assets. Total capital expenditures for the year 1997 are expected to be
in the range of $20 to $26 million, principally related to upgrading the
Company's manufacturing and other facilities 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 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, 1997, the
Company held purchase and sales commitments through 1997 totaling $87 million
and $248 million, respectively. The Company held futures contracts,
marked-to-market at June 30, 1997, with a net unrealized loss of $0.9 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 $116 million. With respect to these agreements, the Company pays a
fixed rate of interest and receives a LIBOR-based floating rate.
Recently Issued Accounting Pronouncements
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). The Company will adopt SFAS No. 128 during the fourth quarter
of 1997 as required and does not expect the Statement to have a material impact
on the calculation of net income per share.
<PAGE>
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 18, 1996, the
following four matters were submitted for a vote by the security holders:
Ms. Catherine G. Burke and Mr. Victor Torasso were elected directors
for terms expiring in 2000. There were 9,565,877 and 9,564,851, respectively,
votes cast for and 24,545 and 25,571, respectively, abstentions. The terms of
office of Paul E. Lego, Mark V. Kaminiski, John E. Merow and C. Frederick
Fetterolf continued after the meeting.
Approval of the Company's name change. There were 9,355,284 votes for
and 204,978 votes against and 30,160 abstentions.
Approval of the 1997 Stock Incentive Plan. There were 8,317,930 votes
for and 509,567 votes against and 51,390 abstentions.
Approval of the selection of Coopers & Lybrand L.L.P. as the Company's
independent accountants for 1997. There were 9,561,868 votes for and 11,438
votes against and 17,116 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Net Income Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarter ended
June 30, 1997:
A report on Form 8-K dated April 17, 1997 was filed with the Securities
and Exchange Commission regarding the change of the Company's name.
<PAGE>
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: July 29, 1997
<PAGE>
Exhibit Index
Exhibit
Number Description
11 Computation of Net Income Per Share.
27 Financial Data Schedule.
Commonwealth Industries, Inc.
Calculation of Net Income Per Share
(In thousands except per share data)
Three months ended June 30, 1997 1996
- --------------------------- ---- ----
Weighted average shares of common stock outstanding (a) 10,208 10,196
====== ======
Net income $4,163 $2,102
====== ======
Net income per share $0.41 $0.21
====== ======
Six months ended June 30, 1997 1996
- ------------------------- ---- ----
Weighted average shares of common stock outstanding (a) 10,207 10,196
====== ======
Net income $6,331 $4,495
====== ======
Net income per share $0.62 $0.44
====== ======
Note: (a) Common equivalent shares relating to stock options are not material.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 197,232
<ALLOWANCES> 2,349
<INVENTORY> 165,987
<CURRENT-ASSETS> 368,631
<PP&E> 504,124
<DEPRECIATION> 236,003
<TOTAL-ASSETS> 824,734
<CURRENT-LIABILITIES> 149,056
<BONDS> 332,500
0
0
<COMMON> 102
<OTHER-SE> 232,935
<TOTAL-LIABILITY-AND-EQUITY> 824,734
<SALES> 559,431
<TOTAL-REVENUES> 559,431
<CGS> 511,138
<TOTAL-COSTS> 511,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 16,421
<INCOME-PRETAX> 8,442
<INCOME-TAX> 2,111
<INCOME-CONTINUING> 6,331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,331
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
