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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
--------------
Commission File No. 0-25642
COMMONWEALTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3245741
(State of incorporation) (I.R.S. Employer Identification No.)
500 West Jefferson Street
19th Floor
Louisville, Kentucky 40202-2823
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 589-8100
----------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
The registrant had 15,944,000 shares of common stock outstanding at November 2,
1998.
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<PAGE>
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended September 30, 1998
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
Condensed Consolidated Balance Sheet as of September 30, 1998
and December 31, 1997 3
Condensed Consolidated Statement of Income for the three
months and nine months ended September 30, 1998 and 1997 4
Condensed Consolidated Statement of Cash Flows for the nine
months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition 9-13
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,370 $ -
Accounts receivable, net 263 355
Inventories 185,936 171,633
Prepayments and other current assets 33,475 45,107
-------------- -------------
Total current assets 225,044 217,095
Property, plant and equipment, net 266,302 266,292
Goodwill, net 170,205 173,562
Other noncurrent assets 9,777 10,472
-------------- -------------
Total assets $ 671,328 $ 667,421
============== =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ 9,122
Accounts payable 72,519 67,881
Accrued liabilities 32,094 27,168
-------------- -------------
Total current liabilities 104,613 104,171
Long-term debt 130,000 125,650
Other long-term liabilities 8,651 9,675
Accrued pension benefits 14,337 13,368
Accrued postretirement benefits 87,218 84,084
-------------- -------------
Total liabilities 344,819 336,948
-------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $.01 par value, 50,000,000 shares authorized,
15,944,000 and 15,941,500 shares outstanding at
September 30, 1998 and December 31, 1997, respectively 159 159
Additional paid-in capital 398,794 398,757
Accumulated deficit (70,955) (66,575)
Unearned compensation (793) (1,172)
Minimum pension adjustment (696) (696)
-------------- -------------
Total stockholders' equity 326,509 330,473
-------------- -------------
Total liabilities and stockholders' equity $ 671,328 $ 667,421
============== =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Income
(in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 231,348 $ 271,142 $ 738,621 $ 830,573
Cost of goods sold 215,390 249,987 690,436 761,125
---------- ---------- ---------- -----------
Gross profit 15,958 21,155 48,185 69,448
Selling, general and administrative expenses 11,265 9,872 31,622 31,559
Amortization of goodwill 1,119 1,119 3,357 3,359
---------- ---------- ---------- -----------
Operating income 3,574 10,164 13,206 34,530
Other income (expense), net 107 82 511 579
Interest expense, net (5,671) (8,661) (16,887) (25,082)
---------- ---------- ---------- -----------
Income (loss) before income taxes and
extraordinary loss (1,990) 1,585 (3,170) 10,027
Income tax expense (benefit) 149 (5) (1,182) 2,106
---------- ---------- ---------- -----------
Income (loss) before extraordinary loss (2,139) 1,590 (1,988) 7,921
Extraordinary loss on early extinguishment of debt,
net of income tax benefit - (1,181) - (1,181)
---------- ---------- ---------- -----------
Net income (loss) $ (2,139) $ 409 $ (1,988) $ 6,740
========== ========== ========== ===========
Basic and diluted per share data:
Income (loss) before extraordinary loss $ (0.13) $ 0.15 $ (0.12) $ 0.77
Extraordinary loss - (0.11) - (0.11)
---------- ---------- ---------- -----------
Net income (loss) $ (0.13) $ 0.04 $ (0.12) $ 0.66
========== ========== ========== ===========
Weighted average shares outstanding
Basic 15,944 10,333 15,944 10,249
Diluted 15,944 10,384 15,944 10,290
Dividends paid per share $ 0.05 $ 0.05 $ 0.15 $ 0.15
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,988) $ 6,740
Adjustments to reconcile net income
(loss) to net cash provided by operations:
Depreciation and amortization 25,941 27,350
Extraordinary loss on early extinguishment of debt - 1,495
Issuance of common stock in connection with stock awards 72 84
Loss on disposal of property, plant and equipment 301 -
Proceeds from the initial sale of accounts receivable - 150,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 92 (46,932)
(Increase) in inventories (14,303) (3,462)
Decrease in prepayments and other current assets 11,632 2,635
(Increase) decrease in other noncurrent assets (165) 449
Increase (decrease) in accounts payable 4,638 (8,303)
Increase (decrease) in accrued liabilities 4,926 (6,004)
Increase in other liabilities 3,079 301
-------- ---------
Net cash provided by operating activities 34,225 124,353
-------- ---------
Cash flows from investing activities:
Net cash and cash equivalents (outflow) from acquisition - (2,894)
Additions to property, plant and equipment (21,723) (14,101)
Disposals of property, plant and equipment 32 10
-------- ---------
Net cash (used in) investing activities (21,691) (16,985)
-------- ---------
Cash flows from financing activities:
(Decrease) increase in outstanding checks in excess of deposits (9,122) 492
Proceeds from long-term debt 42,025 283,450
Repayments of long-term debt (37,675) (489,600)
Proceeds from issuance of common stock - 97,876
Cash dividends paid (2,392) (1,530)
-------- ---------
Net cash (used in) financing activities (7,164) (109,312)
-------- ---------
Net increase (decrease) in cash and cash equivalents 5,370 (1,944)
Cash and cash equivalents at beginning of period - 1,944
-------- ---------
Cash and cash equivalents at end of period $ 5,370 $ -
======== =========
Supplemental disclosures:
Interest paid $13,799 $ 20,137
Income taxes paid 292 1,166
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 (the "Company's") customary
accounting practices and have not been audited. In the opinion of management,
all adjustments necessary to fairly present the results of operations for the
reporting interim periods have been made and were of a normal recurring nature.
2. Inventories
The Company uses the first-in, first-out (FIFO) and the last-in, first-out
(LIFO) methods for valuing its inventories.
(in thousands) September 30, 1998 December 31, 1997
- -------------- ------------------ -----------------
Raw materials $ 32,426 $ 30,395
Work in process 91,889 76,286
Finished goods 46,567 53,395
Expendable parts and supplies 14,988 14,884
--------- ---------
185,870 174,960
LIFO reserve 1,594 (3,327)
--------- ---------
187,464 171,633
Lower of cost or market reserve (1,528) -
--------- ---------
$ 185,936 $ 171,633
========= =========
Inventories of approximately $38.9 million and $35.4 million, included in the
above totals (before the LIFO and lower of cost or market reserve) at September
30, 1998 and December 31, 1997, respectively, are accounted for under the LIFO
method of accounting.
On September 30, 1998, the Company had deferred realized losses of $3.3 million
on closed futures contracts which are recorded as an increase to the carrying
value of inventory. The Company had deferred realized losses of $1.5 million at
December 31, 1997.
3. Provision for Income Taxes
The income tax expense for the three months and income tax benefit for the nine
months ended September 30, 1998 is based on the Company's projected taxable
income and federal and state income tax rates for the year ending December 31,
1998. Also included in the income tax benefit for the nine months ended
September 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.
<PAGE>
4. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:
<TABLE>
<CAPTION>
Three months ended
------------------
September 30,
-------------
1998 1997
----- ------
<S> <C> <C>
Income (numerator) amounts used for basic and diluted per share computations:
Income (loss) before extraordinary loss $ (2,139) $1,590
Extraordinary loss on early extinguishment of debt, net of income tax
benefit - (1,181)
--------- --------
Net income (loss) $ (2,139) $ 409
========= ========
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 15,944 10,333
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 15,944 10,333
Plus: dilutive effect of stock options - 51
------ ------
Adjusted weighted average shares 15,944 10,384
====== ======
Basic and diluted per share data:
Income (loss) before extraordinary loss $(0.13) $0.15
Extraordinary loss on early extinguishment of debt, net of income tax
benefit - (0.11)
------- ------
Net income (loss) $(0.13) $0.04
======= ======
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
-----------------
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Income (numerator) amounts used for basic and diluted per share computations:
Income (loss) before extraordinary loss $(1,988) $7,921
Extraordinary loss on early extinguishment of debt, net of income tax
benefit (1,181)
-------- ------
Net income (loss) $(1,988) $6,740
======== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 15,944 10,249
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 15,944 10,249
Plus: dilutive effect of stock options - 41
------- -------
Adjusted weighted average shares 15,944 10,290
====== ======
Basic and diluted per share data:
Income (loss) before extraordinary loss $(0.12) $0.77
Extraordinary loss on early extinguishment of debt, net of income tax
benefit - (0.11)
------- ------
Net income (loss) $(0.12) $0.66
======= ======
Options to purchase 5,000 and 186,000 common shares, which equate to 35 and
4,447 incremental common equivalent shares, were excluded from the calculation
above for the three months and nine months ended September 30, 1998,
respectively, as their effect would have been antidilutive. In addition, options
to purchase 545,000 and 6,500 common shares for the three months ended September
30, 1998 and 1997, respectively, and 545,000 and 8,000 common shares for the
nine months ended September 30, 1998 and 1997, respectively, were excluded from
the calculations above because the exercise prices on the options were greater
than the average market price for the periods.
</TABLE>
<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 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 nine months of 1998, net sales of the Company's aluminum sheet
products declined by 12% from the first nine months of 1997. Lower sales and
shipment volume were caused by production problems and a production slow-down in
connection with the expiration of the Company's collective bargaining agreement
on July 31 at the Company's Lewisport, Kentucky aluminum rolling mill, as well
as weather-related production outages at its mill in Uhrichsville, Ohio.
Although the Lewisport mill never actually suffered a strike, mill operations
were affected nonetheless as both labor and management prepared for the
possibility. While overall demand for aluminum sheet products remained strong,
material margins have been under pressure for the past two years. During the
nine months of 1998, the Company chose to sell only to those segments of markets
where the Company could compete on product quality and service and not
participate in further material margin erosion. During the first nine months of
1998, the Company implemented two price increases, the first beginning in April
1998 and the second in June 1998. As a result of these factors, the Company's
material margins in the aluminum business increased by $0.009 per pound in the
first nine months of 1998 compared to the first nine months of 1997. Beginning
in mid-February 1998 at the Lewisport rolling mill, all discretionary overtime
hours were eliminated to reduce the operating cost concurrent with the reduced
sales volume.
Demand for the Company's electrical conduit and cable products continued to
exceed the Company's capacity to supply these products during the first nine
months of 1998. While the Company has been adding additional electrical cable
armoring capacity since the second quarter of 1997, this capacity has yet to
reach full production due to 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 nine months of 1998, even though net
sales volume was little changed from the same nine months period last year.
However, shipments in the third quarter of 1998 were the strongest performance
of the year. Value added products such as MC cable represented a higher ratio of
Alflex's 1998 nine month sales compared to the same period in 1997.
Results of Operations for the three months and nine months ended September 30,
1998 and 1997
Net Sales. Net sales for the quarter ended September 30, 1998, decreased 15% to
$231 million (including $33.1 million from Alflex) from $271 million (including
$32.7 million from Alflex) for the same period in 1997. Net sales for the nine
month period ended September 30, 1998, were $739 million (including $93.7
million from Alflex), an 11% decrease from the $831 million recorded in the
first nine months of 1997 (including $96.4 million from Alflex). The decrease is
due to reduced sales volumes at the Lewisport mill which was partially offset by
volume increases at the Company's other facilities. Unit sales volume of
aluminum decreased 12% to 211.3 million pounds for the third quarter of 1998
from 240.2 million pounds for the third quarter of 1997. Unit sales volume of
aluminum was 664.9 million pounds for the first nine months of 1998, a decrease
of 13% from the 760.7 million pounds for the first nine months of 1997. Aluminum
sales volume for the nine months decreased due to the reasons outlined in the
"overview" section. Additionally nine-month sales volumes at the Company's
continuous cast aluminum sheet operations were slightly below last year's level
due to tighter inventory management by customers and unusually wet weather that
reduced construction activity in various parts of the United States in the first
half of 1998. Alflex unit sales volume was 141.1 million feet for the third
quarter of 1998 and 393.8 million feet for the first nine months of 1998 versus
134.0 million feet and 395.7 million feet, respectively, for the comparable
periods in 1997.
Gross Profit. Gross profit for the quarter ended September 30, 1998, decreased
to $16.0 million from $21.2 million for the same period in 1997. Gross profit
for the nine months ended September 30, 1998 was $48.2 million versus $69.4
million for the comparable period in 1997. These decreases were attributable to
decreased sales volumes due to the reasons outlined in the "overview" section .
The Company's unit manufacturing costs increased compared to the same period in
1997 as a result of the lower volumes which more than offset any efficiencies
due to mill optimization practices. Material margins which were higher in the
first nine months of 1998 than in the first nine months of 1997 partially offset
the impact of lower volumes.
Operating Income. The Company produced operating income of $3.6 million for the
third quarter of 1998 compared with $10.2 million for the third quarter of 1997.
For the nine month period ended September 30, 1998, operating income was $13.2,
down from $34.5 million for the nine months of 1997. Selling, general and
administrative expenses during the third quarter of 1998 were $11.3 million,
compared with $9.9 million for the same period in 1997 and were $31.6 million
for the nine months ended September 30, 1998, which is the same amount as was
recorded for the nine months ended September 30, 1997. The third quarter
increase was due to increases at Alflex associated with higher sales volume, the
infrastructure required to support the growth of this business and certain
expenses incurred at the Lewiport mill in anticipation of a possible strike. The
realization of various operating synergies envisioned at the time of the CasTech
acquisition continued to contribute to holding the third quarter increase down
and resulting in no increase for the nine month period compared to the same
periods in 1997.
Net Income. Net loss was $2.1 million for the quarter ended September 30, 1998,
compared with net income of $0.4 million for the same period in 1997. Net loss
for the nine months ended September 30, 1998 was $2.0 million compared with net
income of $6.7 million for the first nine months of 1997. Interest expense was
$5.7 million for the quarter ended September 30, 1998, compared to $8.7 million
for the same period in 1997 and $16.9 million for the nine months ended
September 30, 1998, compared with $25.1 million for the first nine months of
1997. These decreases in the Company's interest expense are due to the reduction
in borrowing resulting from the Company's equity offering coupled with reduced
interest rates due to the accounts receivable securitization facility. Both
transactions are described in the "Liquidity and Capital Resources" section
which follows. Income tax expense was $0.1 million in the third quarter of 1998
compared to an income tax benefit of $0.05 million for the same period in 1997
and an income tax benefit of $1.2 million for the nine months ended September
30, 1998, compared to an income tax expense of $2.1 million for the same period
in 1997. The change between the nine month periods is a result of the expected
decrease 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. The Company also recorded an extraordinary loss on the early
extinguishment of debt in the third quarter of 1997 of $1.5 million ($1.2
million net of income tax benefit)
<PAGE>
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 1998.
On September 29, 1997, the Company completed a common stock offering of 5.75
million shares at a public offering price of $18 per share. The net proceeds
from the offering of approximately $97.7 million were used to repay the entire
amount outstanding under the Company's term loan agreement, totaling $95.0
million, as well as $2.7 million outstanding under the Company's revolving
credit facility.
On September 26, 1997, the Company sold all of its trade accounts receivable 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 September 30, 1998, the Company had outstanding $124.0 million
under the agreement and had $26.7 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 $7.3 million during the quarter ended September 30,
1998 and $21.7 million for the nine months ended September 30, 1998. At
September 30, 1998, the Company had commitments of $14.1 million for the
purchase or construction of capital assets. Total capital expenditures for the
year 1998 are expected to be approximately $39 million, principally related to
upgrading and expanding 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 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 September 30, 1998, the
Company held purchase and sales commitments through 1998 totaling $62 million
and $277 million, respectively. The Company held futures contracts,
marked-to-market at September 30, 1998, with a net unrealized loss of $3.1
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 $55 million. With respect to these agreements, the Company pays a
fixed rate of interest and receives a LIBOR-based floating rate.
<PAGE>
Year 2000 Issues
The Company has initiated a company-wide program to prepare the Company's
computer systems and applications for the year 2000. 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.
The Company has also begun to assess 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 ready. If the Company does not identify
or fix all year 2000 issues in critical operations, or if a major supplier or
customer is unable to supply raw materials or receive the Company's product, the
Company`s results of operations or financial condition could be materially
impacted.
At September 30, 1998, approximately 83 percent of the Company's core business
computer systems were Year 2000 compliant, with all computer systems, which
includes mid range servers and PC's, embedded systems, in addition to the core
business computer systems, expected to be compliant by the end of the third
quarter of 1999 as planned. The total cost of the project is estimated to be
approximately $8 million, of which the Company has incurred approximately $5.8
million through September 30, 1998, and is being funded through operating cash
flows. Maintenance or modification costs are being expensed as incurred, while
the cost of new software is being capitalized and amortized over the software's
useful life. The Company presently believes that, with modifications to existing
software and converting to new software, the year 2000 issues will not pose
significant operational problems for the Company's computer systems as so
modified and converted. However, if such modifications and conversions are not
completed timely, the year 2000 issues may have a material impact on the
operations of the Company.
The Company recognizes the importance of readiness for potential worst case
scenarios relating to the Year 2000 issues. As a result, the Company is working
to identify scenarios requiring contingency plans and this effort is currently
in progress.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). The Statement requires
that segment reporting for public reporting purposes be conformed to the segment
reporting used by management for internal purposes. SFAS No. 131 also adds a
requirement for the presentation of certain segment data on a quarterly basis
starting in 1999. The Company will adopt SFAS No. 131 in the Company's year-end
1998 reporting as required.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS No. 132"). The Statement
revises employers' disclosures about pension and other postretirement benefit
plans. The Company will adopt SFAS No. 132 in the Company's year-end 1998
reporting as required.
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 will
adopt SFAS No. 133 in the Company's first quarter 2000 reporting as required.
Management is currently evaluating the impact of these three Statements on the
Company's future financial reporting.
<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 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 September 30,
1998.
<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: November 2, 1998
<PAGE>
Exhibit Index
Exhibit
Number Description
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 5,370
<SECURITIES> 0
<RECEIVABLES> 263
<ALLOWANCES> 0
<INVENTORY> 185,936
<CURRENT-ASSETS> 225,044
<PP&E> 530,993
<DEPRECIATION> 264,691
<TOTAL-ASSETS> 671,328
<CURRENT-LIABILITIES> 104,613
<BONDS> 130,000
0
0
<COMMON> 159
<OTHER-SE> 326,350
<TOTAL-LIABILITY-AND-EQUITY> 671,328
<SALES> 738,621
<TOTAL-REVENUES> 738,621
<CGS> 690,436
<TOTAL-COSTS> 690,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 16,887
<INCOME-PRETAX> (3,170)
<INCOME-TAX> (1,182)
<INCOME-CONTINUING> (1,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,988)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
