===============================================================================
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 March 31, 2000
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 16,622,251 shares of common stock outstanding at May 1, 2000.
================================================================================
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended March 31, 2000
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
Condensed Consolidated Balance Sheet as of March 31, 2000
and December 31, 1999 3
Condensed Consolidated Statement of Income for the three
months ended March 31, 2000 and 1999 4
Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial Condition 14-16
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 121 118
Inventories 204,999 207,413
Prepayments and other current assets 46,434 53,821
-------------- -------------
Total current assets 251,554 261,352
Property, plant and equipment, net 274,040 275,531
Goodwill, net 163,491 164,610
Other noncurrent assets 4,544 4,829
-------------- -------------
Total assets $ 693,629 $ 706,322
============== =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ 10,876 $ 1,188
Accounts payable 82,049 97,937
Accrued liabilities 31,597 39,160
-------------- -------------
Total current liabilities 124,522 138,285
Long-term debt 125,000 125,000
Other long-term liabilities 8,317 8,412
Accrued pension benefits 12,472 12,482
Accrued postretirement benefits 85,253 85,467
-------------- -------------
Total liabilities 355,564 369,646
-------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,611,835 and 16,606,000 shares outstanding at
March 31, 2000 and December 31, 1999, respectively 166 166
Additional paid-in capital 409,137 409,062
Accumulated deficit (61,447) (61,866)
Unearned compensation (68) (175)
Notes receivable from sale of common stock (9,723) (10,511)
-------------- -------------
Total stockholders' equity 338,065 336,676
-------------- -------------
Total liabilities and stockholders' equity $ 693,629 $ 706,322
============== =============
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 March 31,
----------------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Net sales $ 312,827 $ 238,750
Cost of goods sold 290,287 217,868
--------------- --------------
Gross profit 22,540 20,882
Selling, general and administrative expenses 14,645 11,962
Amortization of goodwill 1,119 1,119
--------------- --------------
Operating income 6,776 7,801
Other income (expense), net 240 425
Interest expense, net (5,327) (5,299)
--------------- --------------
Income before income taxes 1,689 2,927
Income tax expense 439 761
--------------- --------------
Net income $ 1,250 $ 2,166
=============== ==============
Basic and diluted net income per share $ 0.08 $ 0.14
=============== ==============
Weighted average shares outstanding
Basic 16,612 15,949
Diluted 16,637 15,976
Dividends paid per share $ 0.05 $ 0.05
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,250 $ 2,166
Adjustments to reconcile net income to net cash (used in) provided by operations:
Depreciation and amortization 9,814 8,786
Issuance of common stock in connection with stock awards 75 44
Changes in assets and liabilities:
(Increase) in accounts receivable, net (3) (33)
Decrease in inventories 2,414 3,720
Decrease (increase) in prepayments and other current assets 7,387 (19,904)
(Increase) in other noncurrent assets (15) (166)
(Decrease) increase in accounts payable (15,888) 15,808
(Decrease) increase in accrued liabilities (7,563) 4,121
(Decrease) increase in other liabilities (319) 497
----------- -----------
Net cash (used in) provided by operating activities (2,848) 15,039
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,801) (9,697)
Proceeds from sale of property, plant and equipment 4 -
----------- -----------
Net cash (used in) investing activities (6,797) (9,697)
----------- -----------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits 9,688 -
Proceeds from long-term debt 40,400 23,150
Repayments of long-term debt (40,400) (23,150)
Repayments of notes receivable from sale of common stock 788 -
Cash dividends paid (831) (797)
----------- -----------
Net cash provided by (used in) financing activities 9,645 (797)
----------- -----------
Net increase in cash and cash equivalents - 4,545
Cash and cash equivalents at beginning of period - 6
----------- -----------
Cash and cash equivalents at end of period $ - $ 4,551
=========== ===========
Supplemental disclosures:
Interest paid $ 1,845 $ 1,548
Income taxes paid 103 198
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 last-in, first-out (LIFO), first-in, first-out (FIFO) and
average-cost accounting methods for valuing its inventories.
(in thousands) March 31, 2000 December 31, 1999
- -------------- --------------- -----------------
Raw materials $ 65,949 $ 63,510
Work in process 89,359 80,210
Finished goods 61,021 62,278
Expendable parts and supplies 15,661 15,895
--------- ---------
231,990 221,893
LIFO reserve (26,991) (14,480)
--------- ---------
$ 204,999 $ 207,413
========= =========
Inventories of approximately $181.1 million and $183.3 million, included in the
above totals (before the LIFO reserve) at March 31, 2000 and December 31, 1999,
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 March 31, 2000, the Company had deferred realized losses of $2.9 million on
closed futures contracts which are recorded as an increase to the carrying value
of inventory. The Company had deferred realized losses of $0.7 million at
December 31, 1999.
3. Provision for Income Taxes
The Company recognized an income tax expense of $0.4 million for the three
months ended March 31, 2000 compared to an income tax expense of $0.8 million
for the three months ended March 31, 1999.
<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
------------------
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Income (numerator) amounts used for basic and diluted per share computations:
Net income $1,250 $2,166
====== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,612 15,949
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,612 15,949
Plus: dilutive effect of stock options 25 27
------ ------
Adjusted weighted average shares 16,637 15,976
====== ======
Net income per share data:
Basic and diluted $0.08 $0.14
===== =====
Options to purchase 773,500 and 563,000 common shares for the three months ended
March 31, 2000 and 1999, 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>
5. Information Concerning Business Segments
The Company has determined it has two reportable segments: aluminum and
electrical products. The aluminum segment manufactures aluminum sheet for
distributors and the transportation, construction, and consumer durables end-use
markets. The electrical products 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, 1999. 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 ended March 31, 2000 and 1999.
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.
<TABLE>
<CAPTION>
Electrical
Aluminum Products Other Total
--------- ----------- --------- ----------
Three months ended March 31, 2000
- ---------------------------------
<S> <C> <C> <C> <C>
Net sales to external customers $279,297 $33,530 $ -- $312,827
Intersegment net sales 7,041 -- (7,041) --
Operating income (loss) 11,526 (897) (3,853) 6,776
Depreciation and amortization 8,685 1,022 107 9,814
Total assets 596,153 97,401 75 693,629
Capital expenditures 6,698 103 -- 6,801
Three months ended March 31, 1999
- ---------------------------------
Net sales to external customers $208,844 $29,906 $ -- $238,750
Intersegment net sales 6,128 -- (6,128) --
Operating income 7,599 2,499 (2,297) 7,801
Depreciation and amortization 7,791 874 121 8,786
Total assets 565,074 105,119 166 670,359
Capital expenditures 6,963 2,734 -- 9,697
</TABLE>
<PAGE>
6. Guarantor Financial Statements
The $125 million of 10.75% senior subordinated notes due 2006 issued by the
Company, and the $100 million revolving credit facility are guaranteed by the
Company's wholly-owned subsidiaries (collectively the "Subsidiary Guarantors"),
other than Commonwealth Financing Corp. ("CFC"), a Securitization Subsidiary (as
defined in the Indenture with respect to such debt) and certain subsidiaries of
the Company without substantial assets or operations. Such guarantees are full,
unconditional and joint and several. Separate financial statements of the
Subsidiary Guarantors are not presented because management has determined that
they would not be material to investors. The following supplemental financial
information sets forth on a condensed combined basis, combining balance sheet,
statement of income and statement of cash flows for the Parent Company Only,
Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company as of
March 31, 2000 and 1999 and for the three months ended March 31, 2000 and 1999.
Combining Balance Sheet at March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ - $ - $ - $ -
Accounts receivable, net 96,372 90,975 - (187,226) 121
Inventories - 204,999 - - 204,999
Prepayments and other current assets 75 4,829 41,530 - 46,434
------- ---------- ------ -------- ----------
Total current assets 96,447 300,803 41,530 (187,226) 251,554
Property, plant and equipment, net - 274,040 - - 274,040
Goodwill, net - 163,491 - - 163,491
Other noncurrent assets 243,101 4,524 - (243,081) 4,544
------- ---------- ------ -------- ----------
Total assets $ 339,548 $ 742,858 $ 41,530 $(430,307) $ 693,629
======= ========== ====== ======== ==========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ 10,876 $ - $ - $ 10,876
Accounts payable - 178,421 90,854 (187,226) 82,049
Accrued liabilities 1,483 29,946 168 - 31,597
------- ---------- ------ -------- ----------
Total current liabilities 1,483 219,243 91,022 (187,226) 124,522
Long-term debt - 125,000 - - 125,000
Other long-term liabilities - 8,317 - - 8,317
Accrued pension benefits - 12,472 - - 12,472
Accrued postretirement benefits - 85,253 - - 85,253
------- ---------- ------ -------- ----------
Total liabilities 1,483 450,285 91,022 (187,226) 355,564
------- ---------- ------ -------- ----------
Commitments and contingencies - - - - -
Stockholders' Equity
Common stock 166 1 - (1) 166
Additional paid-in capital 409,137 273,774 5,000 (278,774) 409,137
Accumulated deficit (61,447) 18,798 (54,492) 35,694 (61,447)
Unearned compensation (68) - - - (68)
Notes receivable from sale of common stock (9,723) - - - (9,723)
------- ---------- ------ -------- ----------
Total stockholders' equity 338,065 292,573 (49,492) (243,081) 338,065
------- ---------- ------ -------- ----------
Total liabilities and stockholders' equity $339,548 $ 742,858 $ 41,530 $(430,307) $693,629
======= ========== ====== ======== ==========
</TABLE>
Combining Balance Sheet at March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 4,551 $ - $ - $ 4,551
Accounts receivable, net 89,011 66,620 - (155,370) 261
Inventories - 171,248 - - 171,248
Prepayments and other current assets 1 7,935 37,335 - 45,271
------- ---------- ------ -------- --------
Total current assets 89,012 250,354 37,335 (155,370) 221,331
Property, plant and equipment, net - 272,288 - - 272,288
Goodwill, net - 167,967 - - 167,967
Other noncurrent assets 232,066 8,753 - (232,046) 8,773
------- ---------- ------ -------- --------
Total assets $ 321,078 $ 699,362 $ 37,335 $(387,416) $670,359
======= ========== ====== ======== ========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ - $ - $ - $ -
Accounts payable - 158,898 66,524 (155,370) 70,052
Accrued liabilities (9,116) 44,404 (34) - 35,254
------- ---------- ------ -------- --------
Total current liabilities (9,116) 203,302 66,490 (155,370) 105,306
Long-term debt - 125,000 - - 125,000
Other long-term liabilities - 8,708 - - 8,708
Accrued pension benefits - 16,340 - - 16,340
Accrued postretirement benefits - 86,942 - - 86,942
------- ---------- ------ -------- --------
Total liabilities (9,116) 440,292 66,490 (155,370) 342,296
------- ---------- ------ -------- --------
Commitments and contingencies - - - - -
Stockholders' Equity
Common stock 159 1 - (1) 159
Additional paid-in capital 398,838 273,774 5,000 (278,774) 398,838
Accumulated deficit (68,252) (12,574) (34,155) 46,729 (68,252)
Unearned compensation (551) - - - (551)
Accumulated other comprehensive income:
Minimum pension liability adjustment - (2,131) - - (2,131)
------- ---------- ------ -------- --------
Total stockholders' equity 330,194 259,070 (29,155) (232,046) 328,063
------- ---------- ------ -------- --------
Total liabilities and stockholders' equity $321,078 $ 699,362 $ 37,335 $(387,416) $670,359
======= ========== ====== ======== ========
</TABLE>
Combining Statement of Income for the three months ended March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 312,827 $ - $ - $ 312,827
Cost of goods sold - 290,287 - - 290,287
------- ---------- ------ -------- --------
Gross profit - 22,540 - - 22,540
Selling, general and administrative expenses 222 14,423 - - 14,645
Amortization of goodwill - 1,119 - - 1,119
------- ---------- ------ -------- --------
Operating income (loss) (222) 6,998 - - 6,776
Other income (expense), net 1,321 240 - (1,321) 240
Interest income (expense), net 151 39 (5,517) - (5,327)
------- ---------- ------ -------- --------
Income (loss) before income taxes 1,250 7,277 (5,517) (1,321) 1,689
Income tax expense - 439 - - 439
------- ---------- ------ -------- --------
Net income (loss) $ 1,250 $ 6,838 $ (5,517) $ (1,321) $ 1,250
======= ========== ====== ======== ========
</TABLE>
Combining Statement of Income for the three months ended March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 238,750 $ - $ - $ 238,750
Cost of goods sold - 217,868 - - 217,868
------- ---------- ------ -------- --------
Gross profit - 20,882 - - 20,882
Selling, general and administrative expenses 209 11,753 - - 11,962
Amortization of goodwill - 1,119 - - 1,119
------- ---------- ------ -------- --------
Operating income (loss) (209) 8,010 - - 7,801
Other income (expense), net 2,359 425 - (2,359) 425
Interest income (expense), net 16 (883) (4,432) - (5,299)
------- ---------- ------ -------- --------
Income (loss) before income taxes 2,166 7,552 (4,432) (2,359) 2,927
Income tax expense - 761 - - 761
------- ---------- ------ -------- --------
Net income (loss) $ 2,166 $ 6,791 $ (4,432) $ (2,359) $ 2,166
======= ========== ====== ======== ========
</TABLE>
Combining Statement of Cash Flows for the three months ended March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,250 $ 6,838 $ (5,517) $ (1,321) $ 1,250
Adjustments to reconcile net income (loss) to
net cash provided (used in) by operations:
Depreciation and amortization 107 9,707 - - 9,814
Issuance of common stock in connection with stock awards 75 - - - 75
Equity in undistributed net income of subsidiaries - (1,321) - 1,321 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (1,033) (6,721) - 7,751 (3)
Decrease in inventories - 2,414 - - 2,414
Decrease (increase) in prepayments and other current assets 117 8,820 (1,550) - 7,387
(Increase) decrease in other noncurrent assets (1,543) 1,528 - - (15)
(Decrease) increase in accounts payable - (14,855) 6,718 (7,751) (15,888)
Increase (decrease) in accrued liabilities 1,070 (8,982) 349 - (7,563)
(Decrease) in other liabilities - (319) - - (319)
------- ------- -------- ------- -------
Net cash provided by (used in) operating activities 43 (2,891) - - (2,848)
------- ------- -------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment - (6,801) - - (6,801)
Proceeds from sale of property, plant and equipment - 4 - - 4
------- ------- -------- ------- -------
Net cash (used in) investing activities - (6,797) - - (6,797)
------- ------- -------- ------- -------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits - 9,688 - - 9,688
Proceeds from long-term debt - 40,400 - - 40,400
Repayments of long-term debt - (40,400) - - (40,400)
Repayments of notes receivable from sale of common stock 788 - - - 788
Cash dividends paid (831) - - - (831)
------- ------- -------- ------- -------
Net cash (used in) provided by financing activities (43) 9,688 - - 9,645
------- ------- -------- ------- -------
Net increase (decrease) in cash and cash equivalents - - - - -
Cash and cash equivalents at beginning of period - - - - -
------- ------- -------- ------- -------
Cash and cash equivalents at end of period $ - $ - $ - $ - $ -
======= ======= ======== ======= =======
</TABLE>
Combining Statement of Cash Flows for the three months ended March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,166 $ 6,791 $ (4,432) $(2,359) $ 2,166
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 121 8,665 - - 8,786
Issuance of common stock in connection with stock awards 44 - - - 44
Equity in undistributed net income of subsidiaries - (2,359) - 2,359 -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 80 (25,505) - 25,392 (33)
Decrease in inventories - 3,720 - - 3,720
Decrease (increase) in prepayments and other current assets 1 1,407 (21,312) - (19,904)
(Increase) decrease in other noncurrent assets (1,562) 1,396 - - (166)
Increase (decrease) in accounts payable - 15,713 25,487 (25,392) 15,808
(Decrease) increase in accrued liabilities (53) 3,917 257 - 4,121
Increase in other liabilities - 497 - - 497
------- ------- -------- ------- -------
Net cash provided by operating activities 797 14,242 - - 15,039
------- ------- -------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment - (9,697) - - (9,697)
------- ------- -------- ------- -------
Net cash (used in) investing activities - (9,697) - - (9,697)
------- ------- -------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt - 23,150 - - 23,150
Repayments of long-term debt - (23,150) - - (23,150)
Cash dividends paid (797) - - - (797)
------- ------- -------- ------- -------
Net cash (used in) financing activities (797) - - - (797)
------- ------- -------- ------- -------
Net increase in cash and cash equivalents - 4,545 - - 4,545
Cash and cash equivalents at beginning of period - 6 - - 6
------- ------- -------- ------- -------
Cash and cash equivalents at end of period $ - $ 4,551 $ - $ - $ 4,551
======= ======= ======== ======= =======
</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 Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act, as amended 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, the success of the Company in implementing its business strategy,
and other risks as 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 quarter of 2000, shipments of the Company's aluminum sheet
products increased by 15% from the first quarter of 1999. While overall demand
for aluminum sheet products remained strong, material margins for the first
quarter of 2000 decreased slightly from the fourth quarter of 1999. The Company
had increased its maintenance spending in its aluminum operations during 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 continues to be
strong in 2000; however, the supply of these products has increased as a result
of expansions of existing production by competitors, and the entry of new
participants into the market. As a result, material margins for the Company's
electrical conduit and cable products have come under pressure and are below the
levels achieved in 1999. Demand for the Company's armored cable products, in
particular, continues to be good. Other factors which continued to contribute to
lower material margins were increases in raw material costs and ramp-up
efficiency issues from our new Rocky Mount plant (the Company opened a new plant
in Rocky Mount, North Carolina during the second quarter of 1999). The new plant
increased production capacity of electrical conduit and cable products by 50%
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 ended March 31, 2000 and 1999
Net Sales. Net sales for the quarter ended March 31, 2000, increased 31% to $313
million (including $33.5 million from Alflex) from $239 million (including $29.9
million from Alflex) for the same period in 1999. The increase is due to higher
aluminum prices and higher shipments. Unit sales volume of aluminum increased
15% to 274.3 million pounds for the first quarter of 2000 from 237.9 million
pounds for the first quarter of 1999. Alflex unit sales volume was 164.5 million
feet for the first quarter of 2000 versus 135.0 million feet for the comparable
period in 1999.
Gross Profit. Gross profit for the quarter ended March 31, 2000, increased to
$22.5 million from $20.9 million for the same period in 1999. This increase was
attributable to increased sales volumes which offset the 23% decrease in
material margins at Alflex which were due to the reasons previously noted in the
"Overview Section". The Company's aluminum business manufacturing costs
decreased on a unit basis compared to the same period in 1999 as a result of the
higher volumes while material margins were slightly lower in the first quarter
of 2000 than in the first quarter of 1999. Unit manufacturing costs at Alflex
increased 4% in the first quarter of 2000 compared to the first quarter of 1999
principally associated with production ramp-up costs at the Rocky Mount plant.
Operating Income. The Company produced operating income of $6.8 million for the
first quarter of 2000 compared with $7.8 million for the first quarter of 1999.
Selling, general and administrative expenses during the first quarter of 2000
were $14.6 million, compared with $12.0 million for the same period in 1999.
Contributing to the increase were increases relating to a new variable
compensation plan, a new executive compensation plan related to the Company's
executive stock purchase incentive program and additional office expenses due to
renovation and expansion of office facilities. In addition, there were increases
at Alflex associated with the new Rocky Mount plant.
Net Income. Net income was $1.3 million for the quarter ended March 31, 2000,
compared with $2.2 million for the same period in 1999. Interest expense was
$5.3 million for the quarter ended March 31, 2000 which was unchanged from the
amount recorded for the first quarter of 1999. Income tax expense was $0.4
million in the first quarter of 2000 compared to an income tax expense of $0.8
million for the same period in 1999.
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 2000.
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 March 31, 2000, the Company had outstanding $131.0 million under
the agreement and had $41.5 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 $6.8 million during the quarter ended March 31, 2000.
At March 31, 2000, the Company had commitments of $6.7 million for the purchase
or construction of capital assets. Total capital expenditures for the year 2000
are expected to be approximately $39 million, all generally related to upgrading
and expanding the Company's manufacturing and other facilities and meeting
environmental requirements.
Risk Management
The price of aluminum is subject to fluctuations due to unpredictable factors on
the worldwide market. To reduce this market risk, the Company follows the policy
of hedging its anticipated raw material requirements based on firm-priced sales
and purchase orders. The Company purchases and sells futures contracts and
options on the London Metal Exchange ("LME") based on its net metal position.
The Company's metal position consists of inventories, purchase commitments,
committed and anticipated sales, which is hedged using LME futures contracts and
options. At March 31, 2000, the Company held purchase and sales commitments
through 2000 totaling $75 million and $286 million, respectively. The Company
also uses futures contracts to manage risks associated with its natural gas
requirements. The Company held open aluminum futures contracts and options and
natural gas futures, marked-to-market at March 31, 2000, with a net unrealized
loss of $0.2 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 an interest rate swap agreement with a notional
amount of $5 million. With respect to this agreement, the Company pays a fixed
rate of interest and receives a LIBOR-based floating rate.
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 to the first quarter of 2001. Management is currently
evaluating the impact of SFAS No. 133, including an Exposure Draft of a Proposed
Amendment to SFAS No. 133 issued March 2000, 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 March 31, 2000.
<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: May 3, 2000
<PAGE>
Exhibit Index
Exhibit
Number Description
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 118
<ALLOWANCES> 0
<INVENTORY> 207,413
<CURRENT-ASSETS> 261,352
<PP&E> 575,569
<DEPRECIATION> 300,038
<TOTAL-ASSETS> 706,322
<CURRENT-LIABILITIES> 138,285
<BONDS> 125,000
0
0
<COMMON> 166
<OTHER-SE> 336,510
<TOTAL-LIABILITY-AND-EQUITY> 706,322
<SALES> 1,045,916
<TOTAL-REVENUES> 1,045,916
<CGS> 959,051
<TOTAL-COSTS> 959,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 591
<INTEREST-EXPENSE> 19,333
<INCOME-PRETAX> 11,968
<INCOME-TAX> 957
<INCOME-CONTINUING> 11,011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,011
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.68
</TABLE>
