===============================================================================
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 June 30, 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 16,528,051 shares of common stock outstanding at July 28,
2000.
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<PAGE>
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended June 30, 2000
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
Condensed Consolidated Balance Sheet as of June 30, 2000
and December 31, 1999 3
Condensed Consolidated Statement of Income for the three
months and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-15
Item 2. Management's Discussion and Analysis of Financial Condition 16-18
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheet
(in thousands except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 159 118
Inventories 196,059 207,413
Prepayments and other current assets 67,855 53,821
------------- -------------
Total current assets 264,073 261,352
Property, plant and equipment, net 271,078 275,531
Goodwill, net 162,372 164,610
Other noncurrent assets 4,135 4,829
------------- -------------
Total assets $ 701,658 $ 706,322
============= =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ 10,670 $ 1,188
Accounts payable 77,157 97,937
Accrued liabilities 35,734 39,160
------------- -------------
Total current liabilities 123,561 138,285
Long-term debt 129,750 125,000
Other long-term liabilities 8,266 8,412
Accrued pension benefits 12,847 12,482
Accrued postretirement benefits 85,042 85,467
------------- -------------
Total liabilities 359,466 369,646
------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,528,051 and 16,606,000 shares outstanding at
June 30, 2000 and December 31, 1999, respectively 165 166
Additional paid-in capital 408,505 409,062
Accumulated deficit (57,868) (61,866)
Unearned compensation (28) (175)
Notes receivable from sale of common stock (8,582) (10,511)
------------- -------------
Total stockholders' equity 342,192 336,676
------------- -------------
Total liabilities and stockholders' equity $ 701,658 $ 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 Six months ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 296,149 $ 271,525 $ 608,976 $ 510,275
Cost of goods sold 270,447 244,338 560,734 462,206
------------ ------------ ------------ ------------
Gross profit 25,702 27,187 48,242 48,069
Selling, general and administrative expenses 13,799 13,013 28,444 24,975
Amortization of goodwill 1,119 1,119 2,238 2,238
------------ ------------ ------------ ------------
Operating income 10,784 13,055 17,560 20,856
Other income (expense), net 425 28 665 453
Interest expense, net (5,251) (4,746) (10,578) (10,045)
------------ ------------ ------------ ------------
Income before income taxes 5,958 8,337 7,647 11,264
Income tax expense 1,549 1,766 1,988 2,527
------------ ------------ ------------ ------------
Net income $ 4,409 $ 6,571 $ 5,659 $ 8,737
============ ============ ============ ============
Basic and diluted net income per share $ 0.27 $ 0.41 $ 0.34 $ 0.55
============ ============ ============ ============
Weighted average shares outstanding
Basic 16,602 15,948 16,607 15,949
Diluted 16,602 15,992 16,620 15,984
Dividends paid 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,
-------------------------------------
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,659 $ 8,737
Adjustments to reconcile net income to net cash (used in) provided
by operations:
Depreciation and amortization 19,597 17,660
Issuance of common stock in connection with stock awards 121 44
Loss on disposal of property, plant and equipment 699 -
Changes in assets and liabilities:
(Increase) in accounts receivable, net (41) (110)
Decrease in inventories 11,354 5,854
(Increase) in prepayments and other current assets (14,034) (50,010)
Decrease (increase) in other noncurrent assets 94 (163)
(Decrease) increase in accounts payable (20,780) 26,319
(Decrease) increase in accrued liabilities (3,426) 3,367
(Decrease) increase in other liabilities (206) 2,088
------------ -------------
Net cash (used in) provided by operating activities (963) 13,786
------------ -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (13,038) (20,429)
Proceeds from sale of property, plant and equipment 4 -
------------ -------------
Net cash (used in) investing activities (13,034) (20,429)
------------ -------------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits 9,482 132
Proceeds from long-term debt 47,550 43,800
Repayments of long-term debt (42,800) (35,700)
Repayments of notes receivable from sale of common stock 1,426 -
Cash dividends paid (1,661) (1,595)
------------ -------------
Net cash provided by financing activities 13,997 6,637
------------ -------------
Net (decrease) in cash and cash equivalents - (6)
Cash and cash equivalents at beginning of period - 6
------------ -------------
Cash and cash equivalents at end of period $ - $ -
============ =============
Supplemental disclosures:
Interest paid $ 10,788 $ 9,796
Income taxes paid 521 1,841
Non-cash activities:
Repayment of notes receivable from sale of common stock with
common stock and subsequent retirement of common stock 503 -
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) June 30, 2000 December 31, 1999
-------------- ------------- -----------------
Raw materials $ 61,207 $ 63,510
Work in process 75,809 80,210
Finished goods 59,413 62,278
Expendable parts and supplies 15,797 15,895
--------- ---------
212,226 221,893
LIFO reserve (16,167) (14,480)
--------- ---------
$ 196,059 $ 207,413
========= =========
Inventories of approximately $171.3 million and $183.3 million, included in the
above totals (before the LIFO reserve) at June 30, 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 June 30, 2000, the Company had deferred realized gains of $0.4 million on
closed futures contracts which are recorded as a decrease 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 $1.5 million and $2.0 million
for the three months and six months ended June 30, 2000, respectively, compared
to an income tax expense of $1.8 million and $2.5 million for the three months
and six months ended June 30, 1999, respectively.
<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
June 30,
2000 1999
---- ----
<S> <C> <C>
Income (numerator) amounts used for basic and diluted per share computations:
Net income $4,409 $6,571
====== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,602 15,948
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,602 15,948
Plus: dilutive effect of stock options - 44
------ ------
Adjusted weighted average shares 16,602 15,992
====== ======
Net income per share data:
Basic and diluted $0.27 $0.41
===== =====
</TABLE>
<TABLE>
<CAPTION>
Six months ended June
30,
2000 1999
---- ----
<S> <C> <C>
Income (numerator) amounts used for basic and diluted per share computations:
Net income $ 5,659 $ 8,737
======= =======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,607 15,949
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,607 15,949
Plus: dilutive effect of stock options 13 35
------ ------
Adjusted weighted average shares 16,620 15,984
====== ======
Net income per share data:
Basic and diluted $0.34 $0.55
===== =====
Options to purchase 957,500 and 952,500 common shares for the three months and
six months ended June 30, 2000, respectively, and 541,000 and 286,500 for the
three months and six months ended June 30, 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 and six months ended June 30,
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 June 30, 2000
--------------------------------
<S> <C> <C> <C> <C>
Net sales to external customers $265,378 $30,771 $ -- $296,149
Intersegment net sales 7,074 -- (7,074) --
Operating income (loss) 16,020 (735) (4,501) 10,784
Depreciation and amortization 8,898 1,021 (136) 9,783
Total assets 605,037 93,728 2,893 701,658
Capital expenditures 6,190 47 -- 6,237
Three months ended June 30, 1999
--------------------------------
Net sales to external customers $240,282 $31,243 $ -- $271,525
Intersegment net sales 7,213 -- (7,213) --
Operating income 13,213 2,420 (2,578) 13,055
Depreciation and amortization 7,902 911 61 8,874
Total assets 583,042 112,731 -- 695,773
Capital expenditures 5,719 5,013 -- 10,732
Six months ended June 30, 2000
------------------------------
Net sales to external customers $544,675 $64,301 $ -- $608,976
Intersegment net sales 14,115 -- (14,115) --
Operating income (loss) 27,546 (1,632) (8,354) 17,560
Depreciation and amortization 17,583 2,043 (29) 19,597
Total assets 605,037 93,728 2,893 701,658
Capital expenditures 12,888 150 -- 13,038
Six months ended June 30, 1999
------------------------------
Net sales to external customers $449,126 $61,149 $ -- $510,275
Intersegment net sales 13,341 -- (13,341) --
Operating income 20,812 4,919 (4,875) 20,856
Depreciation and amortization 15,693 1,785 182 17,660
Total assets 583,042 112,731 -- 695,773
Capital expenditures 12,682 7,747 -- 20,429
</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 for the Parent Company
Only, Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company,
combining balance sheet as of June 30, 2000 and December 31, 1999, statement of
income for the three months and six months ended June 30, 2000 and 1999 and
statement of cash flows for the six months ended June 30, 2000 and 1999.
Combining Balance Sheet at June 30, 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 169,832 85,498 -- (255,171) 159
Inventories -- 196,059 -- -- 196,059
Prepayments and other current assets 607 7,171 60,077 -- 67,855
--------- --------- --------- --------- ---------
Total current assets 170,439 288,728 60,077 (255,171) 264,073
Property, plant and equipment, net -- 271,078 -- -- 271,078
Goodwill, net -- 162,372 -- -- 162,372
Other noncurrent assets 301,177 1,829 -- (298,871) 4,135
--------- --------- --------- --------- ---------
Total assets $ 471,616 $ 724,007 $ 60,077 $(554,042) $ 701,658
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ 10,670 $ -- $ -- $ 10,670
Accounts payable -- 246,989 85,339 (255,171) 77,157
Accrued liabilities 4,424 31,200 110 -- 35,734
--------- --------- --------- --------- ---------
Total current liabilities 4,424 288,859 85,449 (255,171) 123,561
Long-term debt 125,000 4,750 -- -- 129,750
Other long-term liabilities -- 8,266 -- -- 8,266
Accrued pension benefits -- 12,847 -- -- 12,847
Accrued postretirement benefits -- 85,042 -- -- 85,042
--------- --------- --------- --------- ---------
Total liabilities 129,424 399,764 85,449 (255,171) 359,466
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 165 1 -- (1) 165
Additional paid-in capital 408,505 273,774 5,000 (278,774) 408,505
Accumulated deficit (57,868) 50,468 (30,372) (20,096) (57,868)
Unearned compensation (28) -- -- -- (28)
Notes receivable from sale of common stock (8,582) -- -- -- (8,582)
--------- --------- --------- --------- ---------
Total stockholders' equity 342,192 324,243 (25,372) (298,871) 342,192
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 471,616 $ 724,007 $ 60,077 $(554,042) $ 701,658
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Combining Balance Sheet at December 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 $ -- $ -- $ -- $ -- $ --
Accounts receivable, net 172,266 59,526 -- (231,674) 118
Inventories -- 207,413 -- -- 207,413
Prepayments and other current assets 627 13,214 39,980 -- 53,821
--------- --------- --------- --------- ---------
Total current assets 172,893 280,153 39,980 (231,674) 261,352
Property, plant and equipment, net -- 275,531 -- -- 275,531
Goodwill, net -- 164,610 -- -- 164,610
Other noncurrent assets 289,196 2,668 -- (287,035) 4,829
--------- --------- --------- --------- ---------
Total assets $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ 1,188 $ -- $ -- $ 1,188
Accounts payable -- 270,203 59,408 (231,674) 97,937
Accrued liabilities 413 38,928 (181) -- 39,160
--------- --------- --------- --------- ---------
Total current liabilities 413 310,319 59,227 (231,674) 138,285
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 8,412 -- -- 8,412
Accrued pension benefits -- 12,482 -- -- 12,482
Accrued postretirement benefits -- 85,467 -- -- 85,467
--------- --------- --------- --------- ---------
Total liabilities 125,413 416,680 59,227 (231,674) 369,646
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 166 1 -- (1) 166
Additional paid-in capital 409,062 273,774 5,000 (278,774) 409,062
Accumulated deficit (61,866) 32,507 (24,247) (8,260) (61,866)
Unearned compensation (175) -- -- -- (175)
Notes receivable from sale of common stock (10,511) -- -- -- (10,511)
--------- --------- --------- --------- ---------
Total stockholders' equity 336,676 306,282 (19,247) (287,035) 336,676
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Combining Statement of Income for the three months ended June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 296,149 $ -- $ -- $ 296,149
Cost of goods sold -- 270,447 -- -- 270,447
--------- --------- --------- --------- ---------
Gross profit -- 25,702 -- -- 25,702
Selling, general and administrative expenses (80) 13,879 -- -- 13,799
Amortization of goodwill -- 1,119 -- -- 1,119
--------- --------- --------- --------- ---------
Operating income (loss) 80 10,704 -- -- 10,784
Other income (expense), net 7,654 425 -- (7,654) 425
Interest income (expense), net (3,325) 1,272 (3,198) -- (5,251)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 4,409 12,401 (3,198) (7,654) 5,958
Income tax expense -- 1,549 -- -- 1,549
--------- --------- --------- --------- ---------
Net income (loss) $ 4,409 $ 10,852 $ (3,198) $ (7,654) $ 4,409
========= ========= ========= ========= =========
</TABLE>
Combining Statement of Income for the three months ended June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 271,525 $ -- $ -- $ 271,525
Cost of goods sold -- 244,338 -- -- 244,338
--------- --------- --------- --------- ---------
Gross profit -- 27,187 -- -- 27,187
Selling, general and administrative expenses 100 12,913 -- -- 13,013
Amortization of goodwill -- 1,119 -- -- 1,119
--------- --------- --------- --------- ---------
Operating income (loss) (100) 13,155 -- -- 13,055
Other income (expense), net 10,139 28 -- (10,139) 28
Interest income (expense), net (3,468) 1,121 (2,399) -- (4,746)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 6,571 14,304 (2,399) (10,139) 8,337
Income tax expense -- 1,766 -- -- 1,766
--------- --------- --------- --------- ---------
Net income (loss) $ 6,571 $ 12,538 $ (2,399) $ (10,139) $ 6,571
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Combining Statement of Income for the six months ended June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 608,976 $ -- $ -- $ 608,976
Cost of goods sold -- 560,734 -- -- 560,734
--------- --------- --------- --------- ---------
Gross profit -- 48,242 -- -- 48,242
Selling, general and administrative expenses 142 28,302 -- -- 28,444
Amortization of goodwill -- 2,238 -- -- 2,238
--------- --------- --------- --------- ---------
Operating income (loss) (142) 17,702 -- -- 17,560
Other income (expense), net 12,443 665 -- (12,443) 665
Interest income (expense), net (6,642) 2,188 (6,124) -- (10,578)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 5,659 20,555 (6,124) (12,443) 7,647
Income tax expense -- 1,988 -- -- 1,988
--------- --------- --------- --------- ---------
Net income (loss) $ 5,659 $ 18,567 $ (6,124) $ (12,443) $ 5,659
========= ========= ========= ========= =========
</TABLE>
Combining Statement of Income for the six months ended June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 510,275 $ -- $ -- $ 510,275
Cost of goods sold -- 462,206 -- -- 462,206
--------- --------- --------- --------- ---------
Gross profit -- 48,069 -- -- 48,069
Selling, general and administrative expenses 309 24,666 -- -- 24,975
Amortization of goodwill -- 2,238 -- -- 2,238
--------- --------- --------- --------- ---------
Operating income (loss) (309) 21,165 -- -- 20,856
Other income (expense), net 15,967 453 -- (15,967) 453
Interest income (expense), net (6,921) 1,450 (4,574) -- (10,045)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 8,737 23,068 (4,574) (15,967) 11,264
Income tax expense -- 2,527 -- -- 2,527
--------- --------- --------- --------- ---------
Net income (loss) $ 8,737 $ 20,541 $ (4,574) $ (15,967) $ 8,737
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Combining Statement of Cash Flows for the six months ended June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 5,659 $ 18,567 $ (6,124) $(12,443) $ 5,659
Adjustments to reconcile net income (loss) to
net cash provided (used in) by operations:
Depreciation and amortization (29) 19,626 -- -- 19,597
Issuance of common stock in connection with stock awards 121 -- -- -- 121
Loss on disposal of property, plant and equipment -- 699 -- -- 699
Equity in undistributed net income of subsidiaries -- (12,443) -- 12,443 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net 2,434 (25,972) -- 23,497 (41)
Decrease in inventories -- 11,354 -- -- 11,354
Decrease (increase) in prepayments and other current assets 20 6,043 (20,097) -- (14,034)
(Increase) decrease in other noncurrent assets (11,981) 12,075 -- -- 94
(Decrease) increase in accounts payable -- (23,214) 25,931 (23,497) (20,780)
Increase (decrease) in accrued liabilities 4,011 (7,727) 290 -- (3,426)
(Decrease) in other liabilities -- (206) -- -- (206)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 235 (1,198) -- -- (963)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (13,038) -- -- (13,038)
Proceeds from sale of property, plant and equipment -- 4 -- -- 4
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (13,034) -- -- (13,034)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 9,482 -- -- 9,482
Proceeds from long-term debt -- 47,550 -- -- 47,550
Repayments of long-term debt -- (42,800) -- -- (42,800)
Repayments of notes receivable from sale of common stock 1,426 -- -- -- 1,426
Cash dividends paid (1,661) -- -- -- (1,661)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (235) 14,232 -- -- 13,997
-------- -------- -------- -------- --------
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>
<PAGE>
Combining Statement of Cash Flows for the six months ended June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 8,737 $ 20,541 $ (4,574) $(15,967) $ 8,737
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 400 17,260 -- -- 17,660
Issuance of common stock in connection with stock awards 44 -- -- -- 44
Equity in undistributed net income of subsidiaries -- (15,967) -- 15,967 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 8,009 (55,914) -- 47,795 (110)
Decrease in inventories -- 5,854 -- -- 5,854
Decrease (increase) in prepayments and other current assets 2 1,410 (51,422) -- (50,010)
(Increase) decrease in other noncurrent assets (14,408) 14,245 -- -- (163)
Increase (decrease) in accounts payable -- 18,460 55,654 (47,795) 26,319
(Decrease) increase in accrued liabilities (1,189) 4,214 342 -- 3,367
Increase in other liabilities -- 2,088 -- -- 2,088
-------- -------- -------- -------- --------
Net cash provided by operating activities 1,595 12,191 0 0 13,786
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (20,429) -- -- (20,429)
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (20,429) -- -- (20,429)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 132 -- -- 132
Proceeds from long-term debt -- 43,800 -- -- 43,800
Repayments of long-term debt -- (35,700) -- -- (35,700)
Cash dividends paid (1,595) -- -- -- (1,595)
-------- -------- -------- -------- --------
Net cash (used in) financing activities (1,595) 8,232 0 0 6,637
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- (6) 0 0 (6)
Cash and cash equivalents at beginning of period -- 6 -- -- 6
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</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.
While demand for the Company's aluminum sheet products decreased somewhat in the
second quarter of 2000 due to the Company's customers reducing inventories built
in the previous quarter, the dampening effect of higher interest rates and a
softening of the Truck Trailer and Distribution markets, material margins
increased in the second quarter and first half of 2000 compared to the fourth
quarter of 1999. Part of the increase in the material margins is due to
improvements in product mix and the Company's ability to utilize lower-cost raw
materials.
Shipments for the Company's electrical products in the 2nd quarter of 2000 were
down 2% versus the 2nd quarter of 1999 while shipments for the first half of
2000 were up 9% over the comparable period in 1999. Material margins on the
Company's electrical products have come under pressure and are below the levels
achieved in 1999 due to expansions of existing production by competitors and the
entry of new participants into the market, however the material margins were up
7% from the first quarter of 2000.
Results of Operations for the three months and six months ended June 30, 2000
and 1999
Net Sales. Net sales for the quarter ended June 30, 2000, increased 9% to $296
million (including $30.8 million from Alflex) from $272 million (including $31.2
million from Alflex) for the same period in 1999. The increase is due primarily
to higher prices for the Company's aluminum products, which more than offset a
decline in shipments for aluminum products while pricing and volume for the
Company's electrical products were virtually unchanged for the quarter compared
with the same period last year. Unit sales volume of aluminum decreased 4% to
264.1 million pounds for the second quarter of 2000 from 274.8 million pounds
for the second quarter of 1999. Alflex unit sales volume was 144.6 million feet
for the second quarter of 2000, a decrease of 2% versus 147.4 million feet for
the comparable period in 1999. Net sales for the six-month period ended June 30,
2000, were $609 million (including $64.3 million from Alflex), a 19% increase
from the $510 million recorded in the first half of 1999 (including $61.1
million from Alflex). The increase is due primarily to higher shipments combined
with higher prices for the Company's aluminum products, while higher shipments
of electrical products more than offset a decline in prices for electrical
products. Unit sales volume of aluminum was 538.5 million pounds for the first
half of 2000, an increase of 5% from the 512.7 million pounds for the first half
of 1999. Alflex unit sales volume was 309.1 million feet for the first six
months of 2000, an increase of 9%, versus 282.4 million feet for the comparable
period in 1999.
Gross Profit. Gross profit for the quarter ended June 30, 2000, decreased to
$25.7 million from $27.2 million for the same period in 1999. Gross profit for
the six months ended June 30, 2000 was $48.2 million versus $48.1 million for
the comparable period in 1999. This quarter decrease and virtually flat six
months is due primarily to the impact of lower material margins and higher unit
manufacturing costs in the Company's electrical products business which more
than offset higher material margins and lower unit manufacturing costs in the
Company's aluminum products business.
Operating Income. The Company produced operating income of $10.8 million for the
second quarter of 2000 compared with $13.1 million for the second quarter of
1999. For the six-month period ended June 30, 2000, operating income was $17.6
million, down from $20.9 million for the first half of 1999. Selling, general
and administrative expenses during the second quarter of 2000 were $13.8
million, compared with $13.0 million for the same period in 1999 and were $28.4
million for the six months ended June 30, 2000, compared with $25.0 million for
the same period in 1999. The increase was due primarily to increases at Alflex
associated with higher sales volume and the infrastructure required to support
the growth of this business. Other factors contributing to the increase in
selling, general and administrative expenses were a new variable compensation
plan, additional depreciation due to Y2K related projects and employee severance
and related costs.
Net Income. Net income was $4.4 million for the quarter ended June 30, 2000,
compared with net income of $6.6 million for the same period in 1999. Net income
for the six months ended June 30, 2000 was $5.7 million compared with $8.7
million for the first half of 1999. Interest expense was $5.3 million for the
quarter ended June 30, 2000, compared to $4.7 million for the same period in
1999 and $10.6 million for the six months ended June 30, 2000, compared with
$10.0 million for the first half of 1999. These increases in the Company's
interest expense are primarily due to the higher interest rates under the
Company's accounts receivable securitization facility. Income tax expense was
$1.5 million in the second quarter of 2000 compared to income tax expense of
$1.8 million for the same period in 1999 and an income tax expense of $2.0
million for the six months ended June 30, 2000, compared to income tax expense
of $2.5 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 June 30, 2000, the Company had outstanding $111.0
million under the agreement and had $60.1 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. The Company is currently negotiating a renewal of its
accounts receivable securitization facility.
Capital expenditures were $6.2 million during the quarter ended June 30, 2000
and $13.0 million for the six months ended June 30, 2000. At June 30, 2000, the
Company had commitments of $8.6 million for the purchase or construction of
capital assets. Total capital expenditures for the year 2000 are expected to be
approximately $31 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 June 30, 2000, the Company held purchase and sales commitments
through 2000 totaling $83 million and $244 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 June 30, 2000, with a net unrealized
loss of $4.5 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 Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of FASB Statement No. 133" which was
issued in June 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 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders (the "Meeting"), held April 28,
2000, the following matters were submitted for a vote by the security holders:
Catherine G. Burke and Larry E. Kittelberger were elected directors for
terms expiring in 2003. There were 13,424,956 and 13,424,917, respectively,
votes cast for and 55,601 and 55,640,respectively, abstentions. The terms of
office of C. Frederick Fetterolf, Mark V. Kaminski, Paul E. Lego and John E.
Merow continued after the meeting. Victor Torasso whose term expired at the
Meeting elected to retire from the Board of Directors.
Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for 2000. There were 13,351,687 votes for and
91,294 votes against and 37,576 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30, 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: August 1, 2000
<PAGE>
Exhibit Index
Exhibit
Number Description
27 Financial Data Schedule.
