-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LTUjHUzxh0sYxPWsHWxw20vIu3OocGB7ioInXZo8jYkTeesz+ItA9+I61IG5gCK/ 73f+SGjyO9t1PkSAU39yHg== 0000934747-03-000059.txt : 20031106 0000934747-03-000059.hdr.sgml : 20031106 20031106113935 ACCESSION NUMBER: 0000934747-03-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH INDUSTRIES INC/DE/ CENTRAL INDEX KEY: 0000934747 STANDARD INDUSTRIAL CLASSIFICATION: ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS [3350] IRS NUMBER: 133245741 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25642 FILM NUMBER: 03981403 BUSINESS ADDRESS: STREET 1: 500 WEST JEFFERSON STREET STREET 2: PNC PLAZA - 19TH FLOOR CITY: LOUISVILLE STATE: KY ZIP: 40202-2823 BUSINESS PHONE: 502-589-8100 MAIL ADDRESS: STREET 1: 500 WEST JEFFERSON STREET STREET 2: PNC PLAZA - 19TH FLOOR CITY: LOUISVILLE STATE: KY ZIP: 40202-2823 FORMER COMPANY: FORMER CONFORMED NAME: COMMONWEALTH ALUMINUM CORP DATE OF NAME CHANGE: 19941228 10-Q 1 jb10q32003.txt FORM 10-Q FOR 3Q2003 ================================================================================ UNITED STATES 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, 2003 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 PNC Plaza -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 preceding 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 |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_| The registrant had 16,010,971 shares of common stock outstanding at October 29, 2003. ================================================================================ COMMONWEALTH INDUSTRIES, INC. FORM 10-Q For the Quarter Ended September 30, 2003 INDEX Part I - Financial Information Item 1. Financial Statements (unaudited) Page Number ----------- Condensed Consolidated Balance Sheet as of September 30, 2003 and December 31, 2002 3 Condensed Consolidated Statement of Operations for the three months and nine months ended September 30, 2003 and 2002 4 Condensed Consolidated Statement of Comprehensive Income for the three months and nine months ended September 30, 2003 and 2002 5 Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2003 and 2002 6 Notes to Condensed Consolidated Financial Statements 7-19 Item 2. Management's Discussion and Analysis of Financial Condition 20-26 and Results of Operations Item 4. Controls and Procedures 26 Part II - Other Information Item 1. Legal Proceedings 27 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 COMMONWEALTH INDUSTRIES, INC. Condensed Consolidated Balance Sheet (in thousands except share data)
September 30, December 31, 2003 2002 ------------- -------------- Assets Current assets: Cash and cash equivalents $ 2,940 $ 13,211 Accounts receivable, net 312 66 Inventories 116,067 125,348 Net residual interest in receivables sold 81,633 81,195 Prepayments and other current assets 5,051 7,133 ------------- -------------- Total current assets 206,003 226,953 Property, plant and equipment, net 142,868 146,968 Goodwill 48,872 48,872 Other noncurrent assets 5,423 6,111 ------------- -------------- Total assets $ 403,166 $ 428,904 ============= ============== Liabilities Current liabilities: Accounts payable $ 47,151 $ 59,594 Accrued liabilities 27,507 28,527 ------------- -------------- Total current liabilities 74,658 88,121 Long-term debt 128,190 125,000 Other long-term liabilities 3,921 5,183 Accrued pension benefits 27,043 26,743 Accrued postretirement benefits 70,085 76,670 ------------- -------------- Total liabilities 303,897 321,717 ------------- -------------- Commitments and contingencies - - Stockholders' Equity Common stock, $0.01 par value, 50,000,000 shares authorized, 16,010,971 and 15,997,651 shares outstanding at September 30, 2003 and December 31, 2002, respectively 160 160 Additional paid-in capital 405,703 405,613 Accumulated deficit (284,999) (277,942) Accumulated other comprehensive income: Minimum pension liability adjustment (21,391) (21,391) Effects of cash flow hedges (204) 747 ------------- -------------- Total stockholders' equity 99,269 107,187 ------------- -------------- Total liabilities and stockholders' equity $ 403,166 $ 428,904 ============= ============== See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC. Condensed Consolidated Statement of Operations (in thousands except per share data)
Three months ended Nine months ended September 30, September 30, -------------------------- --------------------------- 2003 2002 2003 2002 ---------- ----------- ----------- ----------- Net sales $ 248,117 $ 253,933 $ 675,205 $ 727,519 Cost of goods sold 231,760 234,571 637,316 681,933 ---------- ----------- ----------- ----------- Gross profit 16,357 19,362 37,889 45,586 Selling, general and administrative expenses 10,094 12,524 33,311 34,779 ---------- ----------- ----------- ----------- Operating income 6,263 6,838 4,578 10,807 Other income (expense), net 423 332 1,331 818 Interest expense, net (3,728) (3,704) (11,215) (11,406) ---------- ----------- ----------- ----------- Income (loss) before income taxes and cumulative effect of change in accounting principle 2,958 3,466 (5,306) 219 Income tax expense (benefit) 50 (2,610) 150 (2,532) ---------- ----------- ----------- ----------- Income (loss) before cumulative effect of change in accounting principle 2,908 6,076 (5,456) 2,751 Cumulative effect of change in accounting principle - - - (25,327) ---------- ----------- ----------- ----------- Net income (loss) $ 2,908 $ 6,076 $ (5,456) $ (22,576) ========== =========== =========== =========== Basic net income (loss) per share: Income (loss) before cumulative effect of change in accounting principle $ 0.18 $ 0.38 $ (0.34) $ 0.17 Cumulative effect of change in accounting principle - - - (1.58) ---------- ----------- ----------- ----------- Net income (loss) $ 0.18 $ 0.38 $ (0.34) $(1.41) ========== =========== =========== =========== Diluted net income (loss) per share: Income (loss) before cumulative effect of change in accounting principle $ 0.18 $ 0.38 $ (0.34) $ 0.17 Cumulative effect of change in accounting principle - - - (1.57) ---------- ----------- ----------- ----------- Net income (loss) $ 0.18 $ 0.38 $ (0.34) $(1.40) ========== =========== =========== =========== Weighted average shares outstanding Basic 16,011 15,998 16,011 15,992 Diluted 16,034 16,092 16,011 16,100 Dividends paid per share $ - $ 0.05 $ 0.10 $ 0.15 See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC. Condensed Consolidated Statement of Comprehensive Income (Loss) (in thousands)
Three months ended Nine months ended September 30, September 30, ------------------------ --------------------- 2003 2002 2003 2002 --------- ----------- -------- -------- Net income (loss) $ 2,908 $ 6,076 $(5,456) $(22,576) Other comprehensive income, net of tax: Net change related to cash flow hedges: Increase (decrease) in fair value of cash flow hedges (1,459) (6,313) 3,807 (3,174) Reclassification adjustment for (gains) losses included in net income (1,743) 4,267 (4,758) 9,479 --------- ----------- -------- -------- Net change related to cash flow hedges (3,202) (2,046) (951) 6,305 --------- ----------- -------- -------- Comprehensive income (loss) $ (294) $ 4,030 $(6,407) $(16,271) ========= =========== ======== ======== See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC. Condensed Consolidated Statement of Cash Flows (in thousands)
Nine months ended September 30, ---------------------------- 2003 2002 --------- ---------- Cash flows from operating activities: Net income (loss) $ (5,456) $ (22,576) Adjustments to reconcile net income (loss) to net cash (used in) provided by operations: Depreciation 15,417 15,940 Amortization 666 762 Goodwill impairment charge - 25,327 Loss on disposal of property, plant and equipment 68 196 Issuance of common stock in connection with stock awards 90 170 Changes in assets and liabilities: (Increase) in accounts receivable, net (246) (56) Decrease in inventories 9,281 2,669 (Increase) in net residual interest in receivables sold (438) (17,875) Decrease (increase) in prepayments and other current assets 25 (806) Decrease (increase) in other noncurrent assets 22 (2,419) (Decrease) increase in accounts payable (12,443) 3,571 Increase in accrued liabilities 86 3,993 (Decrease) in other liabilities (7,547) (4,736) --------- ---------- Net cash (used in) provided by operating activities (475) 4,160 --------- ---------- Cash flows from investing activities: Purchases of property, plant and equipment (11,543) (10,089) Proceeds from sale of property, plant and equipment 158 23 --------- ---------- Net cash (used in) investing activities (11,385) (10,066) --------- ---------- Cash flows from financing activities: Increase in outstanding checks in excess of deposits - 351 Proceeds from long-term debt 75,168 55,700 Repayments of long-term debt (71,978) (55,700) Repayments of notes receivable from sale of common stock - 1,561 Cash dividends paid (1,601) (2,399) --------- ---------- Net cash provided by (used in) financing activities 1,589 (487) --------- ---------- Net (decrease) in cash and cash equivalents (10,271) (6,393) Cash and cash equivalents at beginning of period 13,211 6,393 --------- ---------- Cash and cash equivalents at end of period $ 2,940 $ - ========= ========== Supplemental disclosures: Interest paid $ 7,584 $ 7,551 Income taxes paid (refunds received) 167 (492) See notes to condensed consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC. Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures normally required by accounting principles generally accepted in the United States of America. 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. Stock-Based Compensation At September 30, 2003, the Company had stock-based compensation plans which are described more fully in note 14 to the consolidated financial statements included in the Company's annual report to stockholders for the year ended December 31, 2002. As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company follows the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its stock option plans under the intrinsic value based method. Accordingly, no stock-based compensation expense has been recognized for stock options issued under the plans as all stock options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation expense been determined based on the fair value of the stock options at the grant date consistent with the provisions of SFAS No. 123, the Company's net loss and basic and diluted net loss per share would have been increased for the three months and nine months ended September 30, 2003 and the nine months ended September 30, 2002 and the Company's net income and basic and diluted net income per share would have been reduced for the three months ended September 30, 2002 to the pro forma amounts which follow (in thousands except per share data): Three months ended September 30, 2003 2002 ---- ---- Net income as reported $2,908 $6,076 Less total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects 50 110 ------ ------ Pro forma net income $2,858 $5,966 ====== ====== Basic net income per share As reported $0.18 $0.38 Pro forma 0.18 0.37 Diluted net income per share As reported $0.18 $0.38 Pro forma 0.18 0.37 Nine months ended September 30, 2003 2002 ---- ---- Net income (loss) as reported $(5,456) $(22,576) Less total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects 234 297 ------- -------- Pro forma net income (loss) $(5,690) $(22,873) ======= ======== Basic net income (loss) per share As reported $(0.34) $(1.41) Pro forma (0.36) (1.43) Diluted net income (loss) per share As reported $(0.34) $(1.40) Pro forma (0.36) (1.43) 3. Receivables Purchase Agreement 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 receivables purchase agreement with a financial institution and its affiliate whereby CFC can sell, on a revolving basis, an undivided interest in certain of its receivables and receive 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. The Company services the receivables for a fee in accordance with the receivables purchase agreement. In addition, under the agreement, the receivables are sold with no recourse to the Company and the Company records no discount on the sale of the receivables. During September 2000, the Company and the financial institution extended the receivables purchase agreement for an additional three-year period ending in September 2003 and in October 2002, extended the agreement for an additional year ending in September 2004. In addition during September 2001, the Company and the financial institution agreed to reduce the maximum amount which can be outstanding under the agreement to $95.0 million and in October 2003, the availability was further reduced to $60.0 million. At September 30, 2003 and 2002, the Company had outstanding under the agreement $40.0 million and $20.0 million, respectively, and had $81.6 million and $100.2 million, respectively, of net residual interest in the receivables sold. The fair value of the net residual interest is measured at the time of the sale and is based on the sale of similar assets. In the first nine months of 2003 and 2002, the Company received gross proceeds of $62.0 million and $37.0 million, respectively, from the sale of receivables and made gross payments of $46.0 and $37.0 million, respectively, under the agreement. 4. Inventories Inventories consist of the following (in thousands): September 30, 2003 December 31, 2002 ------------------ ----------------- Raw materials $ 24,104 $ 22,718 Work in process 51,429 46,676 Finished goods 31,598 43,780 Expendable parts and supplies 14,409 14,320 ---------- ----------- 121,540 127,494 LIFO reserve (5,473) (2,146) ---------- ----------- $ 116,067 $ 125,348 ========== =========== The Company's raw materials, work in process and finished goods inventories are valued using the last-in, first-out (LIFO) accounting method in the Company's aluminum segment and the first-in, first-out (FIFO) and average-cost accounting methods in the Company's electrical products segment. The FIFO accounting method is used throughout the entire Company for valuing its expendable parts and supplies inventory. Inventories of approximately $93.0 million and $98.2 million, included in the above totals (before the LIFO reserve) at September 30, 2003 and December 31, 2002, 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. 5. Provision for Income Taxes The Company recognized income tax expense of $0.05 million and $0.2 million for the three months and nine months ended September 30, 2003, respectively, compared to an income tax benefit of $2.6 million and $2.5 million for the three months and nine months ended September 30, 2002, respectively. The Company recorded an adjustment of $2.7 million in the three months ended September 30, 2002 to reduce prior year's income tax accruals. 6. Net Income Per Share Computations The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations (in thousands except per share data):
Three months ended September 30, 2003 2002 ---- ---- Income (numerator) amounts used for basic and diluted per share computations: Income before cumulative effect of change in accounting principle $2,908 $6,076 Cumulative effect of change in accounting principle - - ------ ------ Net income $2,908 $6,076 ====== ====== Shares (denominator) used for basic per share computations: Weighted average shares of common stock outstanding 16,011 15,998 ====== ====== Shares (denominator) used for diluted per share computations: Weighted average shares of common stock outstanding 16,011 15,998 Plus: dilutive effect of stock options 23 94 ------ ------ Adjusted weighted average shares 16,034 16,092 ====== ====== Basic and diluted per share data: Income before cumulative effect of change in accounting principle $0.18 $0.38 Cumulative effect of change in accounting principle - - ------ ------ Net income $0.18 $0.38 ====== ====== Nine months ended September 30, 2003 2002 ---- ---- Income (numerator) amounts used for basic and diluted per share computations: Income (loss) before cumulative effect of change in accounting principle $(5,456) $2,751 Cumulative effect of change in accounting principle - (25,327) ------- ------- Net income (loss) $(5,456) $(22,576) ======= ======= Shares (denominator) used for basic per share computations: Weighted average shares of common stock outstanding 16,011 15,992 ====== ====== Shares (denominator) used for diluted per share computations: Weighted average shares of common stock outstanding 16,011 15,992 Plus: dilutive effect of stock options - 108 ------ ------ Adjusted weighted average shares 16,011 16,100 ====== ====== Basic per share data: Income (loss) before cumulative effect of change in accounting principle $(0.34) $0.17 Cumulative effect of change in accounting principle - (1.58) ------ ------ Net income (loss) $(0.34) $(1.41) ====== ====== Diluted per share data: Income (loss) before cumulative effect of change in accounting principle $(0.34) $0.17 Cumulative effect of change in accounting principle - (1.57) ------ ------ Net income (loss) $(0.34) $(1.40) ====== ====== Options to purchase 577,000 common shares, which equate to 44,004 incremental common equivalent shares for the nine months ended September 30, 2003 were excluded from the diluted calculation above as their effect would have been antidilutive. In addition, options to purchase 1,382,500 and 1,092,000 common shares for the three months and nine months ended September 30, 2003, respectively, and 794,000 common shares for both the three months and nine months ended September 30, 2002 were excluded from the diluted calculations above because the exercise prices on the options were greater than the average market price for the periods.
7. Financial Instruments and Hedging Activities The Company enters into futures contracts, forward contracts and options to manage exposures to price risk related to aluminum and natural gas purchases. The Company has designated the futures contracts and forward contracts as cash flow hedges of anticipated aluminum raw material and natural gas requirements, respectively. For the second quarter ending June 30, 2003 and the third quarter ending September 30, 2003, the Company's aluminum futures contracts did not meet certain "effectiveness" requirements set forth in Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"). Accordingly, as prescribed by the provisions of SFAS No. 133, the derivative instruments used as hedges were marked-to-market and the gains and losses during the second and third quarters of 2003 were recorded currently in the consolidated statement of operations instead of being deferred in other comprehensive income and included in income when the underlying hedged transactions occur. The Company's natural gas futures continue to be deemed "effective" per SFAS No. 133 and accordingly the gains and losses on these financial instruments are deferred in other comprehensive income and included in income when the underlying hedged transactions occur. As of September 30, 2003, the Company had $0.2 million of deferred net losses recorded in accumulated other comprehensive income. Over the next twelve months, approximately $0.6 million of deferred net gains are expected to be reclassified from other comprehensive income into net income as a reduction of cost of goods sold. As of September 30, 2003, the Company held open aluminum and natural gas futures and forward contracts having maturity dates extending through December 2005. A net gain of $1.1 million and $1.5 million was recognized as a reduction in cost of goods sold during the three months and nine months ended September 30, 2003, respectively, and a net loss of $0.05 million and $0.16 million was recognized in cost of goods sold during the three months and nine months ended September 30, 2002, respectively, representing the amount of the hedges' ineffectiveness. 8. Goodwill Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). The Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17, "Intangible Assets" and amends Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"), to exclude from its scope goodwill and intangible assets that are not amortized. SFAS No. 121 was subsequently superseded by Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). SFAS No. 142 addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Under SFAS No. 142, goodwill is no longer to be amortized but reviewed for impairment annually or more frequently if certain indicators arise, using a two-step approach. SFAS No. 142 was effective January 1, 2002 and the Company was required to complete step one of a transitional impairment test by June 30, 2002 and to complete step two of the transitional impairment test, if step one indicates that the reporting unit's carrying value exceeds its fair value, by December 31, 2002. Any impairment loss resulting from the transitional impairment test was required to be recorded as a cumulative effect of a change in accounting principle in the quarter ended March 31, 2002. Any subsequent impairment losses will be reflected in operating income in the consolidated statement of operations. The net goodwill balances attributable to each of the Company's reporting units were tested for impairment by comparing the fair value of each reporting unit to its carrying value. Fair value was determined by using the valuation technique of calculating the present value of estimated expected future cash flows (using a discount rate commensurate with the risks involved). Based upon the transitional impairment test performed upon adoption of SFAS No. 142, the Company recorded a goodwill impairment loss of $25.3 million ($13.5 million in its aluminum segment and $11.8 million in its electrical products segment). As required by SFAS No. 142 and as previously described, the Company recorded the goodwill write-down as a cumulative effect of a change in accounting principle as of January 1, 2002 and restated the Company's first quarter 2002 financial results. The following displays the changes in the carrying amount of goodwill in each of the Company's reportable segments for the three months ended March 31, 2002 (in thousands). There have been no further changes in the carrying amount of goodwill since March 31, 2002:
Electrical Aluminum Products Total -------- ---------- -------- Balance December 31, 2001 $13,470 $60,729 $74,199 Goodwill impairment loss as a result of transitional Impairment test related to adoption of SFAS No. 142 (13,470) (11,857) (25,327) -------- -------- ------- Balance March 31, 2002 $ - $48,872 $48,872 ======== ======== =======
The Company has no other intangible assets other than the goodwill discussed above. 9. 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 construction 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, 2002. 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 nine months ended September 30, 2003 and 2002 (in thousands). 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. Certain expenses and assets relating to information technology which prior to the first quarter of 2003 had been allocated to reportable segments are no longer being allocated. Prior period amounts have been reclassified to conform with current classifications.
Electrical Aluminum Products Other Total -------- ---------- --------- ---------- Three months ended September 30, 2003 - ------------------------------------- Net sales to external customers $221,213 $26,904 $ -- $248,117 Intersegment net sales 3,906 -- (3,906) -- Operating income (loss) 11,112 29 (4,878) 6,263 Depreciation 4,608 559 -- 5,167 Amortization -- -- 222 222 Total assets 303,908 86,393 12,865 403,166 Capital expenditures 1,353 77 3,022 4,452 Three months ended September 30, 2002 - ------------------------------------- Net sales to external customers $224,124 $29,809 $ -- $253,933 Intersegment net sales 4,656 -- (4,656) -- Operating income (loss) 11,506 1,137 (5,805) 6,838 Depreciation 4,725 571 -- 5,296 Amortization -- -- 225 225 Total assets 324,589 93,236 1,742 419,567 Capital expenditures 2,975 11 3,909 6,895 Nine months ended September 30, 2003 - ------------------------------------ Net sales to external customers $598,598 $76,607 $ -- $675,205 Intersegment net sales 12,422 -- (12,422) -- Operating income (loss) 22,271 (1,017) (16,676) 4,578 Depreciation 13,740 1,677 -- 15,417 Amortization -- -- 666 666 Total assets 303,908 86,393 12,865 403,166 Capital expenditures 4,920 345 6,278 11,543 Nine months ended September 30, 2002 - ------------------------------------ Net sales to external customers $641,081 $86,438 $ -- $727,519 Intersegment net sales 14,190 -- (14,190) -- Operating income (loss) 21,484 5,069 (15,746) 10,807 Depreciation 14,228 1,712 -- 15,940 Amortization -- -- 762 762 Total assets 324,589 93,236 1,742 419,567 Capital expenditures 5,926 254 3,909 10,089
10. Guarantor Financial Statements The $125 million of 10.75% senior subordinated notes due 2006 issued by the Company, and the $30 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, a combining balance sheet as of September 30, 2003 and December 31, 2002, statement of operations for the three months and nine months ended September 30, 2003 and 2002 and statement of cash flows for the nine months ended September 30, 2003 and 2002. Combining Balance Sheet at September 30, 2003 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ----------- ----------- ------------ -------- Assets Current assets: Cash and cash equivalents $ -- $ 2,940 $ -- $ -- $ 2,940 Accounts receivable, net -- 298,466 -- (298,154) 312 Inventories -- 116,067 -- -- 116,067 Net residual interest in receivables sold -- -- 81,633 -- 81,633 Prepayments and other current assets 435 4,616 -- -- 5,051 --------- --------- --------- --------- --------- Total current assets 435 422,089 81,633 (298,154) 206,003 Property, plant and equipment, net -- 142,868 -- -- 142,868 Goodwill, net -- 48,872 -- -- 48,872 Other noncurrent assets 424,757 4,552 -- (423,886) 5,423 --------- --------- --------- --------- --------- Total assets $ 425,192 $ 618,381 $ 81,633 $(722,040) $ 403,166 ========= ========= ========= ========= ========= Liabilities Current liabilities: Accounts payable $ 170,063 $ 47,151 $ 128,091 $(298,154) $ 47,151 Accrued liabilities 9,265 19,000 (758) -- 27,507 --------- --------- --------- --------- --------- Total current liabilities 179,328 66,151 127,333 (298,154) 74,658 Long-term debt 125,000 3,190 -- -- 128,190 Other long-term liabilities -- 3,921 -- -- 3,921 Accrued pension benefits -- 27,043 -- -- 27,043 Accrued postretirement benefits -- 70,085 -- -- 70,085 --------- --------- --------- --------- --------- Total liabilities 304,328 170,390 127,333 (298,154) 303,897 --------- --------- --------- --------- --------- Commitments and contingencies -- -- -- -- -- Stockholders' Equity Common stock 160 1 -- (1) 160 Additional paid-in capital 405,703 486,727 5,000 (491,727) 405,703 Accumulated deficit (284,999) (17,142) (50,700) 67,842 (284,999) Accumulated other comprehensive income: Minimum pension liability adjustment -- (21,391) -- -- (21,391) Effects of cash flow hedges -- (204) -- -- (204) --------- --------- --------- --------- --------- Total stockholders' equity 120,864 447,991 (45,700) (423,886) 99,269 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 425,192 $ 618,381 $ 81,633 $(722,040) $ 403,166 ========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 2002 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ----------- ----------- ------------ -------- Assets Current assets: Cash and cash equivalents $ -- $ 13,211 $ -- $ -- $ 13,211 Accounts receivable, net -- 286,847 -- (286,781) 66 Inventories -- 125,348 -- -- 125,348 Net residual interest in receivables sold -- -- 81,195 -- 81,195 Prepayments and other current assets 435 6,698 -- -- 7,133 --------- --------- --------- --------- --------- Total current assets 435 432,104 81,195 (286,781) 226,953 Property, plant and equipment, net -- 146,968 -- -- 146,968 Goodwill, net -- 48,872 -- -- 48,872 Other noncurrent assets 419,913 4,913 -- (418,715) 6,111 --------- --------- --------- --------- --------- Total assets $ 420,348 $ 632,857 $ 81,195 $(705,496) $ 428,904 ========= ========= ========= ========= ========= Liabilities Current liabilities: Accounts payable $ 161,658 $ 59,594 $ 125,123 $(286,781) $ 59,594 Accrued liabilities 5,859 23,515 (847) -- 28,527 --------- --------- --------- --------- --------- Total current liabilities 167,517 83,109 124,276 (286,781) 88,121 Long-term debt 125,000 -- -- -- 125,000 Other long-term liabilities -- 5,183 -- -- 5,183 Accrued pension benefits -- 26,743 -- -- 26,743 Accrued postretirement benefits -- 76,670 -- -- 76,670 --------- --------- --------- --------- --------- Total liabilities 292,517 191,705 124,276 (286,781) 321,717 --------- --------- --------- --------- --------- Commitments and contingencies -- -- -- -- -- Stockholders' Equity Common stock 160 1 -- (1) 160 Additional paid-in capital 405,613 486,727 5,000 (491,727) 405,613 Accumulated deficit (277,942) (24,932) (48,081) 73,013 (277,942) Accumulated other comprehensive income: Minimum pension liability adjustment -- (21,391) -- -- (21,391) Effects of cash flow hedges -- 747 -- -- 747 --------- --------- --------- --------- --------- Total stockholders' equity 127,831 441,152 (43,081) (418,715) 107,187 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 420,348 $ 632,857 $ 81,195 $(705,496) $ 428,904 ========= ========= ========= ========= =========
Combining Statement of Operations for the three months ended September 30, 2003 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 248,117 $ -- $ -- $ 248,117 Cost of goods sold -- 231,760 -- -- 231,760 --------- --------- --------- --------- --------- Gross profit -- 16,357 -- -- 16,357 Selling, general and administrative expenses 52 10,042 -- -- 10,094 --------- --------- --------- --------- --------- Operating income (loss) (52) 6,315 -- -- 6,263 Other income (expense), net 6,428 423 -- (6,428) 423 Interest income (expense), net (3,468) 652 (912) -- (3,728) --------- --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of change in accounting principle 2,908 7,390 (912) (6,428) 2,958 Income tax expense -- 50 -- -- 50 --------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle 2,908 7,340 (912) (6,428) 2,908 Cumulative effect of change in accounting principle -- -- -- -- -- --------- --------- --------- --------- --------- Net income (loss) $ 2,908 $ 7,340 $ (912) $ (6,428) $ 2,908 ========= ========= ========= ========= =========
Combining Statement of Income for the three months ended September 30, 2002 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 253,933 $ -- $ -- $ 253,933 Cost of goods sold -- 234,571 -- -- 234,571 --------- --------- --------- --------- --------- Gross profit -- 19,362 -- -- 19,362 Selling, general and administrative expenses 51 12,473 -- -- 12,524 Amortization of goodwill -- -- -- -- -- --------- --------- --------- --------- --------- Operating income (loss) (51) 6,889 -- -- 6,838 Other income (expense), net 6,904 332 -- (6,904) 332 Interest income (expense), net (3,469) 807 (1,042) -- (3,704) --------- --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of change in accounting principle 3,384 8,028 (1,042) (6,904) 3,466 Income tax expense (benefit) (2,692) 82 -- -- (2,610) --------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle 6,076 7,946 (1,042) (6,904) 6,076 Cumulative effect of change in accounting principle -- -- -- -- -- --------- --------- --------- --------- --------- Net income (loss) $ 6,076 $ 7,946 $ (1,042) $ (6,904) $ 6,076 ========= ========= ========= ========= =========
Combining Statement of Operations for the nine months ended September 30, 2003 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 675,205 $ -- $ -- $ 675,205 Cost of goods sold -- 637,316 -- -- 637,316 --------- --------- --------- --------- --------- Gross profit -- 37,889 -- -- 37,889 Selling, general and administrative expenses 224 33,087 -- -- 33,311 --------- --------- --------- --------- --------- Operating income (loss) (224) 4,802 -- -- 4,578 Other income (expense), net 5,171 1,331 -- (5,171) 1,331 Interest income (expense), net (10,403) 1,807 (2,619) -- (11,215) --------- --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of change in accounting principle (5,456) 7,940 (2,619) (5,171) (5,306) Income tax expense -- 150 -- -- 150 --------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle (5,456) 7,790 (2,619) (5,171) (5,456) Cumulative effect of change in accounting principle -- -- -- -- -- --------- --------- --------- --------- --------- Net income (loss) $ (5,456) $ 7,790 $ (2,619) $ (5,171) $ (5,456) ========= ========= ========= ========= =========
Combining Statement of Income for the nine months ended September 30, 2002 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 727,519 $ -- $ -- $ 727,519 Cost of goods sold -- 681,933 -- -- 681,933 --------- --------- --------- --------- --------- Gross profit -- 45,586 -- -- 45,586 Selling, general and administrative expenses 224 34,555 -- -- 34,779 Amortization of goodwill -- -- -- -- -- --------- --------- --------- --------- --------- Operating income (loss) (224) 11,031 -- -- 10,807 Other income (expense), net 10,685 818 -- (10,685) 818 Interest income (expense), net (10,402) 2,303 (3,307) -- (11,406) --------- --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of change in accounting principle 59 14,152 (3,307) (10,685) 219 Income tax expense (benefit) (2,692) 160 -- -- (2,532) --------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle 2,751 13,992 (3,307) (10,685) 2,751 Cumulative effect of change in accounting principle (25,327) (25,327) -- 25,327 (25,327) --------- --------- --------- --------- --------- Net income (loss) $ (22,576) $ (11,335) $ (3,307) $ 14,642 $ (22,576) ========= ========= ========= ========= =========
Combining Statement of Cash Flows for the nine months ended September 30, 2003 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ---------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $ (5,456) $ 7,790 $ (2,619) $ (5,171) $ (5,456) Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: Depreciation -- 15,417 -- -- 15,417 Amortization -- 666 -- -- 666 Loss on disposal of property, plant and equipment -- 68 -- -- 68 Issuance of common stock in connection with stock awards 90 -- -- -- 90 Equity in undistributed net income of subsidiaries (5,171) -- -- 5,171 -- Changes in assets and liabilities: (Increase) decrease in accounts receivable, net -- (11,619) -- 11,373 (246) Decrease in inventories -- 9,281 -- -- 9,281 (Increase) in net residual interest in receivables sold -- -- (438) -- (438) Decrease in prepayments and other current assets -- 25 -- -- 25 Decrease (increase) in other noncurrent assets 327 (305) -- -- 22 Increase (decrease) in accounts payable 8,405 (12,443) 2,968 (11,373) (12,443) Increase (decrease) in accrued liabilities 3,406 (3,409) 89 -- 86 (Decrease) in other liabilities -- (7,547) -- -- (7,547) -------- -------- -------- -------- -------- Net cash provided by (used in) operating activities 1,601 (2,076) -- -- (475) -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment -- (11,543) -- -- (11,543) Proceeds from sale of property, plant and equipment -- 158 -- -- 158 -------- -------- -------- -------- -------- Net cash (used in) investing activities -- (11,385) -- -- (11,385) -------- -------- -------- -------- -------- Cash flows from financing activities: Proceeds from long-term debt -- 75,168 -- -- 75,168 Repayments of long-term debt -- (71,978) -- -- (71,978) Cash dividends paid (1,601) -- -- -- (1,601) -------- -------- -------- -------- -------- Net cash (used in) financing activities (1,601) 3,190 -- -- 1,589 -------- -------- -------- -------- -------- Net (decrease) in cash and cash equivalents -- (10,271) -- -- (10,271) Cash and cash equivalents at beginning of period -- 13,211 -- -- 13,211 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ 2,940 $ -- $ -- $ 2,940 ======== ======== ======== ======== ========
Combining Statement of Cash Flows for the nine months ended September 30, 2002 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ---------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $(22,576) $(11,335) $ (3,307) $ 14,642 $(22,576) Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation -- 15,940 -- -- 15,940 Amortization -- 762 -- -- 762 Goodwill impairment charge 25,327 25,327 -- (25,327) 25,327 Loss on disposal of property, plant and equipment -- 196 -- -- 196 Issuance of common stock in connection with stock awards 170 -- -- -- 170 Equity in undistributed net income of subsidiaries (10,685) -- -- 10,685 -- Changes in assets and liabilities: (Increase) decrease in accounts receivable, net -- (28,275) -- 28,219 (56) Decrease in inventories -- 2,669 -- -- 2,669 (Increase) in net residual interest in receivables sold -- -- (17,875) -- (17,875) (Increase) in prepayments and other current assets -- (806) -- -- (806) Decrease (increase) in other noncurrent assets 326 (2,745) -- -- (2,419) Increase (decrease) in accounts payable 7,185 3,571 21,034 (28,219) 3,571 Increase in accrued liabilities 1,091 2,754 148 -- 3,993 (Decrease) in other liabilities -- (4,736) -- -- (4,736) -------- -------- -------- -------- -------- Net cash provided by operating activities 838 3,322 -- -- 4,160 -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment -- (10,089) -- -- (10,089) Proceeds from sale of property, plant and equipment -- 23 -- -- 23 -------- -------- -------- -------- -------- Net cash (used in) investing activities -- (10,066) -- -- (10,066) -------- -------- -------- -------- -------- Cash flows from financing activities: Increase in outstanding checks in excess of deposits -- 351 -- -- 351 Proceeds from long-term debt -- 55,700 -- -- 55,700 Repayments of long-term debt -- (55,700) -- -- (55,700) Repayments of notes receivable from sale of common stock 1,561 -- -- -- 1,561 Cash dividends paid (2,399) -- -- -- (2,399) -------- -------- -------- -------- -------- Net cash (used in) provided by financing activities (838) 351 -- -- (487) -------- -------- -------- -------- -------- Net (decrease) in cash and cash equivalents -- (6,393) -- -- (6,393) Cash and cash equivalents at beginning of period -- 6,393 -- -- 6,393 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section should be read in conjunction with the condensed consolidated financial statements and notes thereto included in item 1 of this report in addition to the consolidated financial statements of the Company and the notes thereto included in the Company's annual report to stockholders for the year ended December 31, 2002, including footnote 1 which describes the Company's significant accounting policies including its use of estimates. See the caption entitled "Application of Critical Accounting Policies" in this section for further information. 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 success of the implementation of the company-wide information system, the effect of global economic conditions, the ability to achieve the level of cost savings or productivity improvements anticipated by management, the effect (including possible increases in the cost of doing business) resulting from war and terrorist activities or political uncertainties, the ability to successfully implement new marketing and sales strategies, the impact of competitive products and pricing, product development and commercialization, availability and cost of critical raw materials, the ability to effectively hedge the cost of raw materials, 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 commercial 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 2003, shipments of the Company's aluminum sheet products decreased by 18% from the first nine months of 2002 due to weak economic conditions, however third quarter 2003 shipments have trended upward to the highest level in 2003 having increased 10% over the second quarter of 2003 and 6% over the first quarter of 2003. Contributing to the nine-month decline in aluminum shipments was planned equipment downtime for maintenance and capital improvement outages during the first quarter of 2003. Despite the decreased aluminum shipments, material margins for the first nine months of 2003 were higher than the first nine months of 2002 helping to partially offset the sales volume decline. The improvement in margin was principally the outcome of initiatives to: maintain selling price increases introduced in the first quarter of 2003; increase the volume of product available for the Company's higher value added products; and continue to actively pursue new customers and new markets offering higher margin opportunities than the Company's traditional high volume commodity markets. In addition, the material margin was favorably impacted by a third quarter 2003 gain of approximately $1.1 million or $0.07 per share relating to certain aluminum hedge transactions. The Company determined that hedges in place during the quarter to reduce its exposure to aluminum price fluctuations did not meet certain "effectiveness" requirements set forth in Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"). Accordingly, as prescribed by the provisions of SFAS No. 133, the derivative instruments used as hedges were marked-to-market, giving rise to the $1.1 million gain. Demand for the Company's electrical products decreased during the first nine months of 2003. Shipments were down 6% compared to the first nine months of 2002 reflecting weakness in key markets in the electrical products sector, particularly commercial construction, however third quarter 2003 shipments increased 12% compared to shipments for the second quarter of 2003 reflecting a strengthening of demand in the commercial construction market even though net selling prices were lower. Material margins for the first nine months of 2003 decreased 15% from the first nine months of 2002. Lower net selling prices due to the competitive price environment combined with higher material costs resulted in the decrease in material margins for the first nine months of 2003 versus the first nine months of 2002. While manufacturing costs per foot were up for the nine-month period 2003 versus the same period in 2002, manufacturing costs per foot for the third quarter 2003 were down compared to the third quarter of 2002 and the second quarter of 2003 primarily due to lower overtime labor, group insurance and workers compensation insurance costs. During the second quarter of 2003, the Company implemented changes to its postretirement medical insurance program applicable to all non-bargaining unit Kentucky employees, limiting eligibility and increasing premiums. Because of these changes, the Company realized a second quarter benefit of approximately $2.5 million after tax or $0.16 per share and a third quarter benefit of approximately $2.0 million after tax or $0.12 per share. The Company recognized the second quarter and third quarter benefits as reductions of approximately $1.3 million and $1.0 million, respectively, in cost of goods sold and $1.2 million and $1.0 million, respectively, in selling, general and administrative expenses. In addition to the effect on the second and third quarter of 2003, the Company estimates that net income will be increased approximately $2.0 million in the fourth quarter of 2003, approximately $8.3 million in 2004 and approximately $1.7 million in 2005. During the second quarter of 2002, the Company completed its transitional test of goodwill upon adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Pursuant to this test, the Company recorded a charge of $25.3 million or $1.58 per diluted share (before and after tax), as a cumulative effect of a change in accounting principle, to reflect the impairment of goodwill on the balance sheet as of January 1, 2002. During the fourth quarter of 2003, the Company will be conducting its annual impairment review of the Company's remaining goodwill balance of $48.9 million relating to the Company's Alflex electrical products reporting unit. See the caption entitled "Cumulative effect of change in accounting principle" in the following section and note 8 to the condensed consolidated financial statements for additional information. Application of Critical Accounting Policies The Company's discussion and analysis of financial condition and results of operation is based upon the Company's condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's most critical accounting policies require the use of estimates relating to the valuation of property, plant and equipment and goodwill, assumptions and methodology for assessing hedge effectiveness regarding aluminum and natural gas futures contracts, forward contracts and options, assumptions for computing pension and postretirement benefits obligations, allowance for uncollectible accounts receivable, assumptions for computing workers'compensation liabilities and environmental liabilities. See the caption entitled "Application of Critical Accounting Policies" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's annual report to stockholders for the year ended December 31, 2002 for additional information. Results of Operations for the three months and nine months ended September 30, 2003 and 2002 Net Sales. Net sales for the quarter ended September 30, 2003 decreased 2% to $248 million (including $27 million from Alflex) from $254 million (including $30 million from Alflex) for the same period in 2002. The decrease is due to the combined effect of lower aluminum and electrical product shipments and lower net selling prices of electrical products which more than offset an increase in net selling prices of aluminum products. Unit sales volume of aluminum decreased 16% to 195.4 million pounds for the third quarter of 2003 from 232.8 million pounds for the third quarter of 2002. Alflex unit sales volume was 124.5 million feet for the third quarter of 2003, a decrease of 4% versus 130.3 million feet for the comparable period in 2002. As mentioned previously, the decreased aluminum and electrical product shipments were due to difficult business conditions in both businesses. Net sales for the nine-month period ended September 30, 2003, were $675 million (including $77 million from Alflex), a 7% decrease from the $728 million recorded in the first nine months of 2002 (including $86 million from Alflex). The decrease is due to the combined effect of lower aluminum and electrical product shipments and lower net selling prices of electrical products which more than offset an increase in net selling prices of aluminum products. Unit sales volume of aluminum was 557.3 million pounds for the nine months of 2003, a decrease of 18% from the 680.2 million pounds for the first nine months of 2002. Alflex unit sales volume was 350.9 million feet for the first nine months of 2003, a decrease of 6%, versus 374.8 million feet for the comparable period in 2002. As mentioned previously, the decreased aluminum and electrical product shipments were due to difficult business conditions in both businesses. Gross Profit. Gross profit for the quarter ended September 30, 2003, decreased to $16.4 million (6.6% of net sales) from $19.4 million (7.6% of net sales) for the same period in 2002. Gross profit for the nine months ended September 30, 2003 was $37.9 million (5.6% of net sales) versus $45.6 million (6.3% of net sales) for the comparable period in 2002. Contributing to the third quarter and nine-month decreases in gross profit were decreases in both the Aluminum business and Alflex. The Aluminum business gross profit declined in both the third quarter and nine-month period compared to the prior year periods primarily due to lower shipment volumes, partially offset by the combined effects of improved material margins, the mark-to-market hedge adjustments mentioned previously and by cost of goods sold reductions related to the aforementioned changes to the Company's postretirement medical insurance program. The third quarter and nine-month gross profit decreases at Alflex reflect the net effects of lower shipment volume, lower material margins and a mix of higher manufacturing unit costs for the nine-month period, somewhat offset by lower manufacturing unit costs in the third quarter. Operating Income. The Company had operating income of $6.3 million for the third quarter of 2003 compared with operating income of $6.8 million for the third quarter of 2002. For the nine-month period ended September 30, 2003, the Company had operating income of $4.6 million, versus operating income of $10.8 million for the first nine months of 2002. The decreases in operating income for the third quarter and nine-month period were primarily due to reduced operating income at both Alflex and the Aluminum business due to the factors described in the preceding paragraph, partially offset by lower selling, general and administrative expenses. Selling, general and administrative expenses during the third quarter of 2003 were $10.1 million, compared with $12.5 million for the same period in 2002 and were $33.3 million for the nine months ended September 30, 2003, compared with $34.8 million for the same period in 2002. The third quarter and nine-month decreases in selling, general and administrative expenses were primarily due to a reduction in postretirement medical expense relating to the changes made in the postretirement medical program during the second quarter of 2003 and lower accruals for employee incentive plans which more than offset an increase in professional service costs principally associated with the Company's project to upgrade its information technology systems. Cumulative effect of change in accounting principle. A non-cash goodwill impairment charge of $25.3 million was recorded as a cumulative effect of change in accounting principle as of January 1, 2002 under SFAS No.142. See note 8 to the condensed consolidated financial statements for additional information. Net Income. The Company had net income of $2.9 million for the quarter ended September 30, 2003, compared with net income of $6.1 million for the same period in 2002. The Company's net loss for the nine months ended September 30, 2003 was $5.5 million compared with a net loss of $22.6 million for the first nine months of 2002. The net loss for the first nine months of 2002 includes the $25.3 million goodwill impairment charge described in the preceding paragraph. Interest expense was $3.7 million for both the quarter ended September 30, 2003 and 2002 and $11.2 million for the nine months ended September 30, 2003, compared with $11.4 million for the first nine months of 2002. The nine-month decrease was primarily due to a reduction in interest rates under the Company's receivables purchase agreement which more than offset the combined effect of an increase in amounts outstanding under the agreement and a reduction in investment interest income. Income tax expense was $0.05 million in the third quarter of 2003 compared to an income tax benefit of $2.6 million for the same period in 2002 and an income tax expense of $0.2 million for the nine months ended September 30, 2003 compared to an income tax benefit of $2.5 million for the same period in 2002. The increase in income tax expense was due to a $2.7 million adjustment recorded in the third quarter of 2002 to reduce prior years' income tax accruals. Off-Balance Sheet Arrangement During 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 receivables purchase agreement 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. During 2000, the Company and the financial institution extended the receivables purchase agreement for an additional three-year period ending in September 2003 and in October 2002 extended the agreement for an additional year ending in September 2004. In addition during September 2001, the Company and the financial institution agreed to reduce the size of the facility to $95.0 million and in October 2003, the availability was further reduced to $60.0 million. At September 30, 2003 and 2002, the Company had outstanding under the agreement $40.0 million and $20.0 million, respectively, and had $81.6 million and $100.2 million, respectively, of net residual interest in receivables sold. The fair value of the net residual interest is measured at the time of the sale and is based on the sale of similar assets. In the nine months ended September 30, 2003 and 2002, the Company received gross proceeds of $62.0 million and $37.0 million, respectively, from the sale of receivables and made gross payments of $46.0 million and 37.0 million, respectively, under the agreement. Under the terms of the agreement, the Company is required to maintain tangible net worth of $5 million, and to not exceed certain percentages of credit sales for uncollectible accounts, delinquent accounts and sales returns and allowances. Should the Company exceed such limitations, the financial institution has the right to terminate the agreement. Liquidity and Capital Resources The Company's operations used cash flows of $0.5 million for the nine months ended September 30, 2003 compared to providing cash flows of $4.2 million in the nine months ended September 30, 2002. Working capital increased to $131.3 million at September 30, 2003 from $129.5 million at September 30, 2002. Capital expenditures were $4.4 million during the three months ended September 30, 2003 and $11.5 million during the nine months ended September 30, 2003 compared to $6.9 million during the three months ended September 30, 2002 and $10.1 million during the nine months ended September 30, 2002. At September 30, 2003, the Company had commitments of $4.9 million for the purchase or construction of capital assets. Total capital expenditures for the year 2003 are estimated to be approximately $15.4 million, all generally related to upgrading and expanding the Company's manufacturing and other facilities, acquiring and enhancing software and hardware as part of the Company's information system redesign project and meeting environmental requirements. The Company's sources of liquidity are cash flows from operations, the Company's receivables purchase agreement described previously and borrowings under its $30 million revolving credit facility. The revolving credit facility expires on March 31, 2005. Availability of advances under the $30 million revolving credit facility is dependent on the continued satisfaction of certain financial covenants contained in the revolving credit agreement. While the Company is currently in full compliance with such financial covenants there is no assurance that the Company will be able to continue meeting such covenants, as currently structured, at all times during the next twelve months. In the event the Company does not meet the requisite covenants it may seek to obtain waivers or amendments of applicable covenant provisions from the participating lenders. In any event, the Company believes it has sufficient liquidity available from operating cash flows and amounts available under its receivables purchase agreement to fund its working capital requirements, capital expenditures, debt service, and if necessary, to satisfy any outstanding amounts under its revolving credit facility for at least the next twelve months. The Company's revolving credit facility permits borrowings and letters of credit up to $30.0 million outstanding at any time. As noted in the previous paragraph, availability is subject to satisfaction of certain covenants and other requirements. At September 30, 2003 outstanding amounts under the credit facility consisted of $3.2 million of borrowings and $3.1 million of standby letters of credit, leaving $23.7 million available at September 30, 2003. The Company announced on July 31, 2003, that its Board of Directors had suspended the Company's quarterly cash dividend payments on its common stock as of the third quarter of 2003 due to the challenging economic conditions and to ensure continued compliance with the Company's debt instruments regarding the payment of dividends. The restrictions that limit the payment of cash dividends are contained in the Indenture relating to the Company's $125 million senior subordinated notes due in 2006. The Company believes that the restrictions are likely to result in suspension of the cash dividend through at least the maturity of the senior subordinated notes in 2006. The following schedules summarize the Company's contractual cash obligations and unused availability of financing sources at September 30, 2003 (in thousands).
Payments Due By Period ------------------------------------------------------------ Contractual Cash Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years - ------------------------------------------------------------------------------------------------------------ Long-term debt $128,190 $ -- $3,190 $125,000 $ -- Operating leases 10,715 3,303 3,400 1,450 2,562 Standby letters of credit 3,111 3,111 -- -- -- Outstanding obligation under receivables purchase agreement 40,000 40,000 -- -- -- ---------------------------------------------------------------------- Total contractual cash obligations $182,016 $46,414 $6,590 $126,450 $2,562 ====================================================================== Amount of Availability Per Period Unused Availability of Total Amounts ------------------------------------------------------------ Financing Sources Available Less than 1 year 1-3 years 4-5 years Over 5 years - ------------------------------------------------------------------------------------------------------------ Unused revolving credit facility $ 23,699 $ -- $23,699 $ -- $ -- Unused availability under receivables purchase agreement 55,000(1) 55,000(1) -- -- -- ---------------------------------------------------------------------- Total available $ 78,699(2) $55,000(1) $23,699 $ -- $ -- ====================================================================== (1) The amount was reduced to $20,000 as of October 31, 2003. (2) The amount was reduced to $43,699 as of October 31, 2003.
The Company has 7 1/4 years remaining on a 10-year guaranteed supply agreement with Glencore Ltd. ("Glencore"), a leading diversified trading and industrial company, for the purchase of primary aluminum. Under the agreement, the Company committed to purchase a minimum of 1.2 billion pounds of P1020/99.7% aluminum at current market prices from Glencore over the 10-year term. At September 30, 2003, the Company held firm-priced aluminum purchase and sales commitments through May 2005 totaling $7 million and $131 million, respectively. The Company hedges the impact of changes in prices related to these commitments as explained in the section entitled "Risk Management" which follows. 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 a policy of hedging its anticipated raw material purchases based on firm-priced sales and purchase orders by purchasing and selling futures contracts, forward contracts and options on the London Metal Exchange ("LME"). The Company also uses forward contracts and options to reduce its risks associated with its natural gas requirements. For the second quarter ending June 30, 2003 and the third quarter ending September 30, 2003, the Company's aluminum futures contracts did not meet certain "effectiveness" requirements set forth in Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). Accordingly, as prescribed by the provisions of SFAS No. 133, the derivative instruments that were used as hedges were marked-to-market and the gains and losses during the second and third quarter of 2003 were recorded currently in the consolidated statement of operations instead of being deferred in other comprehensive income and included in income when the underlying hedged transactions occur. For the foreseeable future, it is likely that the derivative instruments will continue to be marked-to-market through the consolidated statement of operations. It is the Company's policy to hedge its exposure to variability in expected future cash flows relating to its purchases of scrap aluminum by entering into forward purchase contracts of primary aluminum. Scrap metal purchases are priced by suppliers in relation to prevailing primary metal prices, plus or minus certain quality and delivery differentials. The quality and delivery differentials change from time to time in relation to market conditions, but there is no derivative instrument available to correspondingly hedge such changes. Since the forward purchase contracts used by the Company only hedge the primary metal pricing components, changes in the other scrap metal pricing components cause the noted ineffectiveness. However, the derivative instruments are considered by the Company to be economically appropriate hedges of cash flows associated with the primary metal pricing components of scrap aluminum purchases. The Company's natural gas futures continue to be deemed "effective" per SFAS No. 133 and accordingly the gains and losses on these financial instruments are deferred in other comprehensive income and included in income when the underlying hedged transactions occur. As of September 30, 2003, the Company had $0.2 million of deferred net losses recorded in accumulated other comprehensive income. Over the next twelve months, approximately $0.6 million of deferred net gains are expected to be reclassified from other comprehensive income into net income as a reduction of cost of goods sold. A net gain of $1.1 million and $1.5 million was recognized in cost of goods sold during the three months and nine months ended September 30, 2003, respectively, and a net loss of $0.05 million and $0.16 million was recognized in cost of goods sold during the three months and nine months ended September 30, 2002, respectively, representing the amount of the hedges' ineffectiveness. As of September 30, 2003, the Company held open aluminum and natural gas futures and forward contracts having maturity dates extending through December 2005. Before entering into futures contracts, forward contracts and options, the Company reviews the credit rating of the counterparty and assesses 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 expect any such counterparties to not perform. Recently Issued Accounting Pronouncements In January 2003, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). This Interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 were to be applied to the first interim or annual period beginning after June 15, 2003, but in October 2003 the Financial Accounting Standards Board decided to defer that implementation to the first interim or annual period beginning after December 15, 2003. Management does not expect the adoption of this Interpretation to have a material impact on the Company's results of operations or financial position. In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (" SFAS No. 149"). The Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. In addition, the provisions of this Statement are generally to be applied prospectively. The Statement's initial adoption did not have a material impact on the Company's results of operations or financial position. In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). The Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The provisions of SFAS No. 150 apply immediately to all financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003. The Statement's initial adoption did not have a material impact on the Company's results of operations or financial position. Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company's management carried out an evaluation, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the quarter ended September 30, 2003. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) Changes in Internal Control over Financial Reporting There have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is a party to non-environmental legal proceedings and administrative actions all of which are of an ordinary routine nature incidental to the operations of the Company. Although it is impossible to predict the outcome of any legal proceeding, in the opinion of management such proceedings and actions should not, individually or in aggregate, have a material adverse effect on the Company's financial condition, results of operations or cash flows, although resolution in any year or quarter could be material to the results of operation for that period. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 First Amendment, dated October 14, 2003, to Third Amended and Restated Credit Agreement among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and PNC Bank, National Association, as administrative agent, dated as of March 21, 2002. 31 Rule 13a-14(a)/15d-14(a) Certifications ("Section 302 Certifications"). 32 Section 1350 Certifications ("Section 906 Certifications"). (b) Reports on Form 8-K The following reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended September 30, 2003: A Form 8-K dated July 22, 2003 reporting the Company's results of operations for the Second Quarter of 2003. A Form 8-K dated July 31, 2003 reporting that the Company was suspending quarterly cash dividend payments on its common stock. 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 and Chief Financial Officer Date: November 6, 2003 Exhibit Index ------------- Exhibit Number Description - ------- --------------------------------------------------------- 10.1 First Amendment, dated October 14, 2003, to Third Amended and Restated Credit Agreement among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and PNC Bank, National Association, as administrative agent, dated as of March 21, 2002. 31 Rule 13a-14(a)/15d-14(a) Certifications ("Section 302 Certifications"). 32 Section 1350 Certifications ("Section 906 Certifications"). EX-10 3 jb10q32003ex101.txt FORM 10-Q FOR 3Q2003 Exhibit 10.1 ------------ FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment") is dated as of October 14 , 2003, and made by and among: (1) COMMONWEALTH INDUSTRIES, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Parent") and the successor by merger to CI Holdings, Inc.; (2) CI HOLDINGS, INC., a corporation duly organized and validly existing under the laws of the State of Delaware ("CI Holdings") and formerly known as Alflex Corporation; (3) COMMONWEALTH ALUMINUM CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware ("CAC"); (4) ALFLEX CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware ("New Alflex"); (5) CA LEWISPORT, INC., a corporation duly organized and validly existing under the laws of the State of Delaware ("Old Lewisport") and formerly known as Commonwealth Aluminum Lewisport, Inc. and as Commonwealth Aluminum Corporation; (6) COMMONWEALTH ALUMINUM LEWISPORT, LLC, a limited liability company duly formed and validly existing under the laws of the state of Delaware ("New Lewisport"); (7) COMMONWEALTH ALUMINUM METALS, LLC, a limited liability company duly formed and validly existing under the laws of the State of Delaware ("Metals"); (8) COMMONWEALTH ALUMINUM CONCAST, INC. (formerly named Barmet Aluminum Corporation) a corporation duly organized and validly existing under the laws of the State of Ohio ("CACI" and, together with CAC, CI Holdings, Old Lewisport, New Lewisport, Metals and New Alflex, each a "Revolving Credit Borrower" and, collectively, the "Revolving Credit Borrowers"); (9) each of the Subsidiaries of the Parent identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (each, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"); (10) each of the lenders that is a signatory hereto (individually, a "Lender" and, collectively, the "Lenders"); and (11) PNC BANK, NATIONAL ASSOCIATION, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). This Amendment amends that certain Third Amended and Restated Credit Agreement dated as of March 21, 2002 (the "Credit Agreement"). WITNESSETH: WHEREAS, Parent, Revolving Credit Borrowers and Subsidiary Guarantors have requested Lenders, subject to the terms and conditions herein, to amend the Credit Agreement to modify the Total Leverage Ratio financial covenant as measured at the fiscal quarter ended September 30, 2003. NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements herein contained and intending to be legally bound hereby, covenant and agree as follows: 1. Recitals. The foregoing recitals are true and correct and incorporated herein by reference. 2. Definitions. Capitalized terms not otherwise defined in this Amendment have the meanings given to them in the Credit Agreement. 3. Amendment of Credit Agreement. Subsection 9.10(a) of the Credit Agreement is hereby amended and restated as follows: "(a) Total Leverage Ratio. The Parent will not permit the Total Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: Period Ratio From and including the Restatement Effective Date to and including March 31, 2002 4.50 to 1.00 From and including April 1, 2002 to and including September 30, 2002 4.25 to 1.00 From and including October 1, 2002 to and including December 31, 2002 4.00 to 1.00 From and including January 1, 2003 to and including June 30, 2003 3.75 to 1.00 From and including July 1, 2003 to and including September 30, 2003 4.25 to 1.00 From and including October 1, 2003 to and including December 31, 2003 3.75 to 1.00 From January 1, 2004 and at all times thereafter 3.25 to 1.00 4. Amendment Fee. The Borrowers shall pay to the Administrative Agent, for the benefit of the Lenders which execute and deliver this Amendment to the Administrative Agent on or before October 14, 2003, an amendment fee in the amount of 25 basis points of the Revolving Credit Commitments of such Lenders. 5. Conditions Precedent. The Parent, the Revolving Credit Borrowers, the Subsidiary Guarantors and the Lenders acknowledge that this Amendment shall not be effective until each of the following conditions precedent has been satisfied (such date is referred to herein as the "Effective Date"): (a) The Parent, the Revolving Credit Borrowers, the Subsidiary Guarantors, the Required Banks, and the Administrative Agent shall have executed this Amendment; (b) The Borrowers shall have paid to the Administrative Agent, for the benefit of the applicable Lenders, the amendment fee set forth in Section 4 of this Amendment. (c) The Parent shall have delivered to the Administrative Agent a closing certificate certifying to the accuracy of representations and warranties, compliance with covenants and conditions and absence of any Default or Event of Default under the Credit Agreement; (d) No Material Adverse Effect shall have occurred with respect to the Parent, the Revolving Credit Borrowers or the Subsidiary Guarantors; (e) The Parent, the Revolving Credit Borrower and the Subsidiary Guarantors shall have obtained all approvals and consents necessary to consummate the transactions contemplated by this Amendment; (f) All legal details and proceedings in connection with the transactions contemplated by this Amendment and all other Credit Documents shall be in form and substance satisfactory to the Administrative Agent. 6. Incorporation into Credit Agreement. This Amendment shall be incorporated into the Credit Agreement by this reference. 7. Full Force and Effect. Except as expressly modified by this Amendment, all of the terms, conditions, representations, warranties and covenants of the Credit Agreement and the other Credit Documents are true and correct and shall continue in full force and effect without modification. 8. Reimbursement of Expenses. The Borrowers unconditionally agrees to pay and reimburse the Administrative Agent and save the Administrative Agent harmless against liability for the payment of reasonable out-of-pocket costs, expenses and disbursements, including without limitation, fees and expenses of counsel incurred by the Administrative Agent in connection with the development, preparation, execution, administration, interpretation or performance of this Amendment and all other documents or instruments to be delivered in connection herewith. 9. Counterparts. This Amendment may be executed by different parties hereto in any number of separate counterparts, each of which, when so executed and delivered shall be an original and all such counterparts shall together constitute one and the same instrument. 10. Entire Agreement. This Amendment sets forth the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersedes all prior understandings and agreements, whether written or oral, between the parties hereto relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by any party which is not embodied in this Amendment, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not set forth herein. 11. Governing Law. This First Amendment shall be deemed to be a contract under the laws of the State of New York and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to its conflict of laws principles. [SIGNATURE PAGES FOLLOW] [SIGNATURE PAGE 1 OF 7 TO FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. THE PARENT COMMONWEALTH INDUSTRIES, INC. By --------------------------------------------------- Name: Title: [SIGNATURE PAGE 2 OF 7 TO FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT] THE BORROWERS COMMONWEALTH ALUMINUM CORPORATION By --------------------------------------------------- Name: Title: ALFLEX CORPORATION By --------------------------------------------------- Name: Title: COMMONWEALTH ALUMINUM CONCAST, INC. By --------------------------------------------------- Name: Title: CA LEWISPORT, INC. By --------------------------------------------------- Name: Title [SIGNATURE PAGE 3 OF 7 TO FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT] CI HOLDINGS, INC. By --------------------------------------------------- Name: Title: COMMONWEALTH ALUMINUM LEWISPORT, LLC By: CA LEWISPORT, INC., its managing member By --------------------------------------------------- Name: Title: COMMONWEALTH ALUMINUM METALS, LLC By: COMMONWEALTH ALUMINUM LEWISPORT, LLC, its sole member By: CA LEWISPORT, INC., its managing member By --------------------------------------------------- Name: Title: [SIGNATURE PAGE 4 OF 7 TO FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT] SUBSIDIARY GUARANTORS: --------------------- COMMONWEALTH ALUMINUM SALES CORPORATION By --------------------------------------------------- Name: Title: ALFLEX E1 LLC By: ALFLEX CORPORATION, its sole member By --------------------------------------------------- Name: Title: COMMONWEALTH ALUMINUM TUBE ENTERPRISES, LLC By: COMMONWEALTH ALUMINUM CONCAST, INC., its sole member By --------------------------------------------------- Name: Title: [SIGNATURE PAGE 5 OF 7 TO FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT] PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent and a Lender By --------------------------------------------------- Name: Title: [SIGNATURE PAGE 6 OF 7 TO FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT] U.S. BANK NATIONAL ASSOCIATION By --------------------------------------------------- Name: Title: [SIGNATURE PAGE 7 OF 7 TO FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT] NATIONAL CITY BANK OF KENTUCKY By --------------------------------------------------- Name: Title: EX-31 4 jb10q22003ex31.txt FORM 10-Q FOR 3Q2003 Exhibit 31 ---------- CERTIFICATIONS I, Mark V. Kaminski, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Commonwealth Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2003 /s/ Mark V. Kaminski --------------------- Mark V. Kaminski President and Chief Executive Officer CERTIFICATIONS (continued) I, Donald L. Marsh, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Commonwealth Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2003 /s/ Donald L. Marsh, Jr. ------------------------- Donald L. Marsh, Jr. Executive Vice President and Chief Financial Officer EX-32 5 jb10q32003ex32.txt FORM 10-Q FOR 3Q2003 Exhibit 32 ---------- Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350 Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officers of Commonwealth Industries, Inc., a Delaware corporation (the "Company"), hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (the "Report") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 6, 2003 /s/ Mark V. Kaminski -------------------------------- Name: Mark V. Kaminski Title: President and Chief Executive Officer /s/ Donald L. Marsh, Jr. -------------------------------- Name: Donald L. Marsh, Jr. Title: Executive Vice President and Chief Financial Officer The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----