EXHIBIT 99.1
TAMCO FINANCIAL STATEMENTS
Exhibit 99.1 is the TAMCO Financial Statements as of November 30, 2005, and for each of the three years in the period ended November 30, 2005 and Reports of Independent Registered Public Accounting Firms.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
TAMCO
In our opinion, the accompanying balance sheet and the related statements of income and comprehensive income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of TAMCO at November 30, 2005, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of the Company as of November 30, 2004 and 2003, and for the years then ended were audited by other auditors whose report dated January 14, 2005 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
January 25, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
TAMCO
Rancho Cucamonga, California
We have audited the accompanying balance sheet of TAMCO (the "Company") as of November 30, 2004, and the related statement of income and other comprehensive income, shareholders' equity and cash flows for each of the two years in the period ended November 30, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at November 30, 2004, and the results of their operations and their cash flows for each of the two years in the period ended November 30, 2004 in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
January 14, 2005
BALANCE SHEETS - ASSETS
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| As of November 30, | ||||
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(In thousands, except per share data) |
| 2005 |
| 2004 | ||
ASSETS |
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Current assets |
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Cash |
| $ | 3 |
| $ | 3 |
Trade receivables, net of allowances of $80 in 2005 and $259 in 2004 |
| 9,535 |
| 7,624 | ||
Due from shareholders | 491 | 587 | ||||
Other receivables | 643 | 452 | ||||
Inventories |
| 51,191 |
| 54,864 | ||
Deferred income taxes (Note 6) |
| 2,297 |
| 2,360 | ||
Prepaid expenses |
| 1,010 |
| 562 | ||
Natural gas swap asset (Note 5) |
| - |
| 42 | ||
Total current assets |
| 65,170 |
| 66,494 | ||
Property, plant and equipment |
|
|
| |||
Land |
| 1,191 |
| 1,191 | ||
Processing facilities and equipment |
| 93,974 |
| 95,261 | ||
Construction in progress |
| 3,230 |
| 816 | ||
|
| 98,395 |
| 97,268 | ||
Less: Accumulated depreciation and amortization |
| (70,293) |
| (69,400) | ||
Property, plant and equipment, net |
| 28,102 |
| 27,868 | ||
Other assets |
| 16 |
| 75 | ||
Total assets |
| $ | 93,288 |
| $ | 94,437 |
The accompanying notes are an integral part of these financial statements.
BALANCE SHEETS - LIABILITIES AND SHAREHOLDERS' EQUITY
|
| As of November 30, | ||||
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(In thousands, except per share data) |
| 2005 |
| 2004 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Borrowings under line of credit (Note 3) |
| $ | 19,200 |
| $ | 19,600 |
Trade payables |
| 17,924 |
| 12,984 | ||
Other accrued liabilities |
| 4,481 |
| 5,535 | ||
Total current liabilities |
| 41,605 |
| 38,119 | ||
Long-term liabilities |
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|
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| ||
Other long-term liabilities (Notes 1 and 4) |
| 6,922 |
| 6,242 | ||
Deferred income taxes (Note 6) |
| 1,466 |
| 2,361 | ||
Total long-term liabilities |
| 8,388 |
| 8,603 | ||
Commitments and contingencies (Note 7) |
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Shareholders' equity |
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Common stock, $100 par value, authorized, issued and outstanding, |
| |||||
220,000 shares in 2005 and 2004 | 19,482 |
| 19,482 | |||
Retained earnings |
| 26,900 |
| 30,412 | ||
Accumulated other comprehensive loss |
| (3,087) |
| (2,179) | ||
Total shareholders' equity |
| 43,295 |
| 47,715 | ||
Total liabilities and shareholders' equity |
| $ | 93,288 |
| $ | 94,437 |
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
| Year ended November 30, | |||||||
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(In thousands) |
| 2005 |
| 2004 |
| 2003 | |||
Revenue | |||||||||
Gross sales |
| $ | 254,184 |
| $ | 217,284 |
| $ | 164,200 |
Cash discounts allowed |
| (1,749) |
| (1,435) |
| (1,256) | |||
Total revenue | 252,435 | 215,849 | 162,944 | ||||||
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Cost of sales |
| 204,542 |
| 163,741 |
| 147,768 | |||
Loading and freight |
| 5,705 |
| 6,223 |
| 7,451 | |||
Total costs of sales |
| 210,247 |
| 169,964 |
| 155,219 | |||
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Gross profit |
| 42,188 |
| 45,885 |
| 7,725 | |||
General and administrative expenses |
| 7,445 |
| 6,358 |
| 5,179 | |||
Income from operations | 34,743 | 39,527 | 2,546 | ||||||
Other expenses (income), net |
| ||||||||
Interest | 396 | 180 | 290 | ||||||
Other | (92) | (215) | 67 | ||||||
Total other (income) expenses | 304 | (35) | 357 | ||||||
Income before provision for income taxes |
| 34,439 |
| 39,562 |
| 2,189 | |||
Provision for income taxes (Note 6) | 14,048 | 16,135 |
| 778 | |||||
Net income |
| 20,391 |
| 23,427 |
| 1,411 | |||
Unrealized (loss) income on gas swap derivative, net of tax |
| (248) |
| 1,907 |
| 1,851 | |||
Minimum pension liability adjustment, net of tax |
| (660) |
| (289) |
| (304) | |||
Comprehensive income |
| $ | 19,483 |
| $ | 25,045 |
| $ | 2,958 |
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Other | ||||||
Comprehensive Loss | ||||||
Net of Tax | ||||||
Minimum | Unrealized Gain/ | |||||
| Common Stock | Retained | Pension | (Loss) on Gas |
| |
(In thousands, except shares) | Shares | Amount | Earnings | Liability | Swap Derivative | Total |
Balances at November 30, 2002 | 220,000 | $ 19,482 | $ 27,486 | $ (1,834) | $ (3,510) | $ 41,624 |
Net income | - | - | 1,411 | - | - | 1,411 |
Minimum pension liability adjustment | - | - | - | (304) | - | (304) |
Unrealized gain on gas swap derivative | - | - | - | - | 1,851 | 1,851 |
Dividends to shareholders | - | - | (2,552) | - | - | (2,552) |
Balances at November 30, 2003 | 220,000 | 19,482 | 26,345 | (2,138) | (1,659) | 42,030 |
Net income | - | - | 23,427 | - | - | 23,427 |
Minimum pension liability adjustment | - | - | - | (289) | - | (289) |
Unrealized gain on gas swap derivative | - | - | - | - | 1,907 | 1,907 |
Dividends to shareholders | - | - | (19,360) | - | - | (19,360) |
Balances at November 30, 2004 | 220,000 | 19,482 | 30,412 | (2,427) | 248 | 47,715 |
Net income | - | - | 20,391 | - | - | 20,391 |
Minimum pension liability adjustment | - | - | - | (660) | - | (660) |
Unrealized loss on gas swap derivative | - | - | - | - | (248) | (248) |
Dividends to shareholders | - | - | (23,903) | - | - | (23,903) |
Balances at November 30, 2005 | 220,000 | $ 19,482 | $ 26,900 | $ (3,087) | $ - | $ 43,295 |
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS
|
| Year ended November 30, | |||||||
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(In thousands) |
| 2005 |
| 2004 |
| 2003 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
| $ | 20,391 |
| $ | 23,427 |
| $ | 1,411 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities |
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Depreciation and amortization |
| 5,005 |
| 5,239 |
| 5,235 | |||
Deferred income tax (benefit) expense |
| (207) |
| (1,004) |
| 969 | |||
(Profit)/loss on sale/abandonment of property and equipment |
| (14) |
| 31 |
| 1,024 | |||
Net noncash gas swap derivative gain |
| (376) |
| (489) |
| (452) | |||
Changes in operating assets and liabilities: |
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Receivables |
| (2,006) |
| (737) |
| 525 | |||
Inventories |
| 3,673 |
| (27,840) |
| 403 | |||
Prepaid expenses |
| (448) |
| 254 |
| 282 | |||
Other assets |
| 59 |
| 101 |
| 107 | |||
Trade payables |
| 4,940 |
| 1,667 |
| 4,131 | |||
Other accrued liabilities |
| (1,054) |
| 268 |
| (398) | |||
Other liabilities |
| (435) |
| (1,079) |
| (751) | |||
Total adjustments |
| 9,137 |
| (23,589) |
| 11,075 | |||
Net cash provided by (used in) operating activities |
| 29,528 |
| (162) |
| 12,486 | |||
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Additions to property and equipment |
| (5,258) |
| (2,373) |
| (954) | |||
Proceeds from sale of property and equipment |
| 33 |
| - |
| - | |||
Net cash used in investing activities |
| (5,225) |
| (2,373) |
| (954) | |||
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Net borrowings |
| (400) |
| 19,600 |
| (7,500) | |||
Dividends paid to shareholders |
| (23,903) |
| (19,360) |
| (2,552) | |||
Net cash (used in) provided by financing activities |
| (24,303) |
| 240 |
| (10,052) | |||
Net (decrease) increase in cash |
| - |
| (2,295) |
| 1,480 | |||
CASH |
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Beginning of year | 3 | 2,298 | 818 | ||||||
End of year |
| $ | 3 |
| $ | 3 |
| $ | 2,298 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW | |||||||||
Cash paid during the year for | |||||||||
Interest |
| $ | 382 |
| $ | 185 |
| $ | 241 |
Income taxes, net of refunds |
| $ | 13,823 |
| $ | 17,031 |
| $ | 237 |
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Business
TAMCO, a California corporation, was formed in 1974 and is owned by Ameron International Corporation ("Ameron") (a 50%, shareholder); Mitsui & Co., U.S.A., Inc. and Mitsui & Co., Ltd. (in the aggregate, a 25% shareholder); and Tokyo Steel Mfg. Co., Ltd. (a 25% shareholder). TAMCO's operations consist of the manufacture and sale of steel reinforcing bar. The Company sells product within California, Nevada and Arizona.
Fiscal Year-End
The Company's fiscal year ends on the Sunday nearest November 30. The actual fiscal year end for 2005, 2004 and 2003 was November 27, November 28 and November 30, respectively. For clarity of presentation, the financial statements refer to the year-end as November 30 for all years.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Revenue Recognition
The Company records revenue upon shipment of the product and transfer of title to the customer. Cash discounts taken by customers are recorded as a reduction of revenue.
Shipping and Handling Costs
The Company incurs loading and freight costs in the shipment of its finished goods. Such costs are included within cost of sales.
The majority of these costs are passed onto customers and are included within sales amounting to $3,730,000, $758,000 and $923,000 and in 2005, 2004 and 2003, respectively.
Other Expenses (Income)
Other expenses (income) on the statements of income and comprehensive income consist primarily of rental income and interest expense predominantly with respect to the line of credit in place. In addition, in 2003 only, the Company received payments for legal settlements of approximately $786,000.
Income Taxes
The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using the enacted tax laws. Valuation allowances are established, when necessary, to reduce deferred tax assets that are not expected to be realized.
Inventories
Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out method. Inventories consisted of the following at November 30:
INVENTORIES
(In thousands) |
| 2005 |
| 2004 | ||
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Rebar |
| $ | 19,633 |
| $ | 32,662 |
Billets |
| 15,764 |
| 7,615 | ||
Scrap metal |
| 8,962 |
| 7,372 | ||
Supplies and spare parts |
| 6,832 |
| 7,215 | ||
Total |
| $ | 51,191 |
| $ | 54,864 |
The Company currently buys its scrap metal at market prices. Due to the nature of this commodity market, the Company is vulnerable to price changes due to shifts in supply and demand. These changes in raw material prices may not necessarily be passed on to the end users and, therefore, could impact operating results.
Property, Plant and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives, which are as follows:
Processing facilities | 20 to 25 years |
Equipment | 3 to 25 years |
Depreciation expense was $5,005,000, $5,239,000 and $5,235,000 for fiscal years ended 2005, 2004 and 2003, respectively.
Other Long-Term Liabilities
Other long-term liabilities consist of the noncurrent portions of pension liabilities and workers' compensation liabilities.
Dividends
The Company declared dividends on all outstanding common stock during fiscal 2005 as follows: