EXHIBIT 99.1
TAMCO FINANCIAL STATEMENTS
Exhibit 99.1 is the unaudited TAMCO Financial Statements as of October 20, 2010 and the period from December 1, 2009 through October 20, 2010, and the audited TAMCO Financial Statements for each of the two years in the period ended November 30, 2009 and associated Report of Independent Registered Public Accounting Firm.
TAMCO
Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
TAMCO
Index
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Page(s) | |
Report of Independent Auditors | 1 |
Financial Statements | |
Balance Sheets | 2 |
Statements of Income (Loss) and Comprehensive Income (Loss) | 3 |
Statements of Shareholders’ Equity | 4 |
Statements of Cash Flows | 5 |
Notes to Financial Statements | 6–21 |
Report of Independent Auditors
To the Board of Directors and Shareholders of
TAMCO
In our opinion, the accompanying balance sheet and the related statements of income (loss) and comprehensive income (loss), of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of TAMCO at November 30, 2009, and the results of its operations and its cash flows for each of the two fiscal years in the period ended November 30, 2009, 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 audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. 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 audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the financial statements, the Company adopted a new standard to account for the financial and non-financial assets and liabilities using fair value and disclosed the use of fair value measures for recognition and disclosure purposes in the fiscal years ended November 30, 2008 and 2009. Also, as discussed in Note 6 to the financial statements, for the fiscal year ended November 30, 2009, the Company changed the measurement date used to account for its defined benefit pension plans.
/s/ PricewaterhouseCoopers LLP
Orange County, California
January 25, 2010
1
TAMCO
Balance Sheets
October 20, 2010 and November 30, 2009
(in thousands, except share amounts) | 2010 | 2009 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 2,116 | $ | 1,421 | ||||
Restricted cash | 1,073 | 2,857 | ||||||
Trade and other receivables, net of allowances of $451 and $430 in 2010 and 2009, respectively | 8,001 | 3,815 | ||||||
Due from shareholders | 86 | 38 | ||||||
Inventories | 30,979 | 29,909 | ||||||
Deferred tax assets (Note 7) | 908 | 935 | ||||||
Income tax refund receivable (Note 7) | 1,723 | 7,975 | ||||||
Prepaid expenses and tooling | 970 | 908 | ||||||
Total current assets | 45,856 | 47,858 | ||||||
Property, plant and equipment | ||||||||
Land | 1,191 | 1,191 | ||||||
Processing facilities and equipment | 104,770 | 104,770 | ||||||
Construction in process | 16,262 | 14,497 | ||||||
Total property, plant and equipment | 122,223 | 120,458 | ||||||
Less: Accumulated depreciation and amortization | (81,540 | ) | (77,851 | ) | ||||
Property, plant and equipment, net | 40,683 | 42,607 | ||||||
Deferred tax assets (Note 7) | 719 | 1,104 | ||||||
Other assets (Note 2) | 6,604 | 7,299 | ||||||
Total assets | $ | 93,862 | $ | 98,868 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities | ||||||||
Borrowings under line of credit (Note 5) | $ | - | $ | - | ||||
Trade payables | 6,852 | 5,590 | ||||||
Other accrued liabilities | 2,071 | 1,403 | ||||||
Total current liabilities | 8,923 | 6,993 | ||||||
Long-term liabilities | ||||||||
Borrowings from shareholders (Note 5) | 27,000 | 30,000 | ||||||
Other long-term liabilities (Notes 2 and 6) | 14,623 | 15,155 | ||||||
Total long-term liabilities | 41,623 | 45,155 | ||||||
Commitments and contingencies (Note 8) | ||||||||
Shareholders' equity | ||||||||
Common stock, $100 par value; 220,000 shares authorized, issued and outstanding | 39,482 | 39,482 | ||||||
Retained earnings | 14,320 | 16,935 | ||||||
Accumulated other comprehensive loss | (10,486 | ) | (9,697 | ) | ||||
Total shareholders' equity | 43,316 | 46,720 | ||||||
Total liabilities and shareholders' equity | $ | 93,862 | $ | 98,868 |
The accompanying notes are an integral part of these financial statements.
2
TAMCO
Statements of Income (Loss) and Comprehensive Income (Loss)
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
(in thousands) | 2010 | 2009 | 2008 | |||||||||
(Unaudited) | ||||||||||||
Revenue | ||||||||||||
Gross sales | $ | 99,825 | $ | 86,390 | $ | 368,605 | ||||||
Cash discounts allowed | (657 | ) | (650 | ) | (2,648 | ) | ||||||
Total revenue | 99,168 | 85,740 | 365,957 | |||||||||
Cost of sales | 94,889 | 96,539 | 300,493 | |||||||||
Lower of cost or market adjustment | - | 51 | 9,842 | |||||||||
Loading and freight | 2,171 | 1,890 | 5,695 | |||||||||
Total costs of sales | 97,060 | 98,480 | 316,030 | |||||||||
Gross (loss) profit | 2,108 | (12,740 | ) | 49,927 | ||||||||
General and administrative expenses | 5,092 | 7,529 | 8,913 | |||||||||
(Loss) income from operations | (2,984 | ) | (20,269 | ) | 41,014 | |||||||
Other expenses (income), net | ||||||||||||
Interest | 967 | 933 | 1,713 | |||||||||
Other | 292 | (1,091 | ) | 1,824 | ||||||||
Total other expenses | 1,259 | (158 | ) | 3,537 | ||||||||
(Loss) income before income taxes | (4,243 | ) | (20,111 | ) | 37,477 | |||||||
Benefit from (provision for) income taxes (Note 7) | 1,628 | 8,156 | (14,600 | ) | ||||||||
Net (loss) income | (2,615 | ) | (11,955 | ) | 22,877 | |||||||
Other comprehensive income (loss) | ||||||||||||
Defined benefit pension plans | ||||||||||||
Net pension loss during period | (1,122 | ) | (9,691 | ) | (2,812 | ) | ||||||
Amortization of prior service costs included in net periodic pension cost | 1 | 5 | 6 | |||||||||
Total defined benefit pension plans | (1,121 | ) | (9,686 | ) | (2,806 | ) | ||||||
Unrealized gain (loss) on investments | - | 19 | (32 | ) | ||||||||
Total other comprehensive (loss) income, before tax | (1,121 | ) | (9,667 | ) | (2,838 | ) | ||||||
Benefit from (provision for) income taxes related to other comprehensive income | 332 | 4,019 | 1,081 | |||||||||
Total other comprehensive (loss) income, net of tax | (789 | ) | (5,648 | ) | (1,757 | ) | ||||||
Comprehensive (loss) income | $ | (3,404 | ) | $ | (17,603 | ) | $ | 21,120 |
The accompanying notes are an integral part of these financial statements.
3
TAMCO
Statements of Shareholders’ Equity
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Accumulated Other | ||||||||||||||||||||||||
Comprehensive Loss, | ||||||||||||||||||||||||
Common Stock | Retained | Net of Tax | ||||||||||||||||||||||
(in thousands, except shares) | Shares | Amount | Earnings | Pension | Other | Total | ||||||||||||||||||
Balances at November 30, 2007 | 220,000 | $ | 19,482 | $ | 27,905 | $ | (2,292 | ) | $ | - | $ | 45,095 | ||||||||||||
Net income | - | - | 22,877 | - | - | 22,877 | ||||||||||||||||||
Net pension loss during period | - | - | - | (1,738 | ) | - | (1,738 | ) | ||||||||||||||||
Unrealized loss on investments | - | - | - | - | (19 | ) | (19 | ) | ||||||||||||||||
Dividends to shareholders | - | - | (21,615 | ) | - | - | (21,615 | ) | ||||||||||||||||
Balances at November 30, 2008 | 220,000 | 19,482 | 29,167 | (4,030 | ) | (19 | ) | 44,600 | ||||||||||||||||
Net loss | - | - | (11,955 | ) | - | (11,955 | ) | |||||||||||||||||
Net pension loss during period | - | - | - | (5,660 | ) | - | (5,660 | ) | ||||||||||||||||
Adoption of new measurement date for defined benefit pension plans | - | - | (277 | ) | - | - | (277 | ) | ||||||||||||||||
Unrealized gain on investments | - | - | - | - | 12 | 12 | ||||||||||||||||||
Shareholder contribution (Note 4) | - | 20,000 | - | - | - | 20,000 | ||||||||||||||||||
Balances at November 30, 2009 | 220,000 | 39,482 | 16,935 | (9,690 | ) | (7 | ) | 46,720 | ||||||||||||||||
Net loss | (2,615 | ) | (2,615 | ) | ||||||||||||||||||||
Net pension loss during period | - | - | - | (789 | ) | - | (789 | ) | ||||||||||||||||
Balances at October 20, 2010 (Unaudited) | 220,000 | $ | 39,482 | $ | 14,320 | $ | (10,479 | ) | $ | (7 | ) | $ | 43,316 |
The accompanying notes are an integral part of these financial statements.
4
TAMCO
Statements of Cash Flows
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
2010 | 2009 | 2008 | ||||||||||
(Unaudited) | ||||||||||||
Cash flows from operating activities | ||||||||||||
Net (loss) income | $ | (2,615 | ) | $ | (11,955 | ) | $ | 22,877 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||
Depreciation and amortization | 4,274 | 5,933 | 5,378 | |||||||||
Change in bad debt provision | 21 | 350 | - | |||||||||
Lower of cost or market adjustment | - | 51 | 9,842 | |||||||||
Deferred income taxes | - | 125 | 2,671 | |||||||||
Loss (profit) on disposal of property, plant and equipment | (4 | ) | 225 | 49 | ||||||||
Changes in operating assets and liabilities | ||||||||||||
Receivables | (4,255 | ) | 126 | 5,835 | ||||||||
Income tax receivable | 6,331 | 2,087 | (10,062 | ) | ||||||||
Inventories | (1,068 | ) | 16,351 | 8,947 | ||||||||
Other current assets | (250 | ) | (755 | ) | (205 | ) | ||||||
Other assets | 567 | 68 | 131 | |||||||||
Trade payables | 1,263 | 1,334 | (6,798 | ) | ||||||||
Other accrued liabilities | 668 | (5,832 | ) | (1,458 | ) | |||||||
Other liabilities | (992 | ) | 591 | (2,465 | ) | |||||||
Total adjustments | 6,555 | 20,654 | 11,865 | |||||||||
Net cash provided by operating activities | 3,940 | 8,699 | 34,742 | |||||||||
Cash flows from investing activities | ||||||||||||
Changes in restricted cash | 1,784 | (2,857 | ) | - | ||||||||
Acquisition of property, plant and equipment | (2,061 | ) | (7,224 | ) | (12,933 | ) | ||||||
Sale of property, plant and equipment | 32 | - | 6 | |||||||||
Net cash used in investing activities | (245 | ) | (10,081 | ) | (12,927 | ) | ||||||
Cash flows from financing activities | ||||||||||||
(Payments on) proceeds from borrowings under line of credit | - | (47,200 | ) | (200 | ) | |||||||
(Payments on) proceeds from borrowings from shareholders | (3,000 | ) | 30,000 | - | ||||||||
Shareholder contribution | - | 20,000 | - | |||||||||
Dividends paid to shareholders | - | - | (21,615 | ) | ||||||||
Net cash provided by (used in) financing activities | (3,000 | ) | 2,800 | (21,815 | ) | |||||||
Net increase (decrease) in cash | 695 | 1,418 | - | |||||||||
Cash | ||||||||||||
Beginning of year | 1,421 | 3 | 3 | |||||||||
End of year | $ | 2,116 | $ | 1,421 | $ | 3 | ||||||
Supplemental disclosure of cash flow information | ||||||||||||
Cash paid (received) during the year for | ||||||||||||
Interest paid | $ | 1,096 | $ | 949 | $ | 1,587 | ||||||
Income tax (received) paid | (7,966 | ) | (10,368 | ) | 21,720 |
The accompanying notes are an integral part of these financial statements.
5
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
1. | Description of the business and market risk |
Description of the Business
TAMCO (the "Company"), a California corporation, was formed in 1974 and was owned by Ameron International Corporation (“Ameron”) (a 50% shareholder), Mitsui & Co. (U.S.A.), Inc. ("Mitsui") (a 25% shareholder) and Tokyo Steel Mfg. Co., Ltd. ("Tokyo Steel") (a 25% shareholder) until October 21, 2010. TAMCO’s operations consist of the manufacture and sale of steel reinforcing bar. The Company sells product within California, Nevada and Arizona.
For the years ended, November 30, 2009 and 2008, the Company qualified as a significant subsidiary of Ameron; and as a result, audited financial statements are presented for those periods. For the period from December 1, 2009 to October 20, 2010 ("2010 Period"), the Company did not meet the criteria of a significant subsidiary; and, therefore, this period has not been audited.
Liquidity and market risk
Scrap prices continue to be volatile and cyclical as a result of demand sensitivity. The fall in scrap metal prices in late fiscal year 2008 continues to have an impact on rebar prices and thus the Company's operating results have experienced a reduction in revenues.
During fiscal year 2009, the Company paid down, in full, its Bank of America business loan agreement. In replacement of the loan agreement, the Company obtained financing from its shareholders of $40,000,000 due in early fiscal year 2011 (Note 5). As of October 20, 2010, the Company has borrowed $27,000,000 against the shareholder facility. The shareholder agreement does not carry any significant covenants for which the Company must comply.
2. | Summary of Significant Accounting Policies |
Fiscal Year-End
The Company’s fiscal year ends on the Sunday nearest November 30. The actual fiscal year end for 2009 and 2008 was November 29 and November 30, respectively. For clarity of presentation, the financial statements refer to the year-end as November 30 for 2009 and 2008.
Revenue Recognition
Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the sales price is fixed or determinable, (3) collectability is reasonably assured and (4) products have been shipped and the customer has taken ownership and assumed risk of loss. A substantial portion of the Company’s product sales are on FOB shipping point terms where product title passes to the customer at the time it is shipped from the Company’s premises. Products sales on FOB destination terms are not recognized until delivered to the customer.
Shipping and Handling Costs
Shipping and handling costs typically are charged to customers and are included within sales. Shipping and handling costs charged to customers were $1,077,000, $1,053,000 and $3,344,000 in 2010, 2009 and 2008, respectively.
Other Expenses (Income)
Other expenses (income) on the statements of income and comprehensive income primarily consist of rental income and interest expense, predominantly relating to the Company's borrowings. In fiscal 2008, the Company charged off $2,486,000 in costs related to the cancellation of capital projects. In addition, in fiscal year 2009, the Company received $782,000 in settlement income from its natural gas antitrust litigation.
6
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
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.
Restricted Cash
The Company has restricted cash held in Treasury bills as collateral against the Company's existing letters of credit totaling $1,073,000 as of October 20, 2010. The collateral was not required prior to 2009 as the collateral was included as part of the business loan agreement with Bank of America. Under the terms of the Company's new shareholder debt agreement, the collateral for these letters is not included (Note 5). The Treasury bills have a maturity of one month for which the Company renews when they come due.
The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The carrying amount of these assets approximates fair value due to the short-term maturities of these bills.
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 October 20, 2010 and November 30, 2009 (in thousands):
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Rebar | $ | 15,481 | $ | 11,899 | ||||
Billets | 5,520 | 5,202 | ||||||
Scrap metal | 2,450 | 3,401 | ||||||
Supplies and spare parts | 7,528 | 9,407 | ||||||
$ | 30,979 | $ | 29,909 |
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.
Due to the decline in steel prices in fiscal years 2009 and 2008, the Company wrote down its inventories by $51,000 and $9,842,000, respectively, in a lower of cost or market adjustment. No lower of cost or market adjustments were taken as of the 2010 Period.
Property, Plant and Equipment
Items capitalized as property, plant and equipment, including improvements to existing facilities, are recorded at cost. Construction in process represents capital expenditures incurred for assets not yet placed in service.
7
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Depreciation is computed using the straight-line method based on estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the life of the improvement or the term of the lease. Useful lives are as follows:
Processing facilities | 20 to 25 years |
Equipment | 3 to 25 years |
Depreciation expense was $3,958,000, $5,021,000 and $4,984,000 for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008, respectively.
Prepaid expenses, tooling and other assets
The Company emits nitrogen oxides ("NOx") as part of its manufacturing process. The Company is allocated a certain amount of NOx emissions credits each year at no cost. If this allocation is not adequate, the Company may purchase additional NOx emissions credits on the open market at prevailing prices. The Company purchases these intangible assets and records the net book value in prepaid expenses and tooling and other assets on the balance sheet. The assets are amortized using a straight-line method over the allocated emission period, which is typically one year. The total net book value of these assets as of October 20, 2010 and November 30, 2009 was $347,000 and $602,000, respectively. Amortization for these credits was $316,000, $342,000 and $394,000, respectively for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008.
During 2007, the Company purchased $5,796,000 in perpetual NOx credits. No credits were purchased in fiscal years 2008, 2009 and the 2010 Period. These assets are not available for use until July 2011 and have been recorded at cost within other assets on the balance sheet. The Company intends to amortize these credits over an estimated useful life of 15 years beginning in 2011.
The Company maintains marketable securities as collateral against a deferred compensation plan held for senior members of management. These securities are recorded as other assets on the balance sheet. As of October 20, 2010 and November 30, 2009, the value of the securities was $346,000 and $492,000, respectively.
Other Long-Term Liabilities
Other long-term liabilities consist of the noncurrent portions of pension liabilities and workers’ compensation liabilities.
Concentration of Credit Risk and Major Customers
Financial instruments that subject the Company to credit risk consist primarily of accounts receivable. The Company performs ongoing credit evaluations of its customers and provides for estimated credit losses. Two customers each accounted for greater than 10% of total net sales for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008. These two customers accounted for approximately 48%, 49% and 40% of total net sales for the 2010 Period and fiscal years ended November 30, 2009 and November 30, 2008, respectively.
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.
8
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Reclassification
Certain prior year amounts have been reclassified to conform to current year presentation. These changes had no significant impact on the previously reported balance sheet, statement of operations or statement of cash flows.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued a new interpretation for the accounting of uncertainty in income taxes. The new interpretation prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with historical guidance on accounting for income taxes. Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of this new interpretation and in subsequent periods. On December 30, 2008, the FASB deferred the adoption of this interpretation for most nonpublic enterprises to fiscal years beginning after December 15, 2008. The Company, pursuant to this deferral, has elected to defer its application until the fiscal year beginning December 1, 2009. The Company's policy for evaluating uncertain tax positions prior to the adoption of this new interpretation has been to provide for income taxes based on positions taken on the Company's tax return with valuation allowances established for uncertain positions based on the guidance established for the accounting for contingencies. The adoption of this new interpretation did not have a material effect on the Company's financial position, results of operations or cash flows.
In December 2008, the FASB issued a new standard amending previous guidance on employer's disclosures about pensions and other postretirement benefits specifically the disclosures over plan assets. The new standard includes a technical amendment to previous guidance that requires a nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement of income is presented. The new standard is effective for fiscal years ending after December 15, 2009. Upon initial application, the provisions of this standard are not required for earlier periods that are presented for comparative purposes. Earlier application of these provisions is permitted. The adoption of this new interpretation did not have a material effect on the Company's financial position, results of operations or cash flows.
3. | Fair Value Measurements |
In fiscal year 2008, the Company adopted a new standard to account for financial assets and liabilities using fair value. The standard addresses how companies should measure fair value for recognition or disclosure purposes under generally accepted accounting principles. In accordance with the guidance on the effective date of the standard, the Company deferred the adoption of accounting for non-financial assets and liabilities using fair value on a nonrecurring basis until fiscal year 2009.
9
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Under the fair value standard, companies that carry assets and liabilities at fair value are to be classified and disclosed in one of the following three categories:
Level 1: | quoted market prices in active markets for identical assets and liabilities. |
Level 2: | observable market based inputs or unobservable inputs that are corroborated by market data. |
Level 3: | unobservable inputs that are not corroborated by market data. |
The carrying value of cash, accounts receivable, and trade payables approximates the fair value due to their short-term maturities.
For recognition purposes, on a recurring basis, the Company measures available for sale investments at fair value. The investments had an aggregate fair value of $439,000 at October 20, 2010. The fair value of these investments is determined using quoted market prices in active markets. Changes to the fair value of these investments have been immaterial.
Assets and liabilities measured at fair value on a recurring basis include the following as of October 20, 2010 (in thousands):
Fair Value Measurements at | ||||||||||||||||
October 20, 2010 (Unaudited) Using | ||||||||||||||||
Quoted | Significant | |||||||||||||||
Prices | Other | Significant | ||||||||||||||
in Active | Observable | Unobservable | Total | |||||||||||||
Markets | Inputs | Inputs | Carrying | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||
Cash | $ | 2,116 | $ | - | $ | - | $ | 2,116 | ||||||||
Restricted cash | 1,073 | - | - | 1,073 |
The fair value of long-term debt instrument is determined by a valuation model, which is based on future discounted cash flows of the instrument using current market rates. The carrying amount and fair value of the debt instrument as of October 20, 2010 was as follows (in thousands):
Carrying | Fair | |||||||
Value | Value | |||||||
(Unaudited) | (Unaudited) | |||||||
Borrowing from shareholders | $ | 27,000 | $ | 27,000 |
On a nonrecurring basis, the Company is required to use fair value measures when measuring plan assets of the Company’s pension plans. The fair value of pension plan assets was $27,868,000 at October 20, 2010. These assets are valued in highly liquid markets.
10
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Additionally, on a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. Estimated fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
4. | Shareholder Contribution and Related Party Transactions |
On February 13, 2009, the Company received a cash contribution from its shareholders Ameron, Mitsui and Tokyo Steel for $10,000,000, $5,000,000 and $5,000,000, respectively. The contributions are included in common stock as additional paid in capital on the balance sheet.
During 1992, the Company entered into a lease agreement with Ameron for certain land, buildings, structures and other improvements. The lease was originally a ten-year lease agreement and was renewable for a ten-year period. The lease was renewed on November 1, 2002 and is set to expire on October 31, 2012. The lease also contains a purchase option equal to the fair market value of the leased assets at the end of the initial lease term or at the end of the related renewal period. Total lease charges were $458,000, $516,000 and $511,000 for the 2010 Period and the fiscal years ended November 30, 2009 and November 20, 2008, respectively. The Company also reimbursed Ameron $39,000 for legal services in 2009.
In November 2004, Ameron began leasing four acres from the Company on a month-to-month basis. Total lease income was $63,000, $69,000 and $67,000 for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008, respectively.
The Company pays for certain utility costs and charges Ameron for Ameron's share. During the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008, Ameron reimbursed the Company approximately $480,000, $508,000 and $607,000, respectively, for Ameron's share of such costs.
Amounts due from related parties (shareholders) to the Company total $86,000, $38,000 and $46,000 as of October 20, 2010, November 30, 2009 and November 30, 2008, respectively.
The Company had a loan balance payable to Ameron, Mitsui and Tokyo Steel of $13,500,000, $6,750,000 and $6,750,000 at October 20, 2010 and $15,000,000, $7,500,000 and $7,500,000, respectively, at November 30, 2009. Loan interest paid to Ameron, Mitsui and Tokyo Steel was $548,000, $274,000 and $274,000 for the 2010 Period and $69,000, $34,000 and $34,000 for fiscal year ending November 30, 2009.
The Company currently insures for workers' compensation through an affiliate of Mitsui.
11
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
5. | Business Loan Agreement |
On July 28, 2009, the Company entered into a business loan agreement (the "New Agreement") with its shareholders for a $40,000,000 credit facility. The interest rate on borrowings is based on the three-month LIBOR rate plus a 3.25% applicable margin. The New Agreement has a maturity of January 31, 2011 with an option, solely at the Company's request, to extend to January 31, 2012. All amounts under the New Agreement are collateralized by substantially all of the Company's assets. The New Agreement does not contain any other significant financial or non-financial covenant requirements.
As of October 20, 2010, total borrowings against the credit facility totaled $27,000,000 with an unused borrowing base of $13,000,000.
Additionally, at October 20, 2010 the Company had outstanding letters of credit of $965,000, collateralized by Treasury bills (Note 2), of $1,073,000.
6. | Pension and 401(k) Retirement Plans |
Defined Benefit Plans
The Company has two defined benefit plans covering substantially all of its employees. The plan covering hourly employees provides pension benefits that are based on a flat-dollar benefit (as defined in the plan) per month based on years of service and a one-time payment of $4,500 to active employees upon retirement. The salaried plan is a step-rate plan, which provides for an amount equal to 1.35% of final average pay up to covered compensation, plus 1.95% of final average pay in excess of this covered compensation, times years of service (not to exceed 30 years).
The Company’s funding policy generally is to contribute annually at least the minimum amount that can be deducted for federal income tax purposes while ensuring that the requirements of applicable provisions and regulations are met. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.
The Company’s pension plans are accounted for based on various assumptions and discount rates as described below. The actuarial assumptions used could change in the near term due to changes in expected future trends and other factors, which, depending on the nature of the changes, could cause increases or decrease in the liabilities accrued.
During fiscal year 2007, the Company adopted the balance sheet recognition and disclosure provisions under the new accounting guidance for employer accounting over defined benefit pension plans and other postretirement plans. The new standard requires employers to recognize, on a prospective basis, the funded status of their defined benefit pension and other postretirement plans on their balance sheet. Additionally the standard requires the recognition, as a component of other comprehensive loss, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit costs.
12
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
The new standard also requires employers to measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position. The measurement date provisions of the new standard were adopted in fiscal year 2009. The adoption of the new measurement date provision caused a reduction to retained earnings of $277,000.
Included in accumulated other comprehensive income of approximately $16,305,000 ($9,690,000 net of tax) at November 30, 2009 are unrecognized actuarial losses of approximately $16,301,000 and prior service costs of approximately $4,000 that have not yet been recognized in net periodic pension cost. Of this amount, the Company expects to recognize approximately $1,322,000 ($786,000 net of tax) in net periodic pension cost during the fiscal year ended November 30, 2010.
Pension cost for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008 was approximately$1,525,000, $2,203,000 and $354,000, respectively, which includes amortization of prior service costs over periods ranging from 15 to 30 years.
Components of net periodic pension cost for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008 were as follows (in thousands):
2010 | 2009 | 2008 | ||||||||||||||||||||||
Salaried | Hourly | Salaried | Hourly | Salaried | Hourly | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | $ | 408 | $ | 166 | $ | 366 | $ | 210 | $ | 385 | $ | 388 | ||||||||||||
Interest cost | 1,019 | 1,009 | 1,023 | 1,082 | 890 | 955 | ||||||||||||||||||
Expected return on market-related value of plan assets | (1,002 | ) | (1,086 | ) | (898 | ) | (922 | ) | (1,119 | ) | (1,217 | ) | ||||||||||||
Amortization of unrecognized prior service cost | - | 1 | - | 3 | - | 6 | ||||||||||||||||||
Curtailment | - | - | - | 469 | - | - | ||||||||||||||||||
Amortization of accumulated losses | 636 | 684 | 366 | 504 | 22 | 44 | ||||||||||||||||||
Net periodic pension cost | $ | 1,061 | $ | 774 | $ | 857 | $ | 1,346 | $ | 178 | $ | 176 |
13
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
The projected benefit obligation was determined based on employee data as of November 30, 2010, November 30, 2009 and August 31, 2008.
The weighted average assumptions used to determine net periodic pension cost for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008, were as follows:
2010 | 2009 | 2008 | ||||||||||||||||||||||
Salaried | Hourly | Salaried | Hourly | Salaried | Hourly | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Discount rate | 5.50 | % | 5.50 | % | 7.00 | % | 7.00 | % | 6.25 | % | 6.25 | % | ||||||||||||
Rate of increase in compensation levels | 3.75 | % | N/A | 3.75 | % | N/A | 3.75 | % | N/A | |||||||||||||||
Expected long-term rate of return on plan assets | 8.50 | % | 8.50 | % | 8.50 | % | 8.50 | % | 8.50 | % | 8.50 | % |
The assumed discount rate represents the market rate for long-term corporate high quality corporate bonds. The assumed expected rate of return on plan assets represents an estimate of long-term returns on an investment portfolio consisting of a mixture of equities and debt investments. When determining the expected return on plan assets, the Company considers long-term rates of return on asset classes (both historical and forecasted) in which the Company expects the pension funds to be invested.
14
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Components of the change in projected benefit obligation, change in plan assets and funded status of the pension plans for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008 are as follows (in thousands):
2010 | 2009 | 2008 | ||||||||||||||||||||||
Salaried | Hourly | Salaried | Hourly | Salaried | Hourly | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Change in projected benefit obligation | ||||||||||||||||||||||||
Projected benefit obligation, beginning of year | $ | 18,955 | $ | 18,827 | $ | 14,547 | $ | 15,219 | $ | 14,627 | $ | 15,720 | ||||||||||||
Service cost | 408 | 166 | 468 | 296 | 385 | 388 | ||||||||||||||||||
Interest cost | 1,019 | 1,009 | 1,270 | 1,342 | 890 | 955 | ||||||||||||||||||
Actuarial (gain) loss | 905 | 2,004 | 4,007 | 2,584 | (819 | ) | (978 | ) | ||||||||||||||||
Curtailment (gain) loss | - | - | (425 | ) | 451 | - | - | |||||||||||||||||
Benefits paid | (851 | ) | (893 | ) | (912 | ) | (1,065 | ) | (536 | ) | (866 | ) | ||||||||||||
Projected benefit obligation, end of year | $ | 20,436 | $ | 21,113 | $ | 18,955 | $ | 18,827 | $ | 14,547 | $ | 15,219 | ||||||||||||
Change in plan assets | ||||||||||||||||||||||||
Fair value of plan assets, beginning of year | $ | 11,535 | $ | 12,207 | $ | 12,153 | $ | 13,910 | $ | 13,557 | $ | 14,748 | ||||||||||||
Actual return on plan assets | 1,204 | 1,351 | (945 | ) | (1,226 | ) | (1,168 | ) | (1,172 | ) | ||||||||||||||
Employer contribution | 1,235 | 2,080 | 1,240 | 588 | 300 | 1,200 | ||||||||||||||||||
Administrative expenses | - | - | - | - | - | - | ||||||||||||||||||
Benefits paid | (851 | ) | (893 | ) | (913 | ) | (1,065 | ) | (536 | ) | (866 | ) | ||||||||||||
Fair value of plan assets, end of year | $ | 13,123 | $ | 14,745 | $ | 11,535 | $ | 12,207 | $ | 12,153 | $ | 13,910 | ||||||||||||
Funded status | ||||||||||||||||||||||||
Deficiency of plan assets over projected benefit obligations | $ | (7,313 | ) | $ | (6,368 | ) | $ | (7,420 | ) | $ | (6,620 | ) | $ | (2,394 | ) | $ | (1,309 | ) | ||||||
Funded status, end of year | $ | (7,313 | ) | $ | (6,368 | ) | $ | (7,420 | ) | $ | (6,620 | ) | $ | (2,394 | ) | $ | (1,309 | ) | ||||||
Amounts recognized on the balance sheet consist of | ||||||||||||||||||||||||
Accrued pension liability | $ | (7,313 | ) | $ | (6,368 | ) | $ | (7,420 | ) | $ | (6,620 | ) | $ | (2,394 | ) | $ | (1,309 | ) | ||||||
Accumulated other comprehensive loss | 8,471 | 8,955 | 8,404 | 7,901 | 3,138 | 3,482 | ||||||||||||||||||
Net amount recognized | $ | 1,158 | $ | 2,587 | $ | 984 | $ | 1,281 | $ | 744 | $ | 2,173 | ||||||||||||
Accumulated benefit obligation | $ | 18,651 | $ | 21,102 | $ | 17,342 | $ | 17,214 | $ | 13,210 | $ | 15,195 |
The assumptions used to determine the projected benefit obligation for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008 are as follows:
15
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
2010 | 2009 | 2008 | ||||||||||||||||||||||
Salaried | Hourly | Salaried | Hourly | Salaried | Hourly | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Discount rate | 5.25 | % | 5.25 | % | 5.50 | % | 5.50 | % | 7.00 | % | 7.00 | % | ||||||||||||
Rate of increase in compensation levels | 3.75 | % | N/A | 3.75 | % | N/A | 3.75 | % | N/A |
The Company contributed approximately $3,315,000, $1,828,000 and $1,500,000 to the pension plans during the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008, respectively.
In accordance with its investment strategy to obtain long-term growth, the Company's target allocations are established to maintain a mix of 60% to 70% equities, 25% to 35% debt securities, 2% to 8% real estate, and 0% to 5% other investments. The Company’s pension plan weighted-average asset allocations by asset category are as follows at October 20, 2010, November 30, 2009 and November 2008:
2010 | 2009 | 2008 | ||||||||||||||||||||||
Salaried | Hourly | Salaried | Hourly | Salaried | Hourly | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Equity securities | 61 | % | 61 | % | 71 | % | 71 | % | 70 | % | 68 | % | ||||||||||||
Debt securities | 36 | % | 36 | % | 27 | % | 26 | % | 28 | % | 26 | % | ||||||||||||
Real estate | 3 | % | 3 | % | 2 | % | 3 | % | 2 | % | 3 | % | ||||||||||||
Other (cash equivalents) | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 3 | % | ||||||||||||
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
The Company’s pension plan assets are externally managed by investment managers who are selected by the Company’s Pension Committee. The Pension Committee selects investment managers using a total return investment approach whereby a mix of equity and debt security investments are used to maximize the long-term rate of return on plan assets. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and the Company’s financial condition. The investment portfolio contains a diversified blend of equity and debt security investments. Furthermore, equity investments are diversified across geography and market capitalization through investments in US large cap stocks, US mid cap, US small cap stocks, and international securities. Investment risk is measured and monitored on an ongoing basis through annual liability measures, periodic asset/liability studies, and semi-annual investment portfolio reviews.
16
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years as follows (in thousands):
Salaried | Hourly | |||||||
Years ending November 30, | (Unaudited) | |||||||
2011 | $ | 950 | $ | 1,035 | ||||
2012 | 1,015 | 1,068 | ||||||
2013 | 1,064 | 1,111 | ||||||
2014 | 1,107 | 1,151 | ||||||
2015 | 1,240 | 1,174 | ||||||
2016-2020 | 6,429 | 6,400 |
Curtailments on defined benefit plans
During October 2008, the Company reduced its hourly work force by approximately 100 employees. The reduction in labor force resulted in a corresponding reduction in the Company's future pension obligation and therefore was considered a curtailment to the Hourly Pension Plan. The Company accounted for the curtailment in the Hourly Pension Plan in accordance with the standard over employer accounting for settlements and curtailments of defined benefit pension plans and for termination benefits. As a result of the curtailment, the Company recognized a curtailment loss of $5,000 in the fiscal year ended November 30, 2008. Because of the timing of the curtailment and in accordance with the new accounting guidance for employer accounting over defined benefit pension plans and other postretirement plans, changes in the plan assets and pension liabilities arising from curtailment were measured at October 31, 2008 and recorded in the Company's fiscal year ended November 30, 2009 as follows (in thousands):
Before Curtailment | Effect of Curtailment | After Curtailment | ||||||||||
Assets and obligations | ||||||||||||
Projected benefit obligation | $ | 13,739 | $ | (22 | ) | $ | 13,717 | |||||
Plan assets at fair value | 10,534 | - | 10,534 | |||||||||
Funded status | 3,205 | (22 | ) | 3,183 | ||||||||
Amounts in accumulated other comprehensive income | ||||||||||||
Net loss | (5,278 | ) | 22 | (5,256 | ) | |||||||
Prior service cost | (26 | ) | 5 | (21 | ) | |||||||
(5,304 | ) | 27 | (5,277 | ) | ||||||||
Accrued (prepaid) pension cost before SFAS No. 158 | $ | (2,099 | ) | $ | 5 | $ | (2,094 | ) |
17
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
Through May 2009, the Company reduced its hourly and salaried work force by approximately 74 employees. The reduction in labor force resulted in a corresponding reduction in the Company's future pension obligation and therefore was considered a curtailment to both the Hourly and Salary Pension Plans. The Company accounted for the curtailment in both plans in accordance with the FASB standard for accounting for settlements and curtailments of defined benefit pension plans. As a result of the curtailment, the Company recognized a cumulative curtailment loss of $464,000 in the fiscal year ended November 30, 2009. Because of the timing of the curtailment and in accordance with the accounting for defined benefit pension and other retirement plans, changes in the plan assets and pension liabilities arising from the curtailment were measured at May 31, 2009 and recorded in the Company's fiscal year ending November 30, 2009 as follows (in thousands):
Before Curtailment | Effect of Curtailment | After Curtailment | ||||||||||||||||||||||
Hourly | Salary | Hourly | Salary | Hourly | Salary | |||||||||||||||||||
Assets and obligations | ||||||||||||||||||||||||
Projected benefit obligation | $ | 16,099 | $ | 16,558 | $ | 451 | $ | (425 | ) | $ | 16,550 | $ | 16,133 | |||||||||||
Plan assets at fair value | 10,322 | 9,157 | - | - | 10,322 | 9,157 | ||||||||||||||||||
Funded status | 5,777 | 7,401 | 451 | (425 | ) | 6,228 | 6,976 | |||||||||||||||||
Amounts in accumulated other comprehensive income | ||||||||||||||||||||||||
Net loss | (7,468 | ) | (7,826 | ) | - | 425 | (7,468 | ) | (7,401 | ) | ||||||||||||||
Prior service cost | (18 | ) | - | 13 | - | (5 | ) | - | ||||||||||||||||
(7,486 | ) | (7,826 | ) | 13 | 425 | (7,473 | ) | (7,401 | ) | |||||||||||||||
Accrued (prepaid) pension cost before SFAS No. 158 | $ | (1,709 | ) | $ | (425 | ) | $ | 464 | $ | - | $ | (1,245 | ) | $ | (425 | ) |
Union-Sponsored Pension Plan
Approximately 1% of the Company’s employees are covered by union-sponsored, collectively bargained, multi-employer pension plans. The Company contributed $36,000, $46,000 and $94,000 to such plans for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008, respectively. These contributions are determined in accordance with the provisions of a negotiated labor contract.
401(k) Retirement Plan
The Company adopted two 401(k) deferred compensation retirement plans effective as of January 1, 1996 for salaried employees and March 1, 1996 for hourly employees. These plans were merged effective December 31, 2001. The plan covers substantially all employees who have completed three months of service. The Company matches 25% of salaried employee contributions up to a maximum of 4% of the employee’s salary and provides for a variable match on an employee’s contribution ranging from 4% to 6% of annual salary. The variable portion is based upon the Company’s annual return on net assets. The Company does not match collectively bargained employee contributions. Under the plan voluntary employee deferred contributions up to 50% of annual compensation may be made, or a maximum not to exceed the Internal Revenue Service limitation. Such voluntary employee contributions are made through payroll deductions. During the fiscal year ended November 30, 2009, the Company recorded into income $5,000 related to the plan. The Company expensed $22,000 and $175,000 related to the plan during the 2010 Period and the fiscal year ended November 30, 2008, respectively.
18
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
7. | Income Taxes |
Deferred income taxes are recorded under the asset and liability method of accounting for income taxes, which requires the recognition of deferred income taxes, based upon the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax basis of existing assets and liabilities.
The components of the (benefit from) provision for income taxes for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008 (in thousands):
2010 | 2009 | 2008 | ||||||||||
(Unaudited) | ||||||||||||
Current | ||||||||||||
Federal | $ | (1,709 | ) | $ | (8,226 | ) | $ | 8,968 | ||||
State | 1 | (55 | ) | 2,961 | ||||||||
(1,708 | ) | (8,281 | ) | 11,929 | ||||||||
Deferred | ||||||||||||
Federal | 454 | 1,844 | 2,302 | |||||||||
State | (374 | ) | (1,719 | ) | 369 | |||||||
80 | 125 | 2,671 | ||||||||||
$ | (1,628 | ) | $ | (8,156 | ) | $ | 14,600 |
The effective tax rate differs from the US federal statutory tax rate of 35% primarily due to state income taxes, net of federal benefits:
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Provision at the federal statutory rate | 35.00 | % | 35.00 | % | ||||
State income taxes, net of federal benefit | 5.71 | % | 5.73 | % | ||||
Meals and entertainment | (0.11 | )% | (0.06 | )% | ||||
Fuel tax credit | 0.00 | % | 0.04 | % | ||||
Lobbyist expense | 0.00 | % | (0.01 | )% | ||||
Other | (2.24 | )% | (0.14 | )% | ||||
38.36 | % | 40.56 | % |
19
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
The components of the Company’s deferred tax assets (liabilities) as of October 20, 2010 and November 30, 2009 are as follows (in thousands):
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Deferred tax asset | ||||||||
Reserve for contingencies | $ | 320 | $ | - | ||||
Accrued liabilities | 467 | 552 | ||||||
Reserve for inventories | 137 | 424 | ||||||
Bad debts | 198 | 189 | ||||||
Additional pension liability | 6,757 | 7,116 | ||||||
Net Operating Loss | 2,153 | 1,697 | ||||||
Other | 5 | 149 | ||||||
Deferred tax asset | 10,037 | 10,127 | ||||||
Deferred tax liability | ||||||||
Depreciation | (5,779 | ) | (6,272 | ) | ||||
State Tax | (801 | ) | (702 | ) | ||||
Pension reserve | (1,852 | ) | (1,114 | ) | ||||
Deferred tax liability | (8,432 | ) | (8,088 | ) | ||||
$ | 1,605 | $ | 2,039 |
The Company has a California net operating loss carryforward of $24,353,490 as of October 20, 2010. The net operating loss will expire in fiscal year 2031. If certain substantial changes in the Company's ownership occur, there would be an annual limitation on the amount of the carryforward that can be utilized.
The Company has a federal net operating loss of $5,239,355 as of October 20, 2010. The net operating loss is being carried back to be utilized in the November 30, 2008 period.
At October 20, 2010, November 30, 2009, and November 30 2008, the deferred tax provision reflected in other comprehensive income was $331,000, $4,019,000 and $1,081,000, respectively.
No valuation allowance has been established for deferred tax assets as the Company's management has determined that the deferred tax assets are fully realizable based upon forecasted profitability.
20
TAMCO
Notes to Financial Statements
For the Period December 1, 2009 to October 20, 2010, and the Years Ended November 30, 2009 and November 30, 2008
8. | Commitments and Contingences |
The Company has a non-cancelable operating lease with Ameron for certain land, buildings, structures and other improvements expiring on October 31, 2012 (Note 4).
Future minimum lease payments on non-cancelable operating leases and other added facility commitments in effect at October 20, 2010 are as follows (in thousands):
Years ending November 30, | (Unaudited) | |||
2011 | $ | 1,103 | ||
2012 | 1,060 | |||
2013 | 587 | |||
2014 | 587 | |||
2015 | 587 | |||
$ | 3,337 |
Total operating lease expense was $458,000, $516,000 and $511,000 for the 2010 Period and the fiscal years ended November 30, 2009 and November 30, 2008, respectively.
The Company is involved in various legal matters in the normal course of its business. Management believes that the ultimate outcome of such matters will not have a material adverse effect on the Company’s results of operations or financial position.
9. | Subsequent Events |
On October 21, 2010, Gerdau Ameristeel US Inc. acquired 100% of the Company for $165 million subject to customary working capital adjustment provisions.
21