Portions of the annual report to stockholders for the year ended December 31,
2000 which are expressly incorporated by reference in this filing follow. Such
items are proceeded by an index which shows the location in this Annual Report
on Form 10-K where such items are incorporated by reference and the location of
the item in the annual report to stockholders for the year ended December 31,
2000.
INDEX
Reference Incorporation Page number
letter in location in in annual
this this report to
Exhibit Form 10-K Description of Item stockholders
- ------- -------------- ------------------------------ ------------
(A) Part II, item 6 Consolidated Selected page 9
Financial Data
(B) Part II, item 7 Management's Discussion and pages 10
Analysis of Financial Condition thru 15
and Results of Operations
Part II, item 7A Quantitative and Qualitative pages 13
Disclosures About Market Risk thru 14
(C) Part II, item 8 Consolidated Balance Sheet page 16
Part II, item 8 Consolidated Statement of Income page 17
Part II, item 8 Consolidated Statement of page 17
Comprehensive Income
Part II, item 8 Consolidated Statement of page 18
Changes in Stockholders'
Equity
Part II, item 8 Consolidated Statement of page 19
Cash Flows
Part II, item 8 Notes to Consolidated pages 20
Financial Statements thru 40
Part II, item 8 Report of Independent Auditors page 41
The items follow:
Exhibit 13 item (A)
-------------------
COMMONWEALTH INDUSTRIES, INC.
Consolidated Selected Financial Data
(in thousands except per share data)
Year ended December 31,
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- --------------- -------------- -------------
Statement of Income Data:
Net sales (1) $ 1,125,142 $ 1,074,939 $ 992,004 $ 1,115,178 $ 755,690
Gross profit 82,205 86,865 69,455 88,043 49,312
Operating income 21,929 28,440 21,421 41,593 19,262
Income before extraordinary loss 3,491 11,011 143 9,122 14,756
Net income (2) 3,491 11,011 143 7,941 13,401
Net income per share data: (2)
Basic and diluted
Income before extraordinary loss $ 0.21 $ 0.68 $ 0.01 $ 0.78 $ 1.45
Extraordinary loss - - - (0.10) (0.13)
-------------- -------------- --------------- -------------- -------------
Net income $ 0.21 $ 0.68 $ 0.01 $ 0.68 $ 1.32
============== ============== =============== ============== =============
Cash dividends paid per share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Operating Data:
Depreciation and amortization $ 39,351 $ 36,513 $ 34,728 $ 34,710 $ 22,452
Capital expenditures $ 18,445 $ 36,715 $ 33,650 $ 21,736 $ 14,841
Commonwealth Aluminum business unit:
Net sales (1) $ 990,961 $ 944,438 $ 865,043 $ 983,340 $ 719,498
Shipments (pounds) 966,597 1,022,680 884,169 990,207 712,480
Alflex business unit:
Net sales (1) $ 134,181 $ 130,501 $ 126,961 $ 131,838 $ 36,192
Shipments (feet) 592,863 576,205 517,380 521,711 136,936
Balance Sheet Data:
Working capital $ 138,462 $ 123,067 $ 115,192 $ 112,924 $ 207,061
Total assets 655,340 706,322 648,399 667,421 794,582
Total debt 125,000 125,000 125,000 125,650 342,250
Total stockholders' equity 338,393 336,676 326,529 330,473 227,223
(1) Net sales for all years prior to 2000 have been restated to reflect the
current classification of shipping costs incurred as a component of cost of
goods sold instead of a reduction of sales in accordance with the
requirements of Emerging Issues Task Force Issue No. 00-10.
(2) 2000 and 1999 net income and net income per share reflect the Company's
change in its inventory accounting method from first-in, first-out (FIFO)
method to the last-in, first-out (LIFO) method effective January 1, 1999.
Exhibit 13 item (B)
-------------------
COMMONWEALTH INDUSTRIES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is a discussion of the consolidated financial condition
and results of operations of the Company for each of the years in the three-year
period ended December 31, 2000, and certain factors that may affect the
Company's prospective financial condition. This section should be read in
conjunction with the consolidated financial statements of the Company for the
year ended December 31, 2000 and the notes thereto. The following discussion
contains statements which are forward-looking rather than historical fact. These
forward-looking statements are made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act, as amended, and involve risks and uncertainties that
could render them materially different, including, but not limited to, the
effect of global economic conditions, the impact of competitive products and
pricing, product development and commercialization, availability and cost of
critical raw materials, the rate of technological change, product demand and
market acceptance risks, capacity and supply constraints or difficulties, the
success of the Company in implementing its business strategy, and other risks as
detailed in the Company's various Securities and Exchange Commission filings.
Overview
The Company manufactures non-heat treat coiled aluminum sheet for
distributors and the transportation, construction and consumer durables end-use
markets and electrical flexible conduit and prewired armored cable for the
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
fluctuations in material margins.
Although the demand for aluminum sheet products is cyclical, over the
longer term demand has continued to increase, reflecting general population and
economic growth and the advantages of aluminum's light weight, high degree of
formability, resistance to corrosion and recyclability.
The price of aluminum metal affects the price of the Company's products
and in the longer term can have an effect on the competitive position of
aluminum in relation to alternative materials. The price of primary metal is
determined largely by worldwide supply and demand conditions and is highly
cyclical. The price of primary aluminum in world markets greatly influences the
price of aluminum scrap, the Company's principal raw material. Significant
movements in the price of primary aluminum can affect the Company's margins
because aluminum sheet prices do not always move simultaneously nor necessarily
to the same degree as the primary markets. The Company seeks to manage its
material margins by focusing on higher margin products and by sourcing the scrap
and primary metal markets in the most cost-effective manner, including the use
of futures contracts and options to hedge anticipated raw material requirements
based on firm-priced sales and purchase orders.
The Company announced during October 2000 that it had signed 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 from Glencore over the 10-year term
beginning in January 2001.
During 2000, net sales of the Company's aluminum sheet products
increased by 5% from the year 1999 while shipment volume decreased 5% from 1999.
Demand for the Company's aluminum sheet products decreased in the last half of
2000 due to the Company's customers reducing inventories built earlier in the
year, the dampening effect of higher interest rates and a general economic
weakening of the truck trailer, distribution and building and construction
markets. Despite the weak demand, material margins increased in 2000 compared to
1999. Part of the increase in the material margins is due to improvements in
product mix, the Company's ability to utilize lower-cost raw materials as well
as the effects of LIFO inventory adjustments triggered by the Company's
declining inventory levels.
Shipments for the Company's electrical products in 2000 were up 3%
versus 1999 however demand slowed in the last quarter of 2000 as price increases
on armored cable affected unit volume along with continuing competitive
conditions and slower economic growth in this business. Material margins on the
Company's electrical products, while improved somewhat due to the price
increases mentioned above, continued to be under pressure during 2000 and are
below the levels achieved in 1999 due to expansions of existing production by
competitors and the entry of new participants into the market as well as the
effects of higher material costs for aluminum and copper wire.
Effective January 1, 1999, the Company changed its inventory accounting
method for certain inventories from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method and modified the LIFO calculation for the
inventories historically recorded under the LIFO method. The Company believes
the adoption of the LIFO method for all aluminum sheet inventories is preferable
as LIFO is the inventory method most prevalent in the industry, provides a
consistent inventory accounting method for aluminum sheet inventories, and
results in more appropriate matching of cost of goods sold with related sales
revenues.
The effect of this change in accounting principle was to decrease net
income reported for the twelve months ended December 31, 1999 by $12.1 million,
or $0.74 per share compared to 1998 when FIFO was used. In addition, during 2000
LIFO inventory quantities were reduced, resulting in a partial liquidation of
the LIFO bases, the effect of which increased net income for 2000 by
approximately $4.5 million, or $0.27 per share. See note 3 to the consolidated
financial statements for additional information.
Results of Operations for 2000, 1999 and 1998
Net Sales. Net sales for 2000 increased 5% to $1.13 billion (including
$134.2 million from the Company's Alflex electrical products subsidiary) from
$1.07 billion (including $130.5 million from Alflex) in 1999. The increase is
due to higher overall selling prices and a strong demand during the first half
of 2000 which more than offset a softening in demand during the last six months
of 2000 due to the reasons mentioned previously. Unit sales volume of aluminum
products decreased 5% to 967 million pounds in 2000 from 1.02 billion pounds in
1999. Alflex unit sales volume was 592.9 million feet for 2000 compared to 576.2
million feet for 1999.
In 1999 net sales increased 8% to $1.07 billion (including $130.5
million from Alflex) from $992.0 million (including $127.0 million from Alflex)
in 1998. The increase is due to higher shipments which was partially offset by
lower aluminum and copper prices. Unit sales volume of aluminum products
increased 16% to 1.02 billion pounds in 1999 from 884.2 million pounds in 1998.
Alflex unit sales volume was 576.2 million feet for 1999 compared to 517.4
million feet for 1998.
Gross Profit. Gross profit decreased 5% (to 7.3% of net sales) in 2000
after a 25% increase (to 8.1% of net sales) in 1999 from 1998 gross profit (7.0%
of net sales). The 2000 decrease was due primarily to the impact of lower
material margins and higher unit manufacturing costs in the Company's electrical
products business and higher unit manufacturing costs in the Company's aluminum
products business. These factors more than offset higher material margins and
the impact of a LIFO inventory liquidation in the Company's aluminum products
business. The 1999 increase was attributable to increased sales volume which
more than offset the effect of lower unit sales prices and slightly lower
material margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3% in 2000. Contributing to the increase were
increased bad debt reserves, additional depreciation due to Y2K related
projects, charges related to employee workforce reductions and an increase at
Alflex associated with higher sales volume. Limiting the amount of the increase
was the decrease in salary and benefits expense due to the employee workforce
reductions, office consolidation including the closing of the Chicago sales
office and reduction of leased space, and overall impact of cost-cutting
initiatives implemented in the second half of 2000. Selling, general and
administrative expenses increased 23.9% in 1999 from 1998. Contributing factors
were increases at Alflex associated with the infrastructure required to support
the growth of this business segment, increased costs related to Year 2000
compliance, a new variable compensation plan, a new executive compensation plan
related to the Company's executive stock purchase incentive program and
additional office expenses due to renovation and expansion of office facilities.
Amortization of Goodwill. Amortization of goodwill was $4.5 million
in 2000, 1999 and 1998.
Operating Income. Operating income decreased by 23% in 2000 to $21.9
million, compared with a 1999 increase of 33% to $28.4 million, in each case
reflecting the factors mentioned above.
Other Income (Expense), Net. Other income (expense), net in 2000
includes $0.8 million of income related to insurance claims filed for a fire
that interrupted business at the Company's Uhrichsville, Ohio aluminum mill.
Other income (expense), net in 1999 includes $1.9 million of income related to
insurance claims filed for a fire that destroyed an inactive production
facility.
Interest Expense, Net. Interest expense in 2000 increased 4% to $20.1
million from $19.3 million in 1999. The increase in the Company's interest
expense is primarily due to the higher interest rates under the Company's
accounts receivable securitization facility. Interest expense in 1999 decreased
13% to $19.3 million from $22.2 million in 1998. The 1999 decrease in the
Company's interest expense is primarily due to the reduction in amounts
outstanding under the Company's accounts receivable securitization facility.
Income Tax Expense (Benefit). Income tax expense (benefit) in 2000,
1999 and 1998 reflect the use of the Company's net operating loss ("NOL")
carryforwards to offset taxable income for federal income tax purposes. At
December 31, 2000, the Company had remaining available NOL carryforwards of
approximately $61 million. These NOL carryforwards will expire in various
amounts from 2000 through 2008. The amount of taxable income that can be offset
by NOL carryforwards arising prior to the initial public offering of the Company
in March 1995 is subject to an annual limitation of approximately $9.6 million
plus certain gains included in taxable income which are attributable to the
Company prior to the initial public offering.
The Company recognized an income tax expense of $0.3 million in 2000
compared to an income tax expense of $1.0 million in 1999 and an income tax
benefit of $0.6 in 1998. The 1999 change is due to the increase in the Company's
taxable income and a $1.5 million favorable adjustment recorded in the first
quarter of 1998 to the prior year's tax expense. The adjustment resulted from
the filing of amended federal income tax returns for prior years.
Net Income. Net income for 2000 decreased to $3.5 million from $11.0
million in 1999, after 1999 net income had increased from the $0.1 million
reported in 1998, in each case reflecting the factors described above for each
year.
Liquidity and Capital Resources
The Company's sources of liquidity are cash flows from operations, the
Company's accounts receivable securitization facility described below and
borrowings under its $100 million revolving credit facility. The Company
believes these sources will be sufficient to fund its working capital
requirements, capital expenditures, debt service and dividend payments for at
least through 2001.
On September 26, 1997, the Company sold all of its trade accounts
receivables to a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC").
Simultaneously, CFC entered into a three-year accounts receivable securitization
facility with a financial institution and its affiliate, whereby CFC sells, on a
revolving basis, an undivided interest in certain of its receivables and
receives up to $150.0 million from an unrelated third party purchaser at a cost
of funds linked to commercial paper rates plus a charge for administrative and
credit support services. During September 2000, the Company and the financial
institution extended the accounts receivable securitization facility for an
additional three-year period ending in September 2003. At December 31, 2000, the
Company had outstanding $69.0 million under the agreement and had $72.4 million
of net residual interest in the securitized receivables. The net residual
interest in the securitized receivables is included in other current assets in
the Company's consolidated financial statements.
The Company's cash flows from operations in 2000, 1999 and 1998 were
$33.0 million, $38.8 million and $46.6 million, respectively. Working capital
increased to $138.5 million at December 31, 2000 from $123.1 million at December
31, 1999 and $115.2 million at December 31, 1998.
The Company's revolving credit facility permits borrowings and letters
of credit up to $100.0 million outstanding at any time. Availability is subject
to satisfaction of certain covenants and other requirements. At December 31,
2000 $99.2 million was available. The facility expires on September 2, 2002.
Capital expenditures were $18.4 million, $36.7 million and $33.7
million in 2000, 1999 and 1998, respectively, and are estimated to be $15
million in 2001, all generally related to upgrading and expanding the Company's
manufacturing and other facilities and meeting environmental requirements.
The indicated annual rate of dividends being paid on the Company's
Common Stock is $0.20 per share, or an annual total of about $3.3 million.
Risk Management
Commodity Price Risk. The price of aluminum is subject to fluctuations
due to unpredictable factors on the worldwide market. To reduce this market
risk, the Company follows the policy of hedging its anticipated raw material
requirements based on firm-priced sales and purchase orders. The Company
purchases and sells futures contracts and options on the London Metal Exchange
("LME") based on its anticipated purchase requirements, net of fixed price
purchase commitments and expected inventory decrements. At December 31, 2000,
the Company held purchase and sales commitments through 2001 totaling $44
million and $168 million, respectively.
The Company generally buys LME futures contracts and options to
purchase aluminum to hedge net anticipated purchases and sells LME futures and
options to reduce the position when a firm purchase commitment is entered into.
The change in market value of such LME contracts has a high correlation to the
price changes of the hedged commodity (aluminum scrap and ingot). To obtain a
matching of revenues and expenses realized gains or losses arising from LME
contracts are included in inventories as a cost of raw materials and reflected
in the consolidated statement of income when the product is sold. The Company
had no deferred realized losses or gains as of December 31, 2000 and $0.7
million of deferred realized losses as of December 31, 1999 on closed futures
contracts and options. Deferred realized losses are recorded as an increase in
the carrying value of inventory and deferred realized gains are recorded as a
reduction in the carrying value of inventory.
The Company also uses futures contracts to manage risks associated with
its natural gas requirements.
At December 31, 2000 and 1999, the Company had open aluminum futures
contracts and options and natural gas futures with a fair value of $105.5
million and $88.0 million, respectively. The Company had net unrealized gains of
$7.0 million and $7.9 million as of December 31, 2000 and 1999, respectively, on
these open futures contracts and options.
Net unrealized gains and losses on open futures and option contracts
are recorded in the consolidated balance sheet as accrued liabilities and
prepayments and other current assets, respectively. The net unrealized gain of
$7.0 million at December 31, 2000 consists only of unrealized gains while the
net unrealized gain of $7.9 million at December 31, 1999 consists of unrealized
gains due from brokers of $10.9 million and unrealized losses due to brokers of
$3.0 million. Futures contracts and options are valued at the closing price on
the last business day of the year.
A sensitivity analysis has been prepared to estimate the Company's
exposure to market risk related to its LME position. Market risk is estimated as
the potential loss in fair value resulting from a hypothetical 10% adverse
change in the price of the futures contract. On December 31, 2000 the Company
had approximately 57,650 metric tonnes of LME futures contracts. A hypothetical
10 % change from the 2000 year-end three-month high grade aluminum price of
$1,563 per metric tonne would result in a change in fair value of $9.0 million
in these contracts. However it should be noted that any change in the fair value
of these contracts would be significantly offset with an inverse change in the
cost of metal to be purchased.
Also, a sensitivity analysis has been prepared to estimate the
Company's exposure to market risk related to its NYMEX Henry Hub natural gas
futures. Market risk is estimated as the potential loss in fair value resulting
from a hypothetical 10% adverse change in the price of the futures contract. On
December 31, 2000 the Company had approximately 2.4 million cubic feet of NYMEX
futures contracts. A hypothetical 10 % change from the 2000 year-end three-month
natural gas price of $6.291 per cubic foot would result in a change in fair
value of $1.5 million in these contracts. However it should be noted that any
change in the fair value of these contracts would be significantly offset with
an inverse change in the cost of gas to be purchased.
Credit Risk. As discussed previously, the Company utilizes futures
contracts and options to protect against exposures to commodity price risk in
the aluminum and natural gas markets. The Company is exposed to losses in the
event of non-performance by the counterparties to these agreements; however, the
Company does not anticipate non-performance by the counterparties. Prior to
conducting business with a potential customer, credit checks are performed on
the customer to determine creditworthiness and assess credit risk. In addition,
an indirect credit exposure review is performed on all customers. Trading
partners (brokers) are evaluated for creditworthiness and risk assessment prior
to initiating trading activities with the brokers. However, the Company does not
require collateral to support broker transactions. In addition, all brokers
trading on the LME with U.S. clients are regulated by the Commodities Trading
and Futures Commission, which requires the brokers to be fully insured against
unrealized losses owed to clients. At December 31, 2000, credit lines totaling
$64 million were available at various brokerages used by the Company.
Interest Rate Risk. The Company manages its ratio of fixed to floating
rate debt with the objective of achieving a mix that management believes is
appropriate. To manage this mix in a cost-effective manner, the Company, from
time to time, enters into interest rate swap agreements. At December 31, 2000
the Company had an interest rate swap contract with a notional amount of $5
million which expires in September 2001. With respect to this agreement, the
Company pays a fixed rate of interest and receives a LIBOR-based floating rate.
The counterparty to the interest rate contract is a major commercial bank and
management believes that losses related to credit risk are remote. The fair
value of this interest rate swap agreement at December 31, 2000 was a liability
of $0.11 million.
A sensitivity analysis has been prepared to estimate the Company's
exposure to market risk related to its interest rate position. Market risk is
estimated as the potential loss in fair value resulting from a hypothetical 100
basis point change in interest rates relating to the interest rate swap
agreement. A hypothetical 100 basis point change in interest rates would result
in a change in fair value of $0.05 million in the interest rate swap agreement.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded on the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in net income unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company has
evaluated it's hedging practices and has determined that the Company will be
eligible for hedge accounting as defined under SFAS No. 133 and currently
expects to adopt SFAS No. 133 in the Company's first quarter 2001 reporting, as
required by the FASB's Statement of Financial Accounting Standard No. 137,
issued in June 1999. Management has determined that the impact of SFAS No. 133,
including Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133" which was issued in June 2000, on the Company's future
financial reporting will be minimal due to the effectiveness of the Company's
hedging program.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
adopted SAB 101 as required by December 31, 2000 and the adoption did not have a
material impact on the Company's results of operations or financial position. In
addition, during 2000, the Company began classifying shipping costs incurred as
a component of cost of goods sold instead of a reduction of sales in accordance
with the requirements of Emerging Issues Task Force Issue No. 00-10 which
resulted from issues addressed in SAB 101. All prior year periods have been
restated to conform to this classification.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS No. 140"). The Statement is effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after March 31, 2001. SFAS No. 140 also includes
provisions that require additional disclosures in the financial statements for
fiscal years ending after December 15, 2000. Additional disclosures have been
included in note 2 to the consolidated financial statements. This Statement is
not expected to have a material impact on the Company's results of operations or
financial position.
Exhibit 13 item (C)
-------------------
COMMONWEALTH INDUSTRIES, INC.
Consolidated Balance Sheet
(in thousands except share data)
December 31,
--------------------------------------
2000 1999
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 11,514 $ -
Accounts receivable, net 111 118
Inventories 137,685 207,413
Prepayments and other current assets 83,730 53,821
------------- -------------
Total current assets 233,040 261,352
Property, plant and equipment, net 258,963 275,531
Goodwill, net 160,134 164,610
Other noncurrent assets 3,203 4,829
------------- -------------
Total assets $ 655,340 $ 706,322
============= =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ 1,188
Accounts payable 53,522 97,937
Accrued liabilities 41,056 39,160
------------- -------------
Total current liabilities 94,578 138,285
Long-term debt 125,000 125,000
Other long-term liabilities 6,369 8,412
Accrued pension benefits 9,085 12,482
Accrued postretirement benefits 81,915 85,467
------------- -------------
Total liabilities 316,947 369,646
------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,528,051 and 16,606,000 shares outstanding at
December 31, 2000 and 1999, respectively 165 166
Additional paid-in capital 408,505 409,062
Accumulated deficit (61,688) (61,866)
Unearned compensation (7) (175)
Notes receivable from sale of common stock (8,582) (10,511)
Accumulated other comprehensive income:
Minimum pension liability adjustment - -
------------- -------------
Total stockholders' equity 338,393 336,676
------------- -------------
Total liabilities and stockholders' equity $ 655,340 $ 706,322
============= =============
See notes to consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Income
(in thousands except per share data)
Year ended December 31,
-------------------------------------------------------
2000 1999 1998
-------------- --------------- -------------
Net sales $1,125,142 $1,074,939 $ 992,004
Cost of goods sold 1,042,937 988,074 922,549
-------------- --------------- -------------
Gross profit 82,205 86,865 69,455
Selling, general and administrative expenses 55,800 53,949 43,558
Amortization of goodwill 4,476 4,476 4,476
-------------- --------------- -------------
Operating income 21,929 28,440 21,421
Other income (expense), net 1,975 2,861 365
Interest expense, net (20,067) (19,333) (22,221)
-------------- --------------- -------------
Income (loss) before income taxes 3,837 11,968 (435)
Income tax expense (benefit) 346 957 (578)
-------------- --------------- -------------
Net income $ 3,491 $ 11,011 $ 143
============== =============== =============
Basic and diluted net income per share $ 0.21 $ 0.68 $ 0.01
============== =============== =============
Weighted average shares outstanding
Basic 16,567 16,224 15,944
Diluted 16,573 16,281 15,947
See notes to consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Comprehensive Income
(in thousands)
Year ended December 31,
------------------------------------------------------
2000 1999 1998
-------------- -------------- -------------
Net income $ 3,491 $ 11,011 $ 143
Other comprehensive income, net of tax:
Minimum pension liability adjustment - 2,131 (1,435)
-------------- -------------- -------------
Comprehensive income (loss) $ 3,491 $ 13,142 $ (1,292)
============== ============== =============
See notes to consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Changes in Stockholders' Equity
(in thousands except share and per share data)
Accumulated
Other
Comprehensive
Notes Income:
Common Stock Receivable Minimum
------------------- Additional from Sale Pension Total
Number of Paid-in Accumulated Unearned of Common Liability Stockholders'
Shares Amount Capital Deficit Compensation Stock Adjustment Equity
---------- ------- ---------- ---------- ------------ ---------- ----------- -----------
Balance December 31, 1997 15,941,500 $ 159 $ 398,757 $ (66,575) $(1,172) $ - $ (696) $ 330,473
Net income - - - 143 - - - 143
Cash dividends, $0.20 per share - - - (3,189) - - - (3,189)
Minimum pension liability adjustment - - - - - - (1,435) (1,435)
Forfeiture of restricted stock (2,500) - (35) - 35 - - -
Amortization of unearned compensation - - - - 465 - - 465
Issuance of stock in connection
with stock awards 5,000 - 72 - - - - 72
---------- ------- --------- --------- ---------- --------- ---------- ---------
Balance December 31, 1998 15,944,000 159 398,794 (69,621) (672) - (2,131) 326,529
Net income - - - 11,011 - - - 11,011
Cash dividends, $0.20 per share - - - (3,256) - - - (3,256)
Minimum pension liability adjustment - - - - - - 2,131 2,131
Forfeiture of restricted stock (20,000) - (280) - 280 - - -
Amortization of unearned compensation - - - - 217 - - 217
Issuance of stock in connection
with stock awards 5,000 - 44 - - - - 44
Common stock issued 677,000 7 10,504 - - (10,511) - -
---------- ------- --------- --------- ---------- ---------- ---------- ---------
Balance December 31, 1999 16,606,000 166 409,062 (61,866) (175) (10,511) - 336,676
Net income - - - 3,491 - - - 3,491
Cash dividends, $0.20 per share - - - (3,313) - - - (3,313)
Minimum pension liability adjustment - - - - - - - -
Forfeiture of restricted stock (10,000) - (176) - 176 - - -
Amortization of unearned compensation - - - - (8) - - (8)
Issuance of stock in connection
with stock awards 12,051 - 121 - - - - 121
Repayments of notes receivable and
retirement of common stock (80,000) (1) (502) - - 1,929 - 1,426
---------- ------- --------- --------- ---------- ---------- ---------- ---------
Balance December 31, 2000 16,528,051 $ 165 $ 408,505 $ (61,688) $ (7) $(8,582) $ - $ 338,393
========== ======= ========= ========= ========== ========== ========== =========
See notes to consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Cash Flows
(in thousands)
Year ended December 31,
-------------------------------------------------
2000 1999 1998
------------ ------------- ----------
Cash flows from operating activities:
Net income $ 3,491 $11,011 $ 143
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 39,351 36,513 34,728
Loss on disposal of property, plant and equipment 1,280 389 1,453
Issuance of common stock in connection with stock awards 121 44 72
Changes in assets and liabilities:
Decrease in accounts receivable, net 7 110 127
Decrease (increase) in inventories 69,728 (32,445) (3,335)
(Increase) decrease in prepayments and other current assets (29,909) (28,454) 19,740
Decrease in other noncurrent assets 426 2,878 398
(Decrease) increase in accounts payable (44,415) 43,693 (13,637)
Increase in accrued liabilities 1,896 8,027 3,965
(Decrease) increase in other liabilities (8,992) (3,001) 2,931
----------- ------------- ------------
Net cash provided by operating activities 32,984 38,765 46,585
----------- ------------- ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (18,445) (36,715) (33,650)
Proceeds from sale of property, plant and equipment 50 12 32
----------- ------------- ------------
Net cash (used in) investing activities (18,395) (36,703) (33,618)
----------- ------------- ------------
Cash flows from financing activities:
(Decrease) increase in outstanding checks in excess of deposits (1,188) 1,188 (9,122)
Proceeds from long-term debt 57,100 46,770 45,150
Repayments of long-term debt (57,100) (46,770) (45,800)
Repayments of notes receivable from sale of common stock 1,426 - -
Cash dividends paid (3,313) (3,256) (3,189)
----------- ------------- ------------
Net cash (used in) financing activities (3,075) (2,068) (12,961)
----------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 11,514 (6) 6
Cash and cash equivalents at beginning of period - 6 -
----------- ------------- ------------
Cash and cash equivalents at end of period $11,514 $ - $ 6
=========== ============= ============
Supplemental disclosures:
Interest paid $21,098 $19,672 $22,385
Income taxes paid (refund received) 198 2,412 (10)
Non-cash activities:
Issuance of common stock for notes receivable $ - $10,511 $ -
Repayment of notes receivable from sale of common stock with
common stock and subsequent retirement of common stock 503 - -
See notes to consolidated financial statements.
COMMONWEALTH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Commonwealth Industries, Inc. (the "Company") operates principally in the United
States in two business segments. The aluminum segment manufactures common alloy
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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
Use of Estimates
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.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits with banks and highly liquid
investments with original maturities of three months or less. The carrying
amount of cash and cash equivalents approximates their fair value.
Concentrations of Credit Risk
Futures contracts, options, cash investments and accounts receivable potentially
subject the Company to concentrations of credit risk. The Company places its
cash investments with high credit quality institutions. At times, such cash
investments may be in excess of the Federal Deposit Insurance Corporation
insurance limit. Credit risk with respect to accounts receivable exists related
to concentrations of sales to aluminum distributors, who in turn resell the
Company's aluminum products to end-use markets, including the consumer durables,
building and construction and transportation markets. Concentrations of credit
risk with respect to accounts receivable from the sale of electrical products
are limited due to the large customer base, and their dispersion across many
different geographical areas. During 2000, sales to one major customer amounted
to approximately 14% of the Company's net sales. No other single customer
accounted for more than 10% of the Company's net sales in 2000, 1999 or 1998.
The Company performs ongoing credit evaluations of its customers' financial
condition but does not require collateral to support customer receivables.
Inventories
Inventories are stated at the lower of cost or market. The methods of accounting
for inventories are described in Note 3.
Long-Lived Assets
Property, plant and equipment are carried at cost and are being depreciated on a
straight-line basis over the estimated useful lives of the assets which
generally range from 15 to 33 years for buildings and improvements and from 5 to
20 years for machinery and equipment. Repair and maintenance costs are charged
against income while renewals and betterments are capitalized. Retirements,
sales and disposals of assets are recorded by removing the cost and accumulated
depreciation from the accounts with any resulting gain or loss reflected in
income.
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over forty years. Accumulated
amortization was $19.1 million and $14.7 million at December 31, 2000 and 1999,
respectively.
The Company periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill and other intangible assets. In the event that
facts and circumstances indicate that the carrying amount of an asset or group
of assets may be impaired, an evaluation of recoverability would be performed in
accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". In performing the evaluation, the estimated future
undiscounted cash flows associated with the asset are compared to the assets'
carrying amount to determine if a write-down to fair value or discounted cash
flow value is required.
Financial Instruments
The Company enters into futures contracts and options to manage exposures to
price risk related to aluminum and natural gas purchases. Gains, losses and
premiums on these instruments which effectively hedge exposures are deferred and
included in income as a component of the underlying transactions. The Company
also uses interest rate swap agreements to manage interest rate risk. The
difference between payments made and received under the interest rate swap
agreements is recorded as a component of interest expense.
Income Taxes
The Company accounts for income taxes using the liability method, whereby
deferred income taxes reflect the tax effect of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. In valuing deferred tax assets,
the Company uses judgment in determining if it is more likely than not that some
portion or all of a deferred tax asset will not be realized and the amount of
the required valuation allowance.
Revenue Recognition
The Company recognizes revenue upon passage of title to the customer.
During 2000, the Company began classifying shipping costs incurred as a
component of cost of goods sold instead of a reduction of sales in accordance
with the requirements of Emerging Issues Task Force Issue No. 00-10. All prior
year periods have been restated to conform to this classification.
Computation of Net Income Per Common Share
Basic net income per common share has been computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per share has been computed by dividing net income by the
weighted average number of common and common equivalent shares (stock options)
outstanding during the period.
Stock-Based Compensation
Compensation cost is measured under the intrinsic value based method. Pro forma
disclosures of net income and net income per share are presented, as if the fair
value based method had been applied.
Self Insurance
The Company is substantially self-insured for losses related to workers'
compensation and health claims. Losses are accrued based upon the Company's
estimates of the aggregate liability for claims incurred based on Company
experience and certain actuarial assumptions.
Environmental Compliance and Remediation
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to existing conditions caused
by past operations, which do not contribute to current or future revenues, are
expensed. Liabilities for remediation costs and post-remediation monitoring are
recorded when they are probable and reasonably estimable. The liability may
include costs such as environmental site evaluations, consultant fees,
feasibility studies, outside contractor and monitoring expenses. The assessment
of this liability is calculated based on existing technology, considers funds
available in the settlement trust discussed in Note 11, does not reflect any
offset for possible recoveries from insurance companies and is not discounted.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded on the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in net income unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company has
evaluated it's hedging practices and has determined that the Company will be
eligible for hedge accounting as defined under SFAS No. 133 and currently
expects to adopt SFAS No. 133 in the Company's first quarter 2001 reporting, as
required by the FASB's Statement of Financial Accounting Standard No. 137,
issued in June 1999. Management has determined that the impact of SFAS No. 133,
including Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133" which was issued in June 2000, on the Company's future
financial reporting will be minimal due to the effectiveness of the Company's
hedging program.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
adopted SAB 101 as required by December 31, 2000 and the adoption did not have a
material impact on the Company's results of operations or financial position. In
addition, during 2000, the Company began classifying shipping costs incurred as
a component of cost of goods sold instead of a reduction of sales in accordance
with the requirements of Emerging Issues Task Force Issue No. 00-10 which
resulted from issues addressed in SAB 101. All prior year periods have been
restated to conform to this classification.
In September 2000, the FASB issued Statement of Financial Accounting Standards
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS No. 140"). The Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. SFAS No. 140 also includes provisions that
require additional disclosures in the financial statements for fiscal years
ending after December 15, 2000. Additional disclosures have been included in
note 2 to the consolidated financial statements. This Statement is not expected
to have a material impact on the Company's results of operations or financial
position.
2. Accounts Receivable Securitization
On September 26, 1997, the Company sold all of its trade accounts receivables to
a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously,
CFC entered into a three-year accounts receivable securitization facility with a
financial institution and its affiliate whereby CFC 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. During September 2000, the Company and the financial institution
extended the accounts receivable securitization facility for an additional
three-year period ending in September 2003. At December 31, 2000 and 1999, the
Company had outstanding under the agreement $69.0 million and $106.0 million,
respectively, and had $72.4 million and $39.9 million, respectively, of net
residual interest in the securitized receivables which is included in other
current assets in the Company's consolidated financial statements. 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 2000, the Company received gross
proceeds of $41.0 million from the sale of receivables and made gross payments
of $78.0 million under the agreement.
The Company maintains an allowance for uncollectible accounts based upon the
expected collectibility of all consolidated trade accounts receivable, including
receivables sold by CFC. The allowance was $2.9 million and $1.9 million at
December 31, 2000 and 1999, respectively, and is netted against the net residual
interest in the securitized receivables which is included in other current
assets in the Company's consolidated financial statements.
3. Inventories
Effective January 1, 1999, the Company changed its inventory accounting method
for certain inventories from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method and modified the LIFO calculation for the
inventories historically recorded under the LIFO method. The Company believes
the adoption of the LIFO method for all aluminum sheet inventories is preferable
as LIFO is the inventory method most prevalent in the industry, provides a
consistent inventory accounting method for aluminum sheet inventories, and
results in more appropriate matching of cost of goods sold with related sales
revenues.
The effect of this change in accounting principle was to decrease net income
reported for the twelve months ended December 31, 1999 by $12.1 million, or
$0.74 per share compared to 1998 when FIFO was used. The Company has omitted the
disclosure of the cumulative effect of this change on retained earnings as of
the date of the change and the pro forma effects of retroactive application due
to such amounts not being determinable. Inventories at December 31 consist of
the following (in thousands):
2000 1999
---- ----
Raw materials $50,154 $63,510
Work in process 49,473 80,210
Finished goods 33,899 62,278
Expendable parts and supplies 15,850 15,895
-------- --------
149,376 221,893
LIFO reserve (11,691) (14,480)
-------- --------
$137,685 $207,413
======== ========
Inventories of approximately $116.5 million and $183.3 million, included in the
above totals (before the LIFO reserve) at December 31, 2000 and 1999,
respectively, are accounted for under the LIFO method of accounting.
During 2000, LIFO inventory quantities were reduced, resulting in a partial
liquidation of the LIFO bases, the effect of which increased net income by
approximately $4.5 million, or $0.27 per share.
4. Property, Plant and Equipment
Property, plant and equipment and the related accumulated depreciation at
December 31 consist of the following (in thousands):
2000 1999
---- ----
Land and improvements $21,804 $21,216
Buildings and improvements 77,091 77,958
Machinery and equipment 463,291 455,036
Construction in progress 18,110 21,359
------- -------
580,296 575,569
Less accumulated depreciation 321,333 300,038
------- -------
Net property, plant and equipment $258,963 $275,531
======= =======
Depreciation expense was $33.7 million, $30.6 million and $28.6 million for the
years ended 2000, 1999 and 1998, respectively.
5. Financial Instruments
Market and credit risk is managed by the Company through an active risk
management program. This program focuses on inventory, purchase commitments and
committed and anticipated sales in addition to risks associated with the
Company's natural gas requirements. The Company utilizes futures contracts and
options to protect against exposures to price risk in the aluminum and natural
gas markets. The Company is exposed to losses in the event of non-performance by
the counterparties to these agreements; however, the Company does not anticipate
non-performance by the counterparties. Prior to conducting business with a
potential customer, credit checks are performed on the customer to determine
creditworthiness and assess credit risk. In addition, an indirect credit
exposure review is performed on all customers. Trading partners (brokers) are
evaluated for creditworthiness and risk assessment prior to initiating trading
activities with the brokers, however, the Company does not require collateral to
support broker transactions. All brokers trading on the London Metal Exchange
with U.S. clients are regulated by the Commodities Trading and Futures
Commission, which requires the brokers to be fully insured against unrealized
losses owed to clients. At December 31, 2000, credit lines totaling $64 million
were available at various brokerages used by the Company.
Gains, losses and premiums on futures contracts and options which effectively
hedge exposures are included in income as a component of the underlying
transaction. The Company had no deferred realized losses or gains as of December
31, 2000 and $0.7 million of deferred realized losses as of December 31, 1999
which were recorded as an increase in the carrying value of inventory.
At December 31, 2000, the Company held purchase and sales commitments through
2001 totaling $44 million and $168 million, respectively. At December 31, 2000
and 1999, the Company had open aluminum futures contracts and options and
natural gas futures with a fair value of $105.5 million and $88.0 million,
respectively. The Company had net unrealized gains of $7.0 million and $7.9
million as of December 31, 2000 and 1999, respectively, on these open futures
contracts and options. Net unrealized gains and losses on open futures and
option contracts are recorded in the consolidated balance sheet as accrued
liabilities and prepayments and other current assets, respectively. The net
unrealized gain of $7.0 million at December 31, 2000 consists only of unrealized
gains due from brokers while the net unrealized gain of $7.9 million at December
31, 1999 consists of unrealized gains due from brokers of $10.9 million and
unrealized losses due to brokers of $3.0 million. Futures contracts and options
are valued at the closing price on the last business day of the year.
6. Long-term Debt
Long-term debt of the Company at December 31 consisted of the following (in
thousands):
2000 1999
---- ----
Senior subordinated notes $125,000 $125,000
Revolving credit facility - -
-------- --------
125,000 125,000
Less current maturities - -
-------- --------
$125,000 $125,000
======== ========
In October 1996 the Company issued $125 million of 10.75% senior subordinated
notes due 2006. Interest is payable semi-annually on April 1 and October 1 of
each year.
The Company has a credit agreement with a syndicate of banks led by Bank One
Corporation. The credit agreement includes a $100 million revolving credit
facility. The credit agreement is collateralized by a pledge of all of the
outstanding stock of the Company's subsidiaries and substantially all of the
Company's assets. Up to $30 million of the revolving credit facility is
available for standby and commercial letters of credit. The revolving credit
facility commitment terminates on September 2, 2002.
Borrowings under the credit agreement bear interest at a variable base rate per
annum plus up to an additional 1.75% depending on the results of a quarterly
financial test as defined in the agreement. In addition, the Company must pay to
the lenders under the credit agreement, a quarterly commitment fee ranging from
0.425% to 0.500%. The Company must pay a fee ranging from 1.325% to 1.750% per
annum on the carrying amount of each outstanding letter of credit. At both
December 31, 2000 and 1999, letters of credit totaling $0.8 million were
outstanding under the revolving credit facility.
The credit agreement includes covenants which, among others, relate to leverage,
interest coverage, fixed charges, capital expenditures and the payment of
dividends.
The Company uses interest rate swap agreements to effectively convert a portion
of its variable interest rates relating to the Company's revolving credit
facility and accounts receivable securitization facility to fixed interest
rates. At both December 31, 2000 and 1999, the Company had an interest rate swap
agreement in place covering approximately $5 million of the Company's exposure
to variable interest rates. The fair value of this interest rate swap agreement
at both December 31, 2000 and 1999 was a liability of $0.1 million. The fixed
interest rate is 6.87% and the interest rate swap agreement expires in September
2001. The counterparty to the interest rate swap agreement is a major commercial
bank and management believes that losses related to credit risk are remote.
Based on estimated market values at December 31, 2000 and 1999, the fair value
of the senior subordinated notes was approximately $109 million and $124
million, respectively.
Future aggregate maturities of long-term debt at December 31, 2000 are as
follows (in thousands):
2000 $ -
2001 -
2002 -
2003 -
2004 -
Thereafter 125,000
--------
Total $125,000
========
7. Stockholders' Equity
In July 1999, the Company adopted an Executive Stock Purchase Incentive Program
(the "Program") which had been authorized by the Company's stockholders at the
Company's annual meeting of stockholders held in April 1999. Under the Program,
the Company extended credit to certain key executives to purchase the Company's
common stock at fair market value. The loans are collateralized by the shares
acquired and are repayable with full-recourse to the executives. The Program
provides for the key executives to earn repayment of the notes including
interest, based on achieving annual and cumulative performance objectives as set
forth by the Management Development and Compensation Committee of the Board of
Directors. The notes bear interest at 5.96 % per annum. The principal amount of
each loan is payable in four equal installments on December 31 in each of the
years 2003, 2004, 2005 and 2006, in each case together with accrued and unpaid
interest. A total of 677,000 shares were issued during August 1999 of which
597,000 shares are outstanding as of December 31, 2000. The outstanding
principal balance of the notes at December 31, 2000 was $8,582,000 and is
classified as a reduction of stockholders' equity.
8. Pension Plans
The Company has two defined benefit pension plans covering certain salaried and
non-salaried employees. The plan benefits are based primarily on years of
service and employees' compensation during employment for all employees not
covered under a collective bargaining agreement and; on stated amounts based on
job grade and years of service prior to retirement for non-salaried employees
covered under a collective bargaining agreement. The plans' assets consist
primarily of equity securities, guaranteed investment contracts and fixed income
pooled accounts.
The financial status of the plans at December 31 is as follows (in thousands):
2000 1999
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $82,990 $85,121
Service cost 2,567 2,716
Interest cost 6,307 5,964
Actuarial (gain) loss 1,292 (4,921)
Reduction due to curtailment (695) -
Benefits paid (8,288) (5,890)
------ ------
Benefit obligation at end of year 84,173 82,990
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year 81,792 72,379
Actual return on plan assets 8,589 13,821
Employer contribution 3,946 1,482
Benefits paid (8,288) (5,890)
------ ------
Fair value of plan assets at end of year 86,039 81,792
------ ------
Funded status 1,866 (1,198)
Unrecognized net actuarial (gain) loss (7,434) (7,098)
Unrecognized prior service cost (3,325) (3,879)
Unrecognized net transition (asset) (192) (307)
------ ------
Net amount recognized as (accrued) pension
cost in the consolidated balance sheet $(9,085) $(12,482)
====== =======
The weighted average assumptions and components of net pension expense for the
years ended December 31 are as follows (in thousands):
2000 1999 1998
---- ---- ----
Weighted average assumptions:
Discount rate 7.75% 7.75% 7.00%
Expected return on plan assets 8.75 8.00 9.25
Rate of compensation increase 4.50 4.50 4.50
Components of net pension expense:
Service cost $2,567 $2,716 $2,508
Interest cost 6,307 5,964 5,629
Expected return on plan assets (7,043) (5,637) (6,369)
Net amortization and deferral (254) (207) (258)
Curtailment gain (1,111) - -
------ ------ ------
Net pension expense $466 $2,836 $1,510
====== ====== ======
The Company recorded a $1.1 million curtailment gain in one of the plans in 2000
as a result of employee workforce reductions.
The Company's policy for these plans is to make contributions equal to or
greater than the requirements prescribed by the Employee Retirement Income
Security Act of 1974.
The Company also contributes to a union sponsored defined benefit multi-employer
pension plan for certain of its non-salaried employees. The Employee Retirement
Income Security Act of 1974, as amended by the Multi-Employers Pension Plan
Amendment Act of 1980, imposes certain liabilities upon employers who are
contributors to multi-employer plans in the event of the employers' withdrawal
from such a plan or upon a termination of such a plan. Management does not
intend to take any action that would subject the Company to any such
liabilities. The Company's contributions to the multi-employer pension plan were
approximately $0.2 million for 2000, 1999 and 1998, respectively.
In addition to the defined benefit pension plans described above, the Company
also sponsors defined contribution plans covering certain employees. In one of
the plans, the Company matches 25% to 50% of a participant's voluntary
contributions (depending on the respective plant's annual earnings performance)
up to a maximum of 6% of a participant's compensation. In the other plan, the
Company matches 100% of the first 3% of a participant's voluntary contributions
to the plan. The Company's contributions to the plans were approximately $1.5
million for 2000 and 1999 and $1.4 million for 1998.
9. Postretirement Benefits Other Than Pensions
The Company provides postretirement health care and life insurance benefits to
certain employees hired on or before September 1, 1998. The Company accrues the
cost of postretirement benefits within the employees' active service periods.
During 1999 changes were made to the plan for salaried employees to eliminate
coverage for employees eligible for Medicare and to require employee
contributions based on length of service. The plan changes reduced the
accumulated postretirement benefit obligation by $6.5 million in 1999 and is
being amortized over the average remaining service lives of the Company's active
employees, which has the effect of reducing net periodic postretirement benefits
cost.
The financial status of the plan at December 31 is as follows (in thousands):
2000 1999
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $51,424 $56,454
Service cost 763 867
Interest cost 3,897 3,657
Amendments - (6,464)
Actuarial (gain) loss (830) (731)
Reduction due to curtailment (1,020) -
Benefits paid (2,134) (2,359)
------- -------
Benefit obligation at end of year 52,100 51,424
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year - -
Actual return on plan assets - -
Employer contribution 2,134 2,359
Benefits paid (2,134) (2,359)
------- -------
Fair value of plan assets at end of year - -
------- -------
Funded status (52,100) (51,424)
Unrecognized net actuarial gain (12,937) (12,470)
Unrecognized prior service cost (16,878) (21,573)
------- -------
Prepaid (accrued) postretirement benefit cost $(81,915) $(85,467)
======= =======
The weighted average assumptions and components of net postretirement benefit
expense for the years ended December 31 are as follows (in thousands):
2000 1999 1998
---- ---- ----
Weighted average assumptions:
Discount rate 7.75% 7.75% 7.00%
Components of net postretirement benefit expense:
Service cost $763 $867 $1,827
Interest cost 3,897 3,657 4,439
Amortization of prior service cost (3,131) (3,209) (1,318)
Recognized net actuarial gain (388) (193) (413)
Curtailment gain (2,558) - -
------- ------ ------
Net postretirement benefit expense (income) $(1,417) $1,122 $4,535
======= ====== ======
The Company recorded a $2.6 million curtailment gain in 2000 as a result of
employee workforce reductions.
For measurement purposes, the employer cap on the amount paid for retiree
medical benefits is assumed to increase with general inflation at 3% per year.
If the general inflation rate assumption is increased by 1%, the postretirement
benefit obligation as of December 31, 2000 and the combined service and interest
cost components of postretirement benefit expense for the year then ended would
be increased by approximately $4.6 million and $0.5 million, respectively, and
if the general inflation rate assumption is decreased by 1%, the postretirement
benefit obligation as of December 31, 2000 and the combined service and interest
cost components of postretirement benefit expense for the year then ended would
be decreased by approximately $4.0 million and $0.4 million, respectively.
10. Income Taxes
The components of income tax expense (benefit) for the years ended December 31
are as follows (in thousands):
2000 1999 1998
---- ---- ----
Current:
Federal $ (234) $ 419 $ (1,093)
State and Local 580 538 515
----- ----- -----
346 957 (578)
Deferred:
Federal - - -
State and Local - - -
----- ----- -----
$346 $957 $(578)
===== ===== =====
Deferred tax assets and liabilities at December 31 are as follows (in
thousands):
2000 1999
---- ----
Assets Liabilities Assets Liabilities
--------- ----------- ----------- -----------
Inventory $ 854 $ - $ - $1,373
Property, plant and equipment - 50,242 - 53,787
Accrued and other liabilities 10,093 - 7,407 -
Accrued pension costs 4,302 - 6,672 -
Accrued postretirement costs 32,765 - 34,187 -
Net operating loss carryforwards 24,553 - 28,378 -
AMT credit carryforwards 6,849 - 6,699 -
Research and development
credit carryforwards 1,629 - 1,115 -
Other 497 - 693 -
------- ------- -------- -------
Totals $ 81,542 $50,242 $ 85,151 $55,160
------- ------- -------- -------
Net deferred tax asset 31,300 - 29,991 -
Valuation allowance (31,300) - (29,991) -
------- ------- -------- -------
Net deferred taxes $ - $ - $ - $ -
======= ======= ======== =======
The Company has determined that at December 31, 2000 and 1999, its ability to
realize future benefits of net deferred tax assets does not meet the "more
likely than not" criteria in Statement of Financial Accounting Standards No.109,
"Accounting for Income Taxes".
At December 31, 2000, the Company had net operating loss ("NOL") carryforwards
for federal tax purposes of approximately $61 million, which expire in various
amounts from 2001 through 2008 and approximately $6.8 million in alternative
minimum tax ("AMT") credit carryforwards which do not expire. As a result of the
Company's initial public offering during 1995, the Company experienced an
"ownership change" within the meaning of Section 382 of the Internal Revenue
Code. Consequently, the Company is subject to an annual limitation on the amount
of net operating loss carryforwards that can be used to offset taxable income.
The annual limitation is $9.6 million plus certain gains included in taxable
income which are attributable to the Company prior to the ownership change.
A reconciliation of the significant differences between the federal statutory
income tax rate and the effective income tax rate on pre-tax income (loss) is as
follows:
2000 1999 1998
---- ---- ----
Federal statutory income tax rate 35.0% 35.0% (35.0)%
Utilization of NOL and AMT credit carryforwards (53.0) (43.9) (225.8)
Nondeductible goodwill and other permanent differences
43.0 14.0 413.5
Adjustment of prior year accrual (10.8) (3.1) -
State income taxes, net of federal income tax benefit 8.3 2.1 77.0
Alternative minimum tax - 5.9 -
Foreign sales corporation benefits (8.2) (3.4) (21.8)
Utilization of research and development credit
carryforwards (5.3) - -
Activity relating to income taxes attributed to
previously accrued securities valuation reserves - 1.4 (340.7)
---- ---- -----
Effective income tax rate 9.0% 8.0% (132.8)%
==== ==== =====
11. Contingencies
The Company's operations are subject to increasingly stringent environmental
laws and regulations governing air emissions, wastewater discharges, the
handling, disposal and remediation of hazardous substances and wastes and
employee health and safety. These laws can impose joint and several liability
for releases or threatened releases of hazardous substances upon statutorily
defined parties, including the Company, regardless of fault or the lawfulness of
the original activity or disposal. The Company believes it is currently in
material compliance with applicable environmental laws and regulations.
Federal and state regulations continue to impose strict emission requirements on
the aluminum industry. While the Company believes that current pollution control
measures at the emission sources at its facilities meet current requirements,
additional measures at some of the Company's facilities may be required to meet
future requirements.
The Company has been named as a potentially responsible party at seven federal
superfund sites and has completed closure activities at two of the sites for
past waste disposal activity associated with closed recycling facilities. At the
five other federal superfund sites, the Company is a minor contributor and has
satisfied its obligations at four of the sites and expects to resolve its
liability at the remaining site for a nominal amount. The Company is also under
orders by agencies in two states for environmental remediation at three sites,
one of which is currently operating and two of which have been closed. A trust
fund exists to fund the activity at one of the sites that was undergoing closure
and was established through contributions from two other parties in exchange for
indemnification from further liability. The Company is reimbursed from the trust
fund for approved closure and postclosure expenditures incurred at the site. The
balance remaining in the trust fund at December 31, 2000 was $0.2 million. In
determining the adequacy of the Company's aggregate environmental contingency
accrual, the assets of the trust fund were taken into account. Based upon
currently available information, the Company estimates the range of possible
remaining expenditures with respect to the above matters is between $7 million
and $14 million.
The Company acquired its Lewisport, Kentucky ("Lewisport") rolling mill and an
aluminum smelter at Goldendale, Washington ("Goldendale"), from Lockheed Martin
in 1985. In connection with the transaction, Lockheed Martin indemnified the
Company against expenses relating to environmental matters arising during the
period of Lockheed Martin's ownership of those facilities.
Environmental sampling at Lewisport has disclosed the presence of contaminants,
including polychlorinated biphenyls (PCBs), in a closed Company landfill. The
Company has not yet determined the extent of the contamination or the nature and
extent of remedial measures that may be required. Accordingly, the Company
cannot at present estimate the cost of any remediation that may be necessary.
Management believes the contamination is covered by the Lockheed Martin
indemnification, which Lockheed Martin disputes.
The aluminum smelter at Goldendale was operated by Lockheed Martin until 1985
and by the Company from 1985 to 1987 when it was sold to Columbia Aluminum
Corporation ("Columbia"). Past aluminum smelting activities at Goldendale have
resulted in environmental contamination and regulatory involvement. A 1993
Settlement Agreement among the Company, Lockheed Martin and Columbia allocates
responsibility for future remediation at 11 sites at the Goldendale smelter. If
remediation is required, estimates by outside consultants of the probable
aggregate cost to the Company for these sites range from $1.3 million to $7.2
million. The apportionment of responsibility for other sites at Goldendale is
left to alternative dispute resolution procedures if and when these locations
become the subject of remedial requirements.
The Company has been named as a potentially responsible party at three
third-party disposal sites relating to Lockheed Martin operations, for which
Lockheed Martin has assumed responsibility.
The Company's aggregate loss contingency accrual for environmental matters was
$9.4 million and $9.6 million at December 31, 2000 and 1999, respectively. Of
the total reserve, $3.6 million and $2.0 million is included in "accrued
liabilities" in the Company's consolidated balance sheets at December 31, 2000
and 1999, respectively, and $5.8 million and $7.6 million is included in "other
long-term liabilities" at December 31, 2000 and 1999, respectively.
While the Company believes the overall accrual is adequate to cover all
environmental loss contingencies the Company has determined to be probable and
reasonably estimable, it is not possible to predict the amount or timing of cost
for future environmental matters which may subsequently be determined. Although
the outcome of any such matters, to the extent they exceed any applicable
accrual, could have a material adverse effect on the Company's consolidated
results of operations or cash flows for the applicable period, the Company
believes that such outcome will not have a material adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.
The Company has incurred and will continue to incur capital and operating
expenditures for matters relating to environmental control and monitoring.
Capital expenditures of the Company for environmental control and monitoring for
2000 and 1999 were $0.9 million and $1.5 million, respectively. All other
environmental expenditures of the Company, including remediation expenditures,
for 2000, 1999 and 1998 were $2.1 million, $2.3 million and $1.0 million,
respectively.
The Company is also a party to various non-environmental legal proceedings and
administrative actions, all arising from the ordinary course of business.
Although it is impossible to predict the outcome of any legal proceeding, the
Company believes any liability that may finally be determined with respect to
such legal proceedings should not have a material effect on the Company's
consolidated financial position, results of operations or cash flows, although
resolution in any year or quarter could be material to the consolidated results
of operations for that period.
12. Stock Incentives
The Company has stock incentive plans covering certain officers, key employees
and directors. The plans provide for the grant of options to purchase common
stock, the award of shares of restricted common stock and in the case of
non-employee directors, the award of shares of common stock. The total number of
shares available under the plans is 1,950,000.
The following summarizes activity under the plans for the years 1998, 1999 and
2000:
Options Restricted Stock
--------------------------------------------------- -----------------
Range of Weighted Average
Shares Exercise Prices Exercise Price Shares
---------- ----------------- ---------------- ------------
Outstanding December 31, 1997 345,000 $14.00 to $20.00 $15.68 170,000
Granted 231,500 $8.25 to $16.00 $14.40 -
Exercised - - - -
Forfeited (8,500) $14.00 to $16.75 $14.99 (2,500)
------- -------
Outstanding December 31, 1998 568,000 $8.25 to $20.00 $15.17 167,500
Granted 343,000 $8.81 $8.81 -
Exercised - - - -
Forfeited (127,000) $8.81 to $16.75 $12.46 (20,000)
------- -------
Outstanding December 31, 1999 784,000 $8.25 to $20.00 $12.83 147,500
Granted 315,000 $7.44 to $12.84 $12.76 -
Exercised - - - -
Forfeited (166,500) $8.25 to $16.75 $12.97 (10,000)
Stock no longer restricted - - - (125,000)
------- -------
Outstanding December 31, 2000 932,500 $7.44 to $20.00 $12.78 12,500
======= =======
(Weighted average contractual
life of 7.4 years)
Exercisable Options:
December 31, 1998 71,500 $14.00 to $15.50 $14.24
December 31, 1999 172,000 $14.00 to $16.88 $15.72
December 31, 2000 273,500 $8.81 to $20.00 $15.32
The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Options
Outstanding Exercisable
-------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
------------------ -------------- ---------- -------------- ----------- --------------
$7.44 to $14.00 574,000 8.2 years $11.12 62,000 $12.86
14.01 to $20.00 358,500 6.2 years $15.43 211,500 $16.04
------- -------
$7.44 to $20.00 932,500 7.4 years $12.78 273,500 $15.32
======= =======
The options are issued at the fair value of the underlying stock on the date of
grant and become exercisable three years from the grant date for employees and
one year from the grant date for non-employee directors. The options expire ten
years after the date of grant. The restricted stock, principally issued in
connection with the Company's initial public offering in 1995, vests five years
from the date of award. The weighted-average fair value of options granted in
2000, 1999 and 1998 was $5.76, $3.61 and $6.23 per share, respectively. Fair
value estimates were determined using the Black-Scholes option pricing model
with the following weighted average asumptions for 2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
Risk-free interest rate 6.56% 4.70% 5.67%
Dividend yield 1.58% 2.27% 1.40%
Volatility factor 49% 50% 47%
Expected term of options (in years) 5 5 5
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, and accordingly, no compensation expense has been recognized for
options and stock issued under the plans. 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 income and
basic and diluted net income per share would have been reduced for 2000, 1999
and 1998 to the pro forma amounts which follow:
2000 1999 1998
---- ---- ----
Net income (loss)
As reported $3,491 $11,011 $143
Pro forma $2,993 $10,515 $(442)
Basic and diluted net income (loss) per share
As reported $0.21 $0.68 $0.01
Pro forma $0.18 $0.65 $(0.03)
13. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:
2000 1999 1998
---- ---- ----
Income (numerator) amounts used for basic and diluted per share computations:
Net income $3,491 $11,011 $ 143
====== ======= =====
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,567 16,224 15,944
====== ====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,567 16,224 15,944
Plus: dilutive effect of stock options 6 57 3
------ ------ ------
Adjusted weighted average shares 16,573 16,281 15,947
====== ====== ======
Basic and diluted net income $0.21 $0.68 $0.01
===== ===== =====
Options to purchase 932,500, 488,000 and 563,000 common shares for the years
ended December 31, 2000, 1999 and 1998, respectively, were excluded from the
calculations above because the exercise prices on the options were greater than
the average market price for the periods.
14. Lease Commitments
Certain property, plant and equipment are leased under noncancelable leases
which provide for minimum rental payments as follows (in thousands):
Rental payments Less sublease Net rental
required rental income payments required
-------- ------------- -----------------
2001 $3,604 $172 $3,432
2002 3,172 103 3,069
2003 2,839 29 2,810
2004 2,072 - 2,072
2005 906 - 906
2006-2015 4,322 - 4,322
Rental expense under cancelable and noncancelable leases for 2000, 1999 and 1998
was $3.8 million, $4.0 million and $3.2 million, respectively. The amount of
rental expense for 2000 is net of sublease rental income of $0.03 million. There
was no sublease rental income in 1999 or 1998.
15. Selected Quarterly Financial Data (unaudited)
All amounts are in thousands except net income per share.
Quarter
---------------------------------------------
1st 2nd 3rd 4th
-------- -------- --------- ---------
2000
- ----
Net sales $320,965 $304,021 $275,565 $224,591
Gross profit 22,540 25,702 17,682 16,281
Net income (loss) 1,250 4,409 2,374 (4,542)
Basic and diluted net income (loss) per share 0.08 0.27 0.14 (0.27)
1999
- ----
Net sales $245,176 $279,193 $282,782 $267,788
Gross profit 20,882 27,187 18,354 20,442
Net income 2,166 6,571 882 1,392
Basic and diluted net income per share 0.14 0.41 0.05 0.08
16. Information Concerning Business Segments
The Company has adopted Statement of Financial Accounting Standards No.131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). Under SFAS No. 131, 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". 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 years 2000, 1999 and 1998 (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.
Electrical
Aluminum Products Other Total
---------- ----------- ---------- -----------
2000
- ----
Net sales to external customers $990,961 $134,181 $ - $1,125,142
Intersegment net sales 27,673 - (27,673) -
Operating income (loss) 43,321 (3,616) (17,776) 21,929
Depreciation and amortization 35,191 4,168 (8) 39,351
Total assets 561,782 90,693 2,865 655,340
Capital expenditures 18,282 163 - 18,445
1999
- ----
Net sales to external customers $944,438 $130,501 $ - $1,074,939
Intersegment net sales 29,090 - (29,090) -
Operating income 32,213 8,451 (12,224) 28,440
Depreciation and amortization 32,699 3,597 217 36,513
Total assets 603,362 102,768 192 706,322
Capital expenditures 26,445 10,270 - 36,715
1998
- ----
Net sales to external customers $865,043 $126,961 $ - $992,004
Intersegment net sales 26,267 - (26,267) -
Operating income 16,853 12,885 (8,317) 21,421
Depreciation and amortization 31,151 3,113 464 34,728
Total assets 546,891 101,356 152 648,399
Capital expenditures 27,985 5,665 - 33,650
17. Stockholder Protection Rights Plan
During 1996, the Company's Board of Directors adopted a stockholder protection
rights plan (the "Plan"). Under the Plan, preferred share purchase rights
("Rights") are issued at the rate of one Right for each share of the Company's
common stock. Each Right entitles its holder to purchase one one-hundredth of a
share of Preferred Stock at an exercise price of $65, subject to adjustment.
Until it is announced that a person or group has acquired 15% or more of the
Company's common stock (an "Acquiring Person"), or the tenth business day after
a person or group commences a tender offer that, if completed, would result in
such person or group owning 15% or more of the Company's common stock, the
Rights will be evidenced by the Company's common stock certificates, will
automatically trade with the common stock and will not be exercisable.
Thereafter, separate Rights certificates will be distributed and each Right will
entitle its holder to purchase Participating Preferred Stock having economic and
voting terms similar to those of one share of Common Stock for an exercise price
of $65.
Upon announcement that any person or group has become an Acquiring Person (the
"Flip-in Date"), each Right (other than Rights beneficially owned by any
Acquiring Person or transferees thereof, which Rights become void) will entitle
its holder to purchase, for the exercise price, a number of shares of the
Company's common stock having a market value of twice the exercise price. Also,
if after an Acquiring Person controls the Company's Board of Directors, the
Company is involved in a merger or sells more than 50% of its assets or earning
power (or has entered into an agreement to do any of the foregoing), and, in the
case of a merger, the Acquiring Person will receive different treatment than all
other stockholders, each Right will entitle its holder to purchase, for the
exercise price, a number of shares of common stock of the Acquiring Person
having a market value of twice the exercise price. If any person or group
acquires between 15% and 50% of the Company's common stock, the Company's Board
of Directors may, at its option, exchange one share of the Company's common
stock for each Right. Until the Rights become exercisable, they may be redeemed
by the Company at a price of $0.01 per Right. The Rights expire on March 16,
2006.
18. Guarantor Financial Statements
The $125 million of 10.75% senior subordinated notes due 2006 issued by the
Company, and the $100 million revolving credit facility are guaranteed by the
Company's wholly-owned subsidiaries (collectively the "Subsidiary Guarantors"),
other than Commonwealth Financing Corp. ("CFC"), a Securitization Subsidiary (as
defined in the Indenture with respect to such debt) and certain subsidiaries of
the Company without substantial assets or operations. Such guarantees are full,
unconditional and joint and several. Separate financial statements of the
Subsidiary Guarantors are not presented because management has determined that
they would not be material to investors. The following supplemental financial
information sets forth on a condensed combined basis for the Parent Company
Only, Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company, a
combining balance sheet as of December 31, 2000 and 1999 and a statement of
income and statement of cash flows for the years ended December 31, 2000, 1999
and 1998.
Combining Balance Sheet at December 31, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 11,514 $ -- $ -- $ 11,514
Accounts receivable, net -- 242,176 -- (242,065) 111
Inventories -- 137,685 -- -- 137,685
Prepayments and other current assets 797 10,566 72,367 -- 83,730
--------- --------- --------- --------- ---------
Total current assets 797 401,941 72,367 (242,065) 233,040
Property, plant and equipment, net -- 258,963 -- -- 258,963
Goodwill, net -- 160,134 -- -- 160,134
Other noncurrent assets 605,054 1,135 -- (602,986) 3,203
--------- --------- --------- --------- ---------
Total assets $ 605,851 $ 822,173 $ 72,367 $(845,051) $ 655,340
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ -- $ -- $ -- $ --
Accounts payable 137,384 53,522 104,681 (242,065) 53,522
Accrued liabilities 5,074 36,288 (306) -- 41,056
--------- --------- --------- --------- ---------
Total current liabilities 142,458 89,810 104,375 (242,065) 94,578
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 6,369 -- -- 6,369
Accrued pension benefits -- 9,085 -- -- 9,085
Accrued postretirement benefits -- 81,915 -- -- 81,915
--------- --------- --------- --------- ---------
Total liabilities 267,458 187,179 104,375 (242,065) 316,947
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 165 1 -- (1) 165
Additional paid-in capital 408,505 486,727 5,000 (491,727) 408,505
Accumulated deficit (61,688) 148,266 (37,008) (111,258) (61,688)
Unearned compensation (7) -- -- -- (7)
Notes receivable from sale of common stock (8,582) -- -- -- (8,582)
--------- --------- --------- --------- ---------
Total stockholders' equity 338,393 634,994 (32,008) (602,986) 338,393
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 605,851 $ 822,173 $ 72,367 $(845,051) $ 655,340
========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 1999
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ -- $ -- $ -- $ --
Accounts receivable, net 172,266 59,526 -- (231,674) 118
Inventories -- 207,413 -- -- 207,413
Prepayments and other current assets 627 13,214 39,980 -- 53,821
--------- --------- --------- --------- ---------
Total current assets 172,893 280,153 39,980 (231,674) 261,352
Property, plant and equipment, net -- 275,531 -- -- 275,531
Goodwill, net -- 164,610 -- -- 164,610
Other noncurrent assets 289,196 2,668 -- (287,035) 4,829
--------- --------- --------- --------- ---------
Total assets $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ -- $ 1,188 $ -- $ -- $ 1,188
Accounts payable -- 270,203 59,408 (231,674) 97,937
Accrued liabilities 413 38,928 (181) -- 39,160
--------- --------- --------- --------- ---------
Total current liabilities 413 310,319 59,227 (231,674) 138,285
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 8,412 -- -- 8,412
Accrued pension benefits -- 12,482 -- -- 12,482
Accrued postretirement benefits -- 85,467 -- -- 85,467
--------- --------- --------- --------- ---------
Total liabilities 125,413 416,680 59,227 (231,674) 369,646
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 166 1 -- (1) 166
Additional paid-in capital 409,062 273,774 5,000 (278,774) 409,062
Accumulated deficit (61,866) 32,507 (24,247) (8,260) (61,866)
Unearned compensation (175) -- -- -- (175)
Notes receivable from sale of common stock (10,511) -- -- -- (10,511)
--------- --------- --------- --------- ---------
Total stockholders' equity 336,676 306,282 (19,247) (287,035) 336,676
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322
========= ========= ========= ========= =========
Combining Statement of Income for the year ended December 31, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $1,125,142 $ -- $ -- $1,125,142
Cost of goods sold -- 1,042,937 -- -- 1,042,937
--------- --------- --------- --------- ---------
Gross profit -- 82,205 -- -- 82,205
Selling, general and administrative expenses 249 55,545 6 -- 55,800
Amortization of goodwill -- 4,476 -- -- 4,476
--------- --------- --------- --------- ---------
Operating income (loss) (249) 22,184 (6) -- 21,929
Other income (expense), net 17,196 1,975 -- (17,196) 1,975
Interest income (expense), net (13,312) 6,000 (12,755) -- (20,067)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 3,635 30,159 (12,761) (17,196) 3,837
Income tax expense 144 202 -- -- 346
--------- --------- --------- --------- ---------
Net income (loss) $ 3,491 $ 29,957 $ (12,761) $ (17,196) $ 3,491
========= ========= ========= ========= =========
Combining Statement of Income for the year ended December 31, 1999
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $1,074,939 $ -- $ -- $1,074,939
Cost of goods sold -- 988,074 -- -- 988,074
--------- --------- --------- --------- ---------
Gross profit -- 86,865 -- -- 86,865
Selling, general and administrative expenses 514 53,427 8 -- 53,949
Amortization of goodwill -- 4,476 -- -- 4,476
--------- --------- --------- --------- ---------
Operating income (loss) (514) 28,962 (8) -- 28,440
Other income (expense), net 24,903 2,861 -- (24,903) 2,861
Interest income (expense), net (13,555) 4,280 (10,058) -- (19,333)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 10,834 36,103 (10,066) (24,903) 11,968
Income tax expense (benefit) (177) 1,134 -- -- 957
--------- --------- --------- --------- ---------
Net income (loss) $ 11,011 $ 34,969 $ (10,066) $ (24,903) $ 11,011
========= ========= ========= ========= =========
Combining Statement of Income for the year ended December 31, 1998
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 992,004 $ -- $ -- $ 992,004
Cost of goods sold -- 922,549 -- -- 922,549
--------- --------- --------- --------- ---------
Gross profit -- 69,455 -- -- 69,455
Selling, general and administrative expenses 1,252 42,295 11 -- 43,558
Amortization of goodwill -- 4,476 -- -- 4,476
--------- --------- --------- --------- ---------
Operating income (loss) (1,252) 22,684 (11) -- 21,421
Other income (expense), net 13,988 356 -- (13,979) 365
Interest income (expense), net (13,700) 2,320 (10,841) -- (22,221)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (964) 25,360 (10,852) (13,979) (435)
Income tax expense (benefit) (1,107) 529 -- -- (578)
--------- --------- --------- --------- ---------
Net income (loss) $ 143 $ 24,831 $ (10,852) $ (13,979) $ 143
========= ========= ========= ========= =========
Combining Statement of Cash Flows for the year ended December 31, 2000
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ 3,491 $ 29,957 $(12,761) $(17,196) $ 3,491
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization (8) 39,359 -- -- 39,351
Loss on disposal of property, plant and equipment -- 1,280 -- -- 1,280
Issuance of common stock in connection with stock awards 121 -- -- -- 121
Equity in undistributed net income of subsidiaries -- (17,196) -- 17,196 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 172,266 (182,650) -- 10,391 7
Decrease in inventories -- 69,728 -- -- 69,728
(Increase) decrease in prepayments and other current assets (170) 2,648 (32,387) -- (29,909)
(Increase) decrease in other noncurrent assets (315,858) 316,284 -- -- 426
Increase (decrease) in accounts payable 137,384 (216,681) 45,273 (10,391) (44,415)
Increase (decrease) in accrued liabilities 4,661 (2,640) (125) -- 1,896
(Decrease) in other liabilities -- (8,992) -- -- (8,992)
-------- -------- -------- -------- --------
Net cash provided by operating activities 1,887 31,097 -- -- 32,984
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (18,445) -- -- (18,445)
Proceeds from sale of property, plant and equipment -- 50 -- -- 50
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (18,395) -- -- (18,395)
-------- -------- -------- -------- --------
Cash flows from financing activities:
(Decrease) in outstanding checks in excess of deposits -- (1,188) -- -- (1,188)
Proceeds from long-term debt -- 57,100 -- -- 57,100
Repayments of long-term debt -- (57,100) -- -- (57,100)
Repayments of notes receivable from sale of common stock 1,426 -- -- -- 1,426
Cash dividends paid (3,313) -- -- -- (3,313)
-------- -------- -------- -------- --------
Net cash (used in) financing activities (1,887) (1,188) -- -- (3,075)
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 11,514 -- -- 11,514
Cash and cash equivalents at beginning of period -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 11,514 $ -- $ -- $ 11,514
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the year ended December 31, 1999
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ 11,011 $ 34,969 $(10,066) $(24,903) $ 11,011
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 652 35,861 -- -- 36,513
Loss on disposal of property, plant and equipment -- 389 -- -- 389
Issuance of common stock in connection with stock awards 44 -- -- -- 44
Equity in undistributed net income of subsidiaries -- (24,903) -- 24,903 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 7,189 (33,953) -- 26,874 110
(Increase) in inventories -- (32,445) -- -- (32,445)
(Increase) in prepayments and other current assets (190) (4,307) (23,957) -- (28,454)
(Increase) decrease in other noncurrent assets (24,926) 27,804 -- -- 2,878
Increase (decrease) in accounts payable -- 36,654 33,913 (26,874) 43,693
Increase (decrease) in accrued liabilities 9,476 (1,559) 110 -- 8,027
(Decrease) in other liabilities -- (3,001) -- -- (3,001)
-------- -------- -------- -------- --------
Net cash provided by operating activities 3,256 35,509 -- -- 38,765
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (36,715) -- -- (36,715)
Proceeds from sale of property, plant and equipment -- 12 -- -- 12
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (36,703) -- -- (36,703)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in outstanding checks in excess of deposits -- 1,188 -- -- 1,188
Proceeds from long-term debt -- 46,770 -- -- 46,770
Repayments of long-term debt -- (46,770) -- -- (46,770)
Cash dividends paid (3,256) -- -- -- (3,256)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (3,256) 1,188 -- -- (2,068)
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (6) -- -- (6)
Cash and cash equivalents at beginning of period -- 6 -- -- 6
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Combining Statement of Cash Flows for the year ended December 31, 1998
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ 143 $ 24,831 $(10,852) $(13,979) $ 143
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization 900 33,828 -- -- 34,728
Loss on disposal of property, plant and equipment -- 1,453 -- -- 1,453
Issuance of common stock in connection with stock awards 72 -- -- -- 72
Equity in undistributed net income of subsidiaries -- (13,979) -- 13,979 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 13,439 12,189 -- (25,501) 127
(Increase) in inventories -- (3,335) -- -- (3,335)
(Increase) decrease in prepayments and other current assets (2) (4,006) 23,748 -- 19,740
(Increase) decrease in other noncurrent assets (2,199) 2,597 -- -- 398
(Decrease) increase in accounts payable -- (27,091) (12,047) 25,501 (13,637)
(Decrease) increase in accrued liabilities (9,164) 13,978 (849) -- 3,965
Increase in other liabilities -- 2,931 -- -- 2,931
-------- -------- -------- -------- --------
Net cash provided by operating activities 3,189 43,396 -- -- 46,585
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (33,650) -- -- (33,650)
Proceeds from sale of property, plant and equipment -- 32 -- -- 32
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (33,618) -- -- (33,618)
-------- -------- -------- -------- --------
Cash flows from financing activities:
(Decrease) in outstanding checks in excess of deposits -- (9,122) -- -- (9,122)
Proceeds from long-term debt -- 45,150 -- -- 45,150
Repayments of long-term debt -- (45,800) -- -- (45,800)
Cash dividends paid (3,189) -- -- -- (3,189)
-------- -------- -------- -------- --------
Net cash (used in) financing activities (3,189) (9,772) -- -- (12,961)
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 6 -- -- 6
Cash and cash equivalents at beginning of period -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 6 $ -- $ -- $ 6
======== ======== ======== ======== ========
Commonwealth Industries, Inc.
Report of Independent Auditors
Board of Directors and Stockholders
Commonwealth Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the consolidated financial position of Commonwealth Industries, Inc. and
subsidiaries at December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, 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, which 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 consolidated financial statements, the
Company changed its method of accounting for inventories from the first-in,
first-out (FIFO) method to the last-in, first-out (LIFO) method effective
January 1, 1999.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
January 23, 2001