-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VG78UJtzqF9IEfbKD5YPGFLTYFhAa6ueQaO1prfrkdqqY3UvwO+CtIe4OyLeOGtX Mvv6TNayoDYWlxz/3A59NA== 0000934747-00-000004.txt : 20000327 0000934747-00-000004.hdr.sgml : 20000327 ACCESSION NUMBER: 0000934747-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH INDUSTRIES INC/DE/ CENTRAL INDEX KEY: 0000934747 STANDARD INDUSTRIAL CLASSIFICATION: ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS [3350] IRS NUMBER: 133245741 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25642 FILM NUMBER: 577214 BUSINESS ADDRESS: STREET 1: 500 WEST JEFFERSON STREET STREET 2: 19TH FLOOR CITY: LOUISVILLE STATE: KY ZIP: 40202-2823 BUSINESS PHONE: 502-589-8100 MAIL ADDRESS: STREET 1: 500 WEST JEFFERSON STREET STREET 2: 19TH FLOOR CITY: LOUISVILLE STATE: KY ZIP: 40202-2823 FORMER COMPANY: FORMER CONFORMED NAME: COMMONWEALTH ALUMINUM CORP DATE OF NAME CHANGE: 19941228 10-K 1 FORM 10-K ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ____ to ____ ------------------- Commission File Number: 0-25642 COMMONWEALTH INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 13-3245741 (State of incorporation) (I.R.S. Employer Identification No.) 500 West Jefferson Street 19th Floor Louisville, Kentucky 40202-2823 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (502) 589-8100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock; Stock Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the common stock held by non-affiliates of the registrant as of March 10, 2000 was $141,942,000. The number of shares outstanding of the registrant's common stock as of March 10, 2000 was 16,611,835. DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual report to stockholders of Commonwealth Industries, Inc. for the year ended December 31, 1999 are incorporated by reference into Parts I and II and portions of the definitive Proxy Statement dated March 24, 2000 for the 2000 Annual Meeting of Stockholders to be held April 28, 2000 are incorporated by reference into Part III. ================================================================================ COMMONWEALTH INDUSTRIES, INC. FORM 10-K For the Year Ended December 31, 1999 INDEX
PART I Page ---- Item 1. Business.................................................................3 Item 2. Properties..............................................................11 Item 3. Legal Proceedings.......................................................11 Item 4. Submission of Matters to a Vote of Security Holders.....................11 Item E.O. Executive Officers of the Registrant....................................11 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters....12 Item 6. Selected Financial Data.................................................13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................................13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..............13 Item 8. Financial Statements and Supplementary Data.............................13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures...........................................13 PART III Item 10. Directors and Executive Officers of the Registrant......................14 Item 11. Executive Compensation..................................................14 Item 12. Security Ownership of Certain Beneficial Owners and Management..........14 Item 13 Certain Relationships and Related Transactions..........................14 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K..........14 Signatures..............................................................20
PART I Item 1. Business. Commonwealth Industries, Inc. (the "Company") is one of North America's leading manufacturers of aluminum sheet and, through its Alflex Corporation subsidiary ("Alflex"), of electrical flexible conduit and prewired armored cable. The Company's aluminum sheet products are produced using the conventional, direct -chill rolling ingot casting process at the Company's multi-purpose aluminum rolling mill at Lewisport, Kentucky, one of the largest in North America, and by the continuous casting process at its facilities located in Uhrichsville, Ohio, and Carson, California. The Company operates coating lines at the Lewisport mill and at Company facilities in Bedford, Ohio, and Torrance, California. It also operates tube mills at the Bedford and Carson locations. The electrical flexible conduit and prewired armored cable products are manufactured at Alflex facilities in Long Beach, California and Rocky Mount, North Carolina. The aluminum sheet products manufactured by the Company are generally referred to as common alloy products. They are produced in a number of aluminum common alloys with thicknesses (gauge) of 0.008 to 0.250 inches, widths of up to 72 inches, and a variety of physical properties and packaging, in each case to meet customer specifications. These products are sold to distributors and end-users, principally for use in building and construction products such as roofing, siding, windows and gutters; transportation equipment such as truck trailers and bodies and automotive parts; and consumer durables such as cookware, appliances and lawn furniture. The Bedford and Carson facilities also fabricate aluminum sheet into welded tube products for various markets. Substantially all of the Company's aluminum sheet products are produced in response to specific customer orders. Production of aluminum sheet products in 1999 was 1.023 billion pounds or about 94% of capacity. In 1999, the North American market for aluminum sheet products, excluding rigid container sheet, foil and exports, was approximately 4.1 billion pounds. Alflex manufactures metallic (aluminum and steel) and non-metallic (plastic) electrical flexible conduit and prewired armored cable, utilizing aluminum sheet manufactured by the Company. These products provide mechanical protection for electrical wiring installed in buildings in accordance with local building code requirements. Armored cable differs from electrical conduit in that it is pre-wired by Alflex, whereas end-users must pull wire through electrical conduit when conduit is installed. These products are used primarily by electrical contractors in the construction, renovation and remodeling of commercial and industrial facilities and multi-family dwellings. They also are used in the heating, ventilating and air-conditioning ("HVAC"), original equipment manufacturers ("OEM") and Do-It-Yourself ("DIY") markets. The products include preassembled and prepackaged products for commercial and DIY markets and commercial pre-fabricated wiring systems which provide significant savings in labor and installation costs for end-users. Historically, electrical wires were housed in rigid pipes in the walls of buildings. Rigid pipe remains the most widely used means of protecting wiring in commercial and other non-residential construction. Electrical flexible conduit made from steel was introduced in the 1920s. Flexible conduit is significantly easier to install than rigid pipe, resulting in cost savings to the installer. Aluminum flexible conduit, introduced to the market by Alflex, has in recent years become a significant factor due to its ease of installation, lighter weight and ease of cutting compared to steel flexible conduit or rigid pipe. In wet, harsh or corrosive environments, non-metallic or plastic jacketed steel flexible conduit may be used. Armored cable (conduit with pre-installed wire) made of steel or aluminum has captured an increasing share of the market from rigid pipe due to its pre-assembly, ease of installation and overall cost effectiveness. The Company estimates that at December 31, 1999 it had a backlog of firm orders for which product specifications have been defined of 255.5 million pounds of aluminum sheet products with an aggregate sales price of $275.9 million, compared to an estimate of 305.9 million pounds with an aggregate sales price of $292.2 million at December 31, 1998. Backlog is not a significant factor for the Company's electrical products. Aluminum Sheet Products Manufacturing The Company's aluminum sheet manufacturing facilities are comprised of the rolling mills at Lewisport, Kentucky, Uhrichsville, Ohio, and Carson, California, coating facilities at Lewisport, Bedford, Ohio, and Torrance, California, and tube mills at Bedford and Carson. The Lewisport mill uses the conventional, vertical direct-chill, rolling ingot casting process. This process permits the production of traditional aluminum sheet with strength, hardness, formability, finishing and other characteristics preferred for many applications. The flexibility permitted by this multi-purpose rolling mill enables the Company to target higher margin products, manufacture a variety of products with consistent high quality and respond quickly to shifts in market demand. In 1999, the Lewisport mill produced 617 million pounds of aluminum sheet products. At full capacity utilization, unit costs of converting metal to aluminum sheet products at Lewisport are believed to be among the lowest in the industry for plants using the conventional process. The Uhrichsville and Carson mills use low-cost, scrap-based twin-belt mini-mill continuous casting production technology. This process permits the efficient production of aluminum sheet alloys used in building and construction and other applications not requiring the more complex alloys or the physical characteristics better provided by the conventional casting method. The process eliminates several steps associated with conventional casting, thereby reducing manufacturing costs. Capital costs also are significantly lower than for mills using the conventional casting process. Since 1993, the annual capacity of the Uhrichsville and Carson mills has been increased by over 75% from approximately 250 million pounds to 445 million pounds in 1999. The increased capacity and a continuous improvement strategy resulted in a significant reduction in sheet production costs. The Company believes that its continuous cast mill in Uhrichsville has the lowest conversion costs per pound in the world. Aluminum Supply Most of the aluminum metal used by the Company's rolling mills is purchased, principally from or through aluminum scrap dealers or brokers, in the form of aluminum scrap. The Company believes it is one of the largest users of aluminum scrap other than beverage can scrap in the United States and that the volume of its purchases assists it in obtaining scrap at competitive prices. The Company's remaining requirements are met with purchased primary metal, including metal produced in Russia to specifications that differ from the industry standard for primary aluminum but that is appropriate for the Company's needs. Casting and Rolling At Lewisport, scrap, in some cases after processing in the Company's recycling facilities, and primary aluminum are melted in induction or reverbatory furnaces. Small amounts of copper, magnesium, manganese and other metals are added to produce alloys with the desired hardness, formability and other physical characteristics. The molten aluminum is then poured through a mold surrounded by circulating water, which cools and solidifies into an ingot about 24 inches thick and weighing as much as 40,000 pounds. The cooled ingot is conveyed to the rolling mill area for further processing. During 1999, the Company spent approximately $0.7 million and is planning to spend an estimated additional $0.2 million during the 2000-2001 period to bring the south casting facilities at Lewisport into compliance with more stringent clean air regulatory regulations expected to come into effect in 2002. In addition, during 1999 the Company spent approximately $4.2 million in the north casting facilities at Lewisport to increase the Company's ability to utilize lower cost aluminum scrap units. The rolling ingots are heated to a malleable state in soaking pits or tunnel furnaces. Then, in the next two stages--hot and cold rolling--the ingot is passed between rolls under pressure, causing it to become thinner and longer. The first rolling stage takes place in a "reversing" mill, so named because the ingot is passed back and forth between the work rolls, reversing itself after each pass. After it passes through the reversing mill the aluminum sheet moves through a continuous multi-stand hot mill, and then is cooled and cold rolled to its final thickness. The Uhrichsville and Carson rolling mills employ a continuous casting process in which molten aluminum is fed into a caster which produces a continuous thin slab that is immediately hot rolled into semi-finished aluminum sheet in a single manufacturing process. The aluminum sheet is then cooled and cold rolled to its final thickness as in the conventional process. The Uhrichsville and Carson mills use twin-belt thin-slab continuous casting, which the Company believes is the most efficient and most productive form of continuous casting. The Company and IMCO Recycling, Inc ("IMCO") are parties to a Supply Agreement under which IMCO serves as the major supplier of recycled aluminum for the Company's Uhrichsville mill. Under the Supply Agreement, the Company purchases aluminum scrap and delivers it to IMCO who then processes and converts it into molten metal at its recycling and processing facility located adjacent to the Company's mill. The Company is responsible for the treatment and disposal of the waste generated as a result of IMCO's processing services on behalf of the Company. The Supply Agreement expires March 31, 2009. The Company has an option to purchase the IMCO facility and a right of first refusal if IMCO wishes to sell the facility. The Carson rolling mill processes its own scrap to produce molten metal, utilizing current delacquering and melting technology. The Company has paid a one-time license fee for certain technology used in its continuous casting process. The license agreement allows the Company the use of certain inventions, technical discoveries and apparatus of the licensor in the manufacturing process. Finishing and Coating After hot and cold rolling is complete, the aluminum sheet is leveled to ensure required flatness and may be slit into narrower widths, embossed or painted to customers' specifications. The Company is an industry leader in the development and production of superior quality coated aluminum products and operates at Lewisport the largest coating line integrated with a United States rolling mill. Coating lines at the Company's Bedford and Torrance facilities serve the Uhrichsville and Carson rolling mills. In the coating process, aluminum sheet is chemically cleaned, painted and then cured to produce a durable coated surface. Packaging and Shipping Finished products are shipped to customers by truck or rail in coils of various size and weighing up to 30,000 pounds. Electrical Products Alflex fabricates its flexible conduit and armored cable at its Long Beach, California and Rocky Mount, North Carolina facilities. The Rocky Mount facility was completed in 1999 with production starting in the second quarter of 1999. This facility increased Alflex's capacity for cable products by approximately 50%. Alflex purchases its aluminum sheet from the Company. Alflex also uses significant amounts of copper and steel as raw materials. Alflex fabricates its electrical products by slitting aluminum or steel sheet on specialized narrow-width slitting equipment, after which the sheet is coiled. The coils are then fed through proprietary forming machines to produce the flexible conduit. For its cable products, Alflex draws copper into wire, coats the wire with plastic insulation and, for certain products, wraps the coated wire with paper or plastic. The protective armoring is then wrapped around the cabled wire. To produce its non-metallic conduit, Alflex uses a specialized co-extrusion process involving both rigid and flexible plastics (PVC). After production, the conduit and cable products are cut to length and packaged. Alflex designs and builds much of the equipment used to manufacture its products. During 1998, the Company executed a strategic alliance with BICCGeneral whereby beginning in the second half of 1999, Alflex ceased drawing wire and coating the wire with plastic insulation, and instead purchases all of its copper wire requirements from BICCGeneral. Alflex has designed its manufacturing processes to allow it to produce a wide range of electrical flexible conduit and prewired armored cable products. The Company believes this manufacturing flexibility has contributed significantly to the growth in this business. Also, since the acquisition of the Alflex business, the Company has increased Alflex's electrical conduit and cable manufacturing capacity. Production volume increased from 519 million feet in 1997 to 613 million feet in 1999. Customers and Markets The Company's aluminum sheet products are sold to distributors as well as end-users, principally in the building and construction, transportation and consumer durables markets. The Company ceased manufacturing rigid container sheet ("RCS") for the packaging market during 1999 in order to focus all of the Company's resources on its core products. The following table sets forth for 1999 and 1998 the percentage of aluminum sheet net shipments contributed by each of these classes of customers and the Company's estimate of its share of these markets in North America. % of Net Shipments % Market Share ------------------ -------------- 1999 1998 1999 1998 ---- ---- ---- ---- Building and construction 41 39 34 32 Distribution 31 30 22 21 Transportation 13 12 18 17 Consumer durables and other 11 11 12 11 Rigid container sheet (packaging) 4 8 1 2 --- --- 100 100 === === The building and construction sector is the largest end-use market other than the packaging market for common alloy aluminum sheet products. The Company believes it is the largest supplier of common alloy aluminum sheet to distributors. Distributors, in some cases after slitting, punching, leveling or other processing, resell the Company's products into end-use markets, including the building and construction, transportation and consumer durables markets. The Company is one of the largest suppliers of aluminum sheet products to North American manufacturers of transportation equipment, including truck trailers and bodies, recreational vehicles and automobile parts. The largest volume in the category of consumer durables and other markets for the Company is reroll stock sold for further processing and conversion for a variety of markets. Other major end-uses of this product category are cookware, appliances and irrigation pipe. Packaging is the largest single end-use of aluminum sheet, accounting for about one-half of the estimated world-wide market. Much of this product is produced by large, single-purpose rolling mills. As previously mentioned, the Company exited the packaging market during 1999. Market share estimates exclude heat-treated aluminum plate and sheet, which the Company does not produce. The Company estimates that heat-treated products constitute an immaterial portion of the end-use markets served by the Company. Company sales are made to customers located primarily throughout North America. Sales outside North America have not been significant. No single customer accounted for more than 10% of 1999 net sales. Sales of aluminum sheet products are made through the Company's own sales force which is strategically located to provide North American coverage. An integrated computer system provides the Company's employees with on-line access to inventory status, production schedules, shipping information and pricing data to facilitate immediate response to customer inquiries. Many of the Company's aluminum sheet markets are seasonal. Demand in the building and construction and transportation markets is generally lower in the fall and winter seasons than in the spring and summer. Such factors typically result in higher operating income in the spring and summer months. Alflex electrical products are sold primarily through independent sales representatives to electrical distributors. Distributors represented approximately 84% of Alflex net sales in 1999. The remaining sales are made to the do-it-yourself ("DIY"), original equipment manufacturer ("OEM") and heating ventilation and air conditioning ("HVAC") markets. The independent sales representatives do not market Alflex's products exclusively, but they do not sell products that are in direct competition with products manufactured and sold by Alflex. Alflex serves over 6,000 customers. Alflex maintains registered trademarks on certain of its flexible conduit and armored cable systems, including Ultratite, Galflex, the Alflex name and its design, Electrician's Choice, Computer Blue, Duraclad, Armorlite and PowerSnap. While Alflex considers these trademarks to be important to its business, it does not believe it is dependent upon the trademarks for the continuation of its business. Competition The Company competes in the production and sale of common alloy aluminum sheet products with some 20 other aluminum rolling mills in North America and with imported products. Aluminum Company of America ("Alcoa") and Alcan Aluminium Ltd. ("Alcan") have a significantly larger share of the total United States market for aluminum sheet products, including packaging and aluminum foil. However, in the market for common alloy aluminum sheet products other than can sheet and aluminum foil, the market share leaders are Alcoa, Alcan and the Company. During 1999, Alcoa announced that it was purchasing Reynolds Metal Company and Alcan announced that it was merging with Pechiney of France and Algroup of Switzerland. Both transactions are expected to be completed in 2000 and the Company believes that the effect of these transactions on competition can not be determined at this time. The Company competes with other rolled products suppliers on the basis of quality, price, timeliness of delivery and customer service. Aluminum also competes with other materials such as steel, plastic and glass for various applications. Alflex competes with national and regional competitors and imported products, both in the electrical flexible conduit and prewired armored cable industry and in the pipe and wire industry. Competition is principally on the basis of product availability and features, price and customer service. Research and Development The Company conducts research and development activities at its rolling mills as part of its ongoing operations to improve product quality and reduce manufacturing costs. Outside consultants also are utilized. Alflex focuses its research and development activities on the development of new products and the improvement of its conduit and cable manufacturing processes through the development of proprietary manufacturing equipment and the reduction of waste. The estimated amounts spent during 1999, 1998 and 1997 on Company-sponsored research and development activities were $1.4 million, $0.9 million and $0.8 million, respectively. Environmental Matters 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. Future regulations, under the Clean Air Act and otherwise, will impose stricter emission requirements on the aluminum industry. While the Company believes that current pollution control measures at most of the emission sources at its facilities will meet these anticipated future requirements, additional measures at some of the Company's facilities, including Lewisport as discussed above under "Aluminum Sheet Products-Casting and Rolling", may be required. 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. A trust fund exists to fund the activity at one of the sites 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, 1999 was approximately $0.4 million. In determining the adequacy of the Company's aggregate environmental contingency accrual, the assets of the trust fund were taken into account. At the five other federal superfund sites, the Company is a minor contributor and has satisfied its obligations at two of the sites and expects to resolve its liability at the remaining three sites for a nominal amount. The Company is under orders by agencies in three states for environmental remediation at four sites, two of which are currently operating and two of which have been closed. Based on currently available information, the Company estimates the range of possible remaining expenditures with respect to the above matters is between $9 million and $13 million. The Company acquired its 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 allocated 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 responsibilitiy. The Company's aggregate loss contingency accrual for environmental matters was $9.6 million at December 31, 1999, which covers all environmental loss contingencies that the Company has determined to be probable and reasonably estimable. It is not possible, however, 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 1999 and 1998 were $1.5 million and $2.1 million, respectively. All other environmental expenditures of the Company, including remediation expenditures, for 1999, 1998 and 1997 were $2.3 million, $1.0 million, and $3.1 million, respectively. The Company has planned environmental capital expenditures for 2000 and 2001 of $0.4 million and $1.0 million, respectively, which includes the amounts which may be spent to meet future clean air requirements at Lewisport as discussed above under "Aluminum Sheet Products-Casting and Rolling". Employees At December 31, 1999, the Company employed 2,331 persons, of whom 1,647 were full-time non-salaried employees including 781 at Lewisport represented by the United Steel Workers of America ("USW") and 228 at the Uhrichsville and Bedford facilities represented by the Glass, Molders, Pottery, Plastic & Allied Workers International, AFL-CIO, CLC union ("GMP"). Current collective bargaining agreements with the USW and the GMP expire in July 2003 and December 2000, respectively. The Company believes its relationships with its employees are good. The Company provides gain sharing plans for certain of its non-salaried employees. Contributions to the plans are generally based upon a formula which compares actual performance results to targets agreed upon by management and in some cases the bargaining units. In addition, the Company provides defined contribution 401(k) plans for certain non-salaried and salaried employees. Item 2. Properties. The following table sets forth certain information with respect to the Company's principal operating properties. Substantially all of these properties collateralize borrowings under the Company's senior secured bank credit facility. Location Nature Square Feet Status -------- ------ ----------- ------ Louisville, Kentucky Administrative offices 30,000 Leased Lewisport, Kentucky Rolling mill and coating 1,700,000 Owned facility Uhrichsville, Ohio Rolling mill 285,000 Owned Carson, California Rolling mill and tube mill 103,000 Owned Bedford, Ohio Coating facility and tube mill 164,000 Leased Torrance, California Coating facility 60,000 Leased Long Beach, California Alflex administrative offices 154,000 Leased and manufacturing facility Rancho Dominquez, Alflex distribution center 111,000 Leased California Rocky Mount, North Alflex manufacturing facility 105,000 Owned Carolina and distribution center Item 3. Legal Proceedings. The Company is a party to non-environmental legal proceedings and administrative actions all of which are of an ordinary routine nature incidental to the business. In the opinion of management such proceedings and actions should not, individually or in the aggregate, have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 1999. Item E.O. Executive Officers of the Registrant. The executive officers of the Company as of March 19, 2000 were: Name Age Position with the Company ---- --- ------------------------- Mark V. Kaminski 44 President, Chief Executive Officer and Director Donald L. Marsh, Jr. 53 Executive Vice President, Chief Financial Officer and Secretary Robert R. Beal 48 Vice President Communications and Computing Services Henry Del Castillo 60 Vice President Finance Gregory P. Givan 47 Vice President and Treasurer Katherine R. Gould 36 Vice President Organizational Development William G. Toler 43 Vice President Materials and Corporate Development John F. Barron 48 Controller and Assistant Secretary Lenna R. Macdonald 37 Principal Legal Counsel and Assistant Secretary Mr. Kaminski joined the Company in 1987 as Marketing Manager. In 1989 he was promoted to Vice President of Operations and in 1991 he became President and Chief Executive Officer. He is a director of the Indiana University Athletics Board and Secat, Inc. Mr. Marsh joined the Company in March 1996. Prior to that time he was Senior Vice President of Castle Energy Corporation. Mr. Beal has been with the Company since 1987 and was elected to his present position in January 1998. His most recent previous position was Manager of Process Engineering. Mr. Del Castillo joined the Company in October 1997 as Alflex Business Unit Controller and was elected to his present position in November 1999. From 1995 to 1997 he was Chief Financial Officer of Wherehouse Entertainment Inc., a retail music and video chain undergoing financial restructuring. From 1981 to 1995 he served in a number of financial management positions, including Chief Financial Officer, at Powerine Oil Company, an independent oil refiner. Mr. Givan joined the Company in July 1997. From 1987 until 1997 he was Second Vice President, Corporate Finance and most recently Director, Corporate Finance and Risk Management and Assistant Treasurer of Providian Corp., a financial services company. Mr. Toler has been with the Company since 1980 and was elected to his present position in November 1999. His most recent previous position was Vice President Finance and Administration. Ms. Gould joined the Company in July 1998. From 1996 through 1998 she was Human Resource Manager of Gordonstone Coal Management, a joint venture between ARCO Coal Australia and Mitsui. Prior to 1996 she held operations and human resource management positions with Comalco Limited, an Australia-based aluminum company. Mr. Barron joined the Company in February 1997. From 1986 to 1996 he held the position of Senior Vice President and Assistant Comptroller of Bank One Kentucky, N.A. Ms. Macdonald joined the Company in August 1999. From December 1998 to 1999 she served as Real Estate Counsel for Vencor, Inc. From 1993 to 1998 she held in-house counsel positions with Bank One Corporation, including with its subsidiary Banc One New Hampshire Asset Management Corporation as Assistant General Counsel and Litigation Group Manager. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded on the Nasdaq National Market under the symbol CMIN. On March 10, 2000, there were 157 holders of record of the Company's Common Stock. The Company estimates that there were a total of 4,300 stockholders on that date, including beneficial owners. Since becoming publicly owned in March 1995, the Company has paid quarterly cash dividends on its Common Stock of $0.05 per share. The following table sets out the high and low sales prices for the Common Stock for each quarterly period indicated, as quoted in the Nasdaq National Market: 1999 High Low ---- ---- --- First Quarter $12.63 $ 8.25 Second Quarter 14.75 7.38 Third Quarter 18.38 12.25 Fourth Quarter 14.63 9.63 1998 ---- First Quarter $17.44 $13.75 Second Quarter 17.75 9.00 Third Quarter 10.75 5.50 Fourth Quarter 10.13 6.38 Item 6. Selected Financial Data. The information captioned "Consolidated Selected Financial Data" included on page 10 of the Company's annual report to stockholders for the year ended December 31, 1999 is incorporated herein by reference. This information sets forth selected consolidated statement of operations, operating and balance sheet data for the years indicated. The financial information is derived from the audited consolidated financial statements of the Company for such years. This information should be read in conjunction with, and is qualified by reference to, the consolidated financial statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" also incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" included on pages 11 through 16 of the Company's annual report to stockholders for the year ended December 31, 1999 is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The information under the subcaption "Risk Management" included in the information captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" included on pages 11 through 16 of the Company's annual report to stockholders for the year ended December 31, 1999 is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The following consolidated financial statements of the Company and report of independent auditors included on pages 17 through 42 of the Company's annual report to stockholders for the year ended December 31, 1999 are incorporated herein by reference. Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Stockholders' Equity Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by Item 401 (other than paragraph (b) thereof) and Item 405 of Regulation S-K may be found under the caption Election of Directors of the Company's Proxy Statement dated March 24, 2000 for the Annual Meeting of Stockholders to be held on April 28, 2000 (the "Proxy Statement") and is incorporated herein by reference. The information required by Item 401(b) of Regulation S-K may be found under Item E.O. above. Item 11. Executive Compensation. The information required by Item 402 of Regulation S-K may be found under the caption Executive Compensation in the Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 403 of Regulation S-K may be found under the caption Beneficial Ownership of Common Stock in the Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information required by Item 404 of Regulation S-K may be found under the caption Election of Directors--Compensation and Other Transactions with Directors; Management Development and Compensation Committee Interlocks and Insider Participation in the Proxy Statement and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) List of Financial Statements filed The following consolidated financial statements of the Company and report of independent auditors included in the Company's annual report to stockholders for the year ended December 31, 1999 were incorporated by reference in Part II, item 8 of this report: Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Stockholders' Equity Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors (a) (2) List of Financial Statement Schedules filed The following report of independent accountants and financial statement schedule should be read in conjunction with the Company's consolidated financial statements. Supplemental Schedule II - Valuation and Qualifying Accounts is filed on page 20 of this report. Report of Independent Accountants on the Company's financial statement schedule filed as a part hereof for the years ended December 31, 1999, 1998 and 1997 is filed on page 19 of this report. Financial statement schedules other than listed above have been omitted since they are either not required or not applicable or the information is otherwise included. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter ended December 31, 1999. (c) Exhibits 3.1 Restated Certificate of Incorporation, effective April 18, 1997(incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). 3.2 By-laws, dated April 17, 1997. 3.3 Stockholder Protection Rights Agreement, dated as of March 6, 1996, including forms of Rights Certificate, Election to Exercise and Certificate of Designation and Terms of Participating Preferred Stock of the Company (incorporated by reference to Exhibits (1), (2) and (3) to the Company's Registration Statement No. 0-25642 on Form 8-A). 10.1 Executive Incentive Compensation Plan, as amended December 4, 1995(incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.2 Long-term Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement No. 33-87294 on Form S-1). 10.3 1999 Executive Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.4 Salaried Employees Pension Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement No. 33-87294 on Form S-1). 10.5 Salaried Employees Performance Sharing Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement No. 33-87294 on Form S-1). 10.6 1995 Stock Incentive Plan, as amended and restated April 23, 1999 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.7 1997 Stock Incentive Plan, as amended and restated April 23, 1999 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.8 Form of Severance Agreements between the Company and Mark V. Kaminski, Scott T. Davis, Donald L. Marsh, Jr., James K. O'Donnell, William G. Toler and John J. Wasz (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.9 Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.10 Second Amended and Restated Credit Agreement among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and National Westminster Bank PLC, as agent, dated as of December 19, 1997 (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.10.1 Amendment No. 1, dated as of December 22, 1998, to Second Amended and Restated Credit Agreement among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and National Westminster Bank PLC, as agent, dated as of December 19, 1997 (incorporated by reference to Exhibit 10.9.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.10.2 Agreement, of Resignation, Appointment and Acceptance, dated as of August 18, 1999 among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, National Westminster Bank, as resigning agent, and Bank One, Indiana, NA, as successor agent. 10.10.3 Joinder Agreement, dated as of October 29, 1999 among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and Bank One, Indiana, NA, as administrative agent. 10.10.4 Joinder Agreement, dated as of December 31, 1999 among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and Bank One, Indiana, NA, as administrative agent. 10.11 Amended and Restated Pledge and Security Agreement entered into by the Company and its subsidiaries, collectively, in favor of National Westminster Bank PLC, as agent, dated November 29, 1996 (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.12 Amendment No. 1, dated as of December 19, 1997, to the Amended and Restated Pledge and Security Agreement entered into by the Company and its subsidiaries, collectively, in favor of National Westminster Bank PLC, as agent, dated November 29, 1996 (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.13 Receivables Purchase Agreement among Commonwealth Financing Corp., the Company, Market Street Funding Corporation and PNC Bank, National Association, dated as of September 29, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.14 Supply agreement by and among Commonwealth Aluminum Corporation, IMCO Recycling of Ohio Inc. and IMCO Recycling Inc., effective as of April 1, 1999 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.15 Indenture dated as of September 20, 1996 between the Company, the Subsidiary Guarantors named therein and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement No. 333-13661 on Form S-4). 10.15.1 First Supplemental Indenture, dated as of November 12, 1996, to Indenture dated as of September 20, 1996 (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.15.2 Second Supplemental Indenture, dated as of October 16, 1998, to Indenture dated as of September 20, 1996 (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.15.3 Third Supplemental Indenture, dated as of December 31, 1999, to Indenture dated as of September 20, 1996. 13 Portions of the annual report to stockholders for the year ended December 31, 1999 which are expressly incorporated by reference in this filing. 21 Subsidiaries. 23 Consent of PricewaterhouseCoopers LLP. 27 Financial Data Schedule. Report of Independent Accountants Board of Directors Commonwealth Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated January 20, 2000 appearing on page 42 of the 1999 Annual Report to Stockholders of Commonwealth Industries, Inc. and subsidiaries (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the consolidated financial statement schedule listed in Item 14 (a) (2) of this Form 10-K. In our opinion, this consolidated financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Louisville, Kentucky January 20, 2000 Supplemental Schedule II Commonwealth Industries, Inc. Valuation and Qualifying Accounts December 31, 1999, 1998 and 1997 (in thousands)
Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions of Period ----------- --------- --------- ---------- ---------- ---------- Allowance for uncollectible accounts December 31,1999 $2,484 $ 591 $ - $1,125 $1,950 December 31,1998 2,348 1,131 - 995 2,484 December 31,1997 2,235 242 - 129 2,348 Allowance for obsolete stores inventory December 31,1999 $1,100 $ 121 $ - $ - $1,221 December 31,1998 1,100 - - - 1,100 December 31,1997 1,000 100 - - 1,100
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on March 24, 2000. COMMONWEALTH INDUSTRIES, INC. By /s/ Mark V. Kaminski ----------------------- Mark V. Kaminski, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Paul E. Lego - ------------------------- Paul E. Lego Chairman of the Board March 24, 2000 /s/ Mark V. Kaminski - ------------------------- Mark V. Kaminski President, Chief Executive Officer and Director March 24, 2000 (Principal Executive Officer) /s/ Catherine G. Burke - ------------------------- Catherine G. Burke Director March 24, 2000 /s/ C. Frederick Fetterolf - -------------------------- C. Frederick Fetterolf Director March 24, 2000 /s/ John E. Merow - -------------------------- John E. Merow Director March 24, 2000 /s/ Victor Torasso - -------------------------- Victor Torasso Director March 24, 2000 /s/ Donald L. Marsh, Jr. - -------------------------- Donald L. Marsh, Jr. Executive Vice President, Chief Financial March 24, 2000 Officer and Secretary (Principal Financial Officer) /s/Henry Del Castillo - -------------------------- Vice President Finance March 24, 2000 Henry Del Castillo (Principal Accounting Officer) /s/ John F. Barron - -------------------------- John F. Barron Controller and Assistant Secretary March 24, 2000
Exhibit Index ------------- Exhibit Number Description ------- ----------- 3.1 Restated Certificate of Incorporation, effective April 18, 1997(incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). 3.2 By-laws, dated April 17, 1997. 3.3 Stockholder Protection Rights Agreement, dated as of March 6, 1996, including forms of Rights Certificate, Election to Exercise and Certificate of Designation and Terms of Participating Preferred Stock of the Company (incorporated by reference to Exhibits (1), (2) and (3) to the Company's Registration Statement No. 0-25642 on Form 8-A). 10.1 Executive Incentive Compensation Plan, as amended December 4, 1995(incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.2 Long-term Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement No. 33-87294 on Form S-1). 10.3 1999 Executive Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.4 Salaried Employees Pension Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement No. 33-87294 on Form S-1). 10.5 Salaried Employees Performance Sharing Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement No. 33-87294 on Form S-1). 10.6 1995 Stock Incentive Plan, as amended and restated April 23, 1999 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.7 1997 Stock Incentive Plan, as amended and restated April 23, 1999 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.8 Form of Severance Agreements between the Company and Mark V. Kaminski, Scott T. Davis, Donald L. Marsh, Jr., James K. O'Donnell, William G. Toler and John J. Wasz (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.9 Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.10 Second Amended and Restated Credit Agreement among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and National Westminster Bank PLC, as agent, dated as of December 19, 1997 (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.10.1 Amendment No. 1, dated as of December 22, 1998, to Second Amended and Restated Credit Agreement among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and National Westminster Bank PLC, as agent, dated as of December 19, 1997 (incorporated by reference to Exhibit 10.9.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.10.2 Agreement, of Resignation, Appointment and Acceptance, dated as of August 18, 1999 among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, National Westminster Bank, as resigning agent, and Bank One, Indiana, NA, as successor agent. 10.10.3 Joinder Agreement, dated as of October 29, 1999 among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and Bank One, Indiana, NA, as administrative agent. 10.10.4 Joinder Agreement, dated as of December 31, 1999 among the Company, subsidiaries of the Company, the several lenders from time to time parties thereto, and Bank One, Indiana, NA, as administrative agent. 10.11 Amended and Restated Pledge and Security Agreement entered into by the Company and its subsidiaries, collectively, in favor of National Westminster Bank PLC, as agent, dated November 29, 1996 (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.12 Amendment No.1, dated as of December 19, 1997, to the Amended and Restated Pledge and Security Agreement entered into by the Company and its subsidiaries, collectively, in favor of National Westminster Bank PLC, as agent, dated November 29, 1996 (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.13 Receivables Purchase Agreement among Commonwealth Financing Corp., the Company, Market Street Funding Corporation and PNC Bank, National Association, dated as of September 29, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.14 Supply agreement by and among Commonwealth Aluminum Corporation, IMCO Recycling of Ohio Inc. and IMCO Recycling Inc., effective as of April 1, 1999 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.15 Indenture dated as of September 20, 1996 between the Company, the Subsidiary Guarantors named therein and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement No. 333-13661 on Form S-4). 10.15.1 First Supplemental Indenture, dated as of November 12, 1996, to Indenture dated as of September 20, 1996 (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.15.2 Second Supplemental Indenture, dated as of October 16, 1998, to Indenture dated as of September 20, 1996 (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.15.3 Third Supplemental Indenture, dated as of December 31, 1999, to Indenture dated as of September 20, 1996. 13 Portions of the annual report to stockholders for the year ended December 31, 1999 which are expressly incorporated by reference in this filing. 21 Subsidiaries. 23 Consent of PricewaterhouseCoopers LLP. 27 Financial Data Schedule. EX-3.2 2 EXHIBIT 3.2 NY12524:\44619.1 BY-LAWS OF COMMONWEALTH INDUSTRIES, INC. ARTICLE I Stockholders Section 1.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 1.2. Special Meetings. Special meetings of stockholders may be called at any time by the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the President or the Board of Directors, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Section 1.4. Adjournments. Any meeting of stockholders, annual or special, may be adjourned from time to time, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.5. Quorum. At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote on a matter at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, where a separate vote by class or classes is required for any matter, the holders of a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum to take action with respect to that vote on that matter. Two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum of the holders of any class of stock entitled to vote on a matter, the holders of such class so present or represented may, by majority vote, adjourn the meeting of such class from time to time in the manner provided by Section 1.4 of these by-laws until a quorum of such class shall be so present or represented. Shares of its own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 1.6. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President, or in the absence of the President by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls. Section 1.7. Inspectors. Prior to any meeting of stockholders, the Board of Directors or the President shall appoint one or more inspectors to act at such meeting and make a written report thereof and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a stockholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the stockholder, ballots and the regular books and records of the corporation, and they may also consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 1.8. Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or represented by proxy at such meeting shall so determine. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise provided by law or by the certificate of incorporation or these by-laws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class or classes, except as otherwise provided by law or by the certificate of incorporation or these by-laws. Section 1.9. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 1.10. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 1.11. Advance Notice of Stockholder Proposals. At any annual or special meeting of stockholders, proposals by stockholders and persons nominated for election as directors by stockholders shall be considered only if advance notice thereof has been timely given as provided herein and such proposals or nominations are otherwise proper for consideration under applicable law and the certificate of incorporation and by-laws of the Corporation. Notice of any proposal to be presented by any stockholder or of the name of any person to be nominated by any stockholder for election as a director of the Corporation at any meeting of stockholders shall be delivered to the Secretary of the Corporation at its principal executive office not less than 60 nor more than 90 days prior to the date of the meeting; provided, however, that if the date of the meeting is first publicly announced or disclosed (in a public filing or otherwise) less than 70 days prior to the date of the meeting, such advance notice shall be given not more than ten days after such date is first so announced or disclosed. Public notice shall be deemed to have been given more than 70 days in advance of the annual meeting if the Corporation shall have previously disclosed, in these by-laws or otherwise, that the annual meeting in each year is to be held on a determinable date, unless and until the Board determines to hold the meeting on a different date. Any stockholder who gives notice of any such proposal shall deliver therewith the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder and any material interest of such stockholder in the proposal (other than as a stockholder). Any stockholder desiring to nominate any person for election as a director of the Corporation shall deliver with such notice a statement in writing setting forth the name of the person to be nominated, the number and class of all shares of each class of stock of the Corporation beneficially owned by such person, the information regarding such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation subsequently adopted by the Securities and Exchange Commission applicable to the Corporation), such person's signed consent to serve as a director of the Corporation if elected, such stockholder's name and address and the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder. As used herein, shares "beneficially owned" shall mean all shares as to which such person, together with such person's affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all shares as to which such person, together with such person's affiliates and associates, has the right to become the beneficial owner pursuant to any agreement or understanding, or upon the exercise of warrants, options or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine whether such notice has been duly given and shall direct that proposals and nominees not be considered if such notice has not been given. ARTICLE II Board of Directors Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate of incorporation. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by the Board. Directors need not be stockholders. Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until the next election of the class for which such director shall have been chosen, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director or the entire Board of Directors may be removed, with cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Unless otherwise provided in the certificate of incorporation or these by-laws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or from any other cause may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by the sole remaining director so elected. Any director elected or appointed to fill a vacancy shall hold office until the next election of the class of directors of the director which such director replaced, and until and his or her successor is elected and qualified or until his or her earlier resignation or removal. Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given. Section 2.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, if any, by the Vice Chairman of the Board, if any, by the President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting. Section 2.5. Participation in Meetings by Conference Telephone Permitted. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors one-third of the entire Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the certificate of incorporation or these by-laws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall be present. Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President, or in their absence by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 2.9. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, the Board of Directors shall have the authority to fix the compensation of directors. ARTICLE III Committees Section 3.1. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these by-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution or amending these by-laws; and, unless the resolution, these by-laws or the certificate of incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, to adopt a certificate of ownership and merger or to remove or indemnify directors. Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws. ARTICLE IV Officers Section 4.1. Officers; Election. As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a President and a Secretary, and it may, if it so determines, elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board may also elect one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such other officers as the Board may deem desirable or appropriate and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person unless the certificate of incorporation or these by-laws otherwise provide. Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until the first meeting of the Board after the annual meeting of stockholders next succeeding his or her election and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board at any regular or special meeting. Section 4.3. Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. The Secretary shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties. ARTICLE V Stock Section 5.1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares of stock in the Corporation owned by such holder. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. If the Corporation is authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided by law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI Miscellaneous Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. ----------- Section 6.2. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. Section 6.4. Indemnification of Directors, Officers and Others. The Corporation shall indemnify to the full extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director or officer of the Corporation or serves or served at the request of the Corporation any other enterprise as a director, officer or employee. Expenses, including attorneys' fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this by-law shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. No amendment of this by-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this by-law, the term "Corporation" shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term "other enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation. The Corporation, by a resolution of its Board of Directors or by an agreement approved by its Board of Directors, may, to the full extent permitted by law, indemnify and pay or reimburse expenses to any person, including any person entitled to indemnification and the payment and reimbursement of expenses under this Section 6.4, but nothing herein shall limit or affect the rights of any such person under this Section. If a request to be indemnified or for the payment or reimbursement of expenses pursuant to this Section 6.4 or a resolution or agreement authorized as provided in this Section 6.4 is not paid in full by the Corporation within 30 days after a written claim therefor has been received by the President or Secretary of the Corporation and the claimant thereafter brings suit against the Corporation to recover the unpaid amount of the claim which is successful in whole or in part, the Corporation shall be obligated to pay the claimant the expenses, including reasonable attorneys' fees, of prosecuting the claim. The indemnification or payment or reimbursement of expenses provided by or granted pursuant to the provisions of this Section 6.4 shall be in addition to and shall not be exclusive of any other rights to indemnification and payment or reimbursement of expenses to which such person may otherwise be entitled by law, certificate of incorporation, by-law, insurance policy, contract or otherwise. Section 6.5. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 6.6. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 6.7. Amendment of By-Laws. These by-laws may be amended or repealed, and new by-laws adopted, by the Board of Directors, but the stockholders entitled to vote may adopt additional by-laws and may amend or repeal any by-law whether or not adopted by them. April 17, 1997 EX-10.10.2 3 EXHIBIT 10.10.2 AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of August 19, 1999, by and among COMMONWEALTH INDUSTRIES, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Parent"); COMMONWEALTH ALUMINUM CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware ("CAC'); ALFLEX CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware ("Alflex"); COMMONWEALTH ALUMINUM CONCAST, INC., a corporation duly organized and validly existing under the laws of the State of Ohio ("CACI"); each of the Subsidiaries of the Parent party thereto (each, a "Subsidiary Guarantor" and, collectively, the Subsidiary Guarantors"); each of the lenders that is a signatory hereto (individually, a "Lender" and, collectively, the "Lenders"); NATIONAL WESTMINSTER BANK PLC (the "Resigning Agent"); and Bank One, Indiana, N.A. (the "Successor Agent"). RECITALS: Reference is made to the Second Amended and Restated Credit Agreement dated as of December 19, 1997 (the "Credit Agreement") between the Parent, CAC, Alflex, CACI, CI HOLDINGS, INC., the Subsidiary Guarantors, the Lenders, and the Resigning Agent as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent") providing, subject to the terms and conditions thereof, for loans to be made by said Lenders to the Borrowers in an aggregate principal or face amount not exceeding $100,000,000. Section 11.08 of the Credit Agreement provides that the Administrative Agent may resign by giving notice thereof to the Lenders, the Parent and the Borrowers. As set forth herein, the Resigning Agent wishes to resign as Administrative Agent and Issuing Bank under the Credit Agreement. Section 11.08 of the Credit Agreement further provides that if the Administrative Agent shall resign, the Majority Lenders shall have the right to appoint a successor Administrative Agent. By virtue of the consent of the Lenders constituting the Majority Lenders set forth below, such Lenders have consented to the resignation of the Resigning Agent as Administrative Agent and as Issuing Bank under the Credit Agreement and to the appointment of the Successor Agent as Administrative Agent and Issuing Bank thereunder. Subject to the terms and conditions hereof, the Successor Agent is willing to accept such appointment. Accordingly, the Resigning Agent, the Parent, the Borrowers, the Subsidiary Guarantors, the Lenders and the Successor Agent for and in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are acknowledged, consent and agree as follows: ARTICLE I THE RESIGNING AGENT SECTION1.01. Pursuant to Section 11.08 of the Credit Agreement, the Resigning Agent hereby notifies the Lenders, the Parent and the Borrowers that it resigns as Administrative Agent and as Issuing Bank under the Credit Agreement as of the Effective Date. SECTION 1.02. The Resigning Agent represents and warrants to the Successor Agent that this Agreement has been duly authorized, executed and delivered on behalf of the Resigning Agent. SECTION 1.03. The Resigning Agent assigns, transfers, delivers and confirms to the Successor Agent the rights, powers and duties of the Administrative Agent and Issuing Bank under the Credit Agreement and the Security Documents, and the Successor Agent hereby accepts such rights, powers and duties. The Resigning Agent and by its execution hereof the Parent, the Borrowers, the Subsidiary Guarantors and the Lenders, each agrees to execute and deliver such further instruments and take such actions as the Successor Agent reasonably may request so as to more fully and certainly vest and confirm in the Successor Agent all the rights, powers and duties hereby assigned, transferred, delivered and confirmed to the Successor Agent as the Administrative Agent and the Issuing Bank and to execute and deliver such further instruments and documents as the Successor Agent may reasonably request, including, without limitation, UCC-3 assignments. SECTION 1.04. The Successor Agent acknowledges receipt from the Resigning Agent of a copy of the Credit Agreement. The Resigning Agent shall promptly, and in any event within two Business Days after the Effective Date, deliver to the Successor Agent after the Effective Date copies as requested of all other documents delivered to the Resigning Agent in connection with all prior fundings under the Credit Agreement and originals (as available) of the Credit Agreement, the Security Documents, the possessory collateral security delivered to the Resigning Agent under the Pledge and Security Agreement, the Mortgages and all other documents, resolutions, opinions, and other instruments delivered in connection with the Credit Agreement. ARTICLE 2 APPOINTMENT SECTION 2.01. As a result of the consent of the Lenders set forth below, the Majority Lenders have consented to the appointment of the Successor Agent as the Administrative Agent and Issuing Bank under the Credit Agreement and the Security Documents. Accordingly, there is hereby vested in the Successor Agent all the rights, powers, duties and obligations of the Resigning Agent under the Credit Agreement and the Security Documents as of the Effective Date. ARTICLE 3 THE SUCCESSOR AGENT SECTION 3.01. The Successor Agent represents and warrants to the Resigning Agent, the Lenders, the Parent, the Borrowers and the Subsidiary Guarantors that this Agreement has been duly authorized, executed and delivered on behalf of the Successor Agent. SECTION 3.02. The Successor Agent accepts its appointment as successor Administrative Agent and Issuing Bank under the Credit Agreement and the Security Documents as of the Effective Date and accepts the rights, powers, duties and obligations of the Resigning Agent as the Administrative Agent and Issuing Bank under the Credit Agreement and the Security Documents as of the Effective Date, upon the terms and conditions set forth therein. ARTICLE 4 OTHER PROVISIONS SECTION 4.01. Except as otherwise expressly provided herein or unless the context otherwise requires, all terms used herein that are defined in the Credit Agreement shall have the meanings assigned to them in the Credit Agreement, SECTION 4.02. This Agreement and the resignation, appointment and acceptance effected hereby shall be effective as of the close of business on August 18, 1999 (the "Effective Date"). SECTION 4.03. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4.04. This Agreement may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 4.05. The Resigning Agent agrees that at any time and from time to time upon the written request of the Successor Agent, it will execute and deliver such further documents and do such further acts and things as the Successor Agent may reasonably request in order to effect the appointment of the Successor Agent. SECTION 4.06. The Successor Agent agrees to pay to the Resigning Agent the Facility Fee, Letter of Credit fee and Swingline interest in the amounts of $13,650.00, $17,236.00 and $676.48, respectively, as such fees shall be paid in arrears to the Successor Agent by the Borrowers for the period ending September 1, 1999. Notwithstanding anything in this Agreement to the contrary, the Successor Agent shall have no obligation to make any payments to the Resigning Agent under this Section 4.06 unless the Successor Agent has received such amounts from the Borrowers under the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement of Resignation, Appointment and Acceptance to be duly executed as of the day and year first above written. THE PARENT COMMONWEALTH INDUSTRIES, INC. By: _____________________________________________ Title: THE BORROWERS COMMONWEALTH ALUMINUM CORPORATION By: _____________________________________________ Title: ALFLEX CORPORATION By: _____________________________________________ Title: COMMONWEALTH ALUMINUM CONCAST, INC. By: _____________________________________________ Title: SUBSIDIARY GUARANTOR COMMONWEALTH ALUMINUM SALES CORPORATION By: _____________________________________________ Title: NATIONAL WESTMINSTER BANK PLC, as Resigning Agent By: _____________________________________________ Name: Title: BANK ONE, INDIANA, N.A., as Successor Agent By: _____________________________________________ Name: Title: The Lenders under Credit Agreement, hereby consent to the foregoing Resignation, Appointment and Acceptance. LENDERS NATIONAL WESTMINSTER BANK PLC By: _____________________________________________ Title: PNC BANK, NATIONAL ASSOCIATION By: _____________________________________________ Title: ABN AMRO BANK N.V. By: _____________________________________________ Title: BANK OF MONTREAL By: _____________________________________________ Title: CREDIT AGRICOLE INDOSUEZ By: _____________________________________________ Title: By: _____________________________________________ Title: MELLON BANK, N.A. By: _____________________________________________ Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By: _____________________________________________ Title: BANK ONE, INDIANA, N.A. By: _____________________________________________ Title: EX-10.10.3 4 EXHIBIT 10.10.3 NB005:0NB15:70784:LOUISVILLE 090899:1 JOINDER AGREEMENT This Joinder Agreement (the "Joinder Agreement") is made and entered into as of October 29, 1999, by and among: (1) Commonwealth Industries, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Parent") and the successor by merger to CI Holdings, Inc.; (2) Commonwealth Aluminum Lewisport, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware and formerly known as Commonwealth Aluminum Corporation ("Lewisport"); (3) Alflex Corporation, a corporation duly organized and validly existing under the laws of the State of Delaware ("Alflex"); (4) Commonwealth Aluminum Concast, Inc., a corporation duly organized and validly existing under the laws of the State of Ohio ("CACI"; each of CACI, Lewisport and Alflex is sometimes hereafter referred to as a "Borrower" and collectively as the "Borrowers"); (5) Commonwealth Aluminum Corporation, a corporation duly organized and validly existing under the laws of the State of Delaware (the "New Borrower"); (6) The Subsidiary of the Parent identified by the caption "Subsidiary Guarantor" on the signature pages hereto (the "Subsidiary Guarantor" and, together with the Parent and the Borrowers, the "Obligors"); (7) Bank One, Indiana, NA, for itself and as administrative agent for the Lenders (as hereafter defined) (the "Administrative Agent"); (8) PNC Bank, National Association ("PNC"); (9) ABN AMRO Bank N.V. ("ABN AMRO"); (10) Bank of Montreal ("Montreal"); (11) Credit Agricole Indosuez ("Indosuez"); (12) Mellon Bank, N.A. ("Mellon Bank"); and (13) The Industrial Bank of Japan, Limited ("IBJ" and, together with the Administrative Agent, PNC, ABN AMRO, Montreal, Indosuez and Mellon Bank, the "Lenders"). PRELIMINARY STATEMENTS: A. Parent, each of the Borrowers, each of the Subsidiary Guarantors and each of the Lenders are parties to a certain Second Amended and Restated Credit Agreement dated as of December 19, 1997, as amended by Amendment No. 1 to Credit Agreement dated December 22, 1997, and an Agreement of Resignation, Appointment and Acceptance dated August 18, 1999 (as amended from time to time, the "Credit Agreement"). B. Parent, Lewisport, Alflex, CACI, the Subsidiary Guarantors and the Administrative Agent (as successor to National Westminster Bank PLC pursuant to the Agreement of Resignation, Appointment and Acceptance dated August 18, 1999) are parties to a certain Amended and Restated Pledge and Security Agreement dated as of November 29, 1996, as amended by Amendment No. 1 dated as of December 19, 1997 (as amended, the "Pledge Agreement"). C. Lewisport has changed its name, and the Borrowers have requested that the Lenders consent to such change of name. D. C.I. Holdings, Inc., has merged with and into Parent, and the Borrowers have requested that the Lenders consent to such merger. E. New Borrower has become affiliated with the Borrowers, and the Borrowers have requested that the Lenders agree to allow New Borrower to join as a Borrower under the Credit Agreement. NOW THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. Joinder. The New Borrower hereby executes and delivers this Agreement to the Lenders, pursuant to which the New Borrower joins as a "Borrower" (as defined in the Credit Agreement), and becomes liable as a Borrower under, each of the documents to which the Borrowers are parties (including without limitation the Credit Agreement, each of the Revolving Credit Notes, each of the Swingline Notes and the Pledge Agreement), jointly and severally liable with all other Borrowers under and with respect to such documents. Each of the other Borrowers consents to the joinder of the New Borrower. 2. Consent of Lenders. Each of the Lenders hereby (i) consents to the change of Lewisport's name from Commonwealth Aluminum Corporation to Commonwealth Aluminum Lewisport, Inc., (ii) consents to the merger of CI Holdings, Inc., with and into Parent, and (iii) consents to the addition of the New Borrower as, and agrees that the New Borrower shall be, a "Borrower" under the Credit Agreement, the Revolving Credit Notes, the Swingline Notes, the Pledge Agreement and each of the other documents to which the Borrowers are parties. 3. Affirmation of Representations and Warranties. Each of the Borrowers (including the New Borrower) hereby affirms that the representations and warranties contained in the Credit Agreement and in the Pledge Agreement are true and accurate as of the date of the execution and delivery of this Joinder Agreement. Each further represents and warrants that each has the power to enter into and perform this Joinder Agreement. The making and performance by the Borrowers (including the New Borrower) and each of the Subsidiary Guarantors of this Joinder Agreement has been duly authorized by all necessary corporate action and will not violate any provision of law or of any of the Borrowers' (including the New Borrower's) certificates of incorporation or bylaws, or result in the breach of, or constitute a default under, any agreement or instrument to which any of the Borrowers (including the New Borrower) or any Subsidiary Guarantor is a party or by which any of the Borrowers (including the New Borrower) or any Subsidiary Guarantor or any of their respective property may be bound or affected, or result in the creation of any lien, charge or encumbrance upon any property or assets of any of the Borrowers (including the New Borrower) or any Subsidiary Guarantor, except as provided by this Joinder Agreement (in the case of the New Borrower). No consent, approval, authorization, declaration, exemption or other action by, or notice to, any court or governmental or administrative agency or tribunal is or will be required in connection with the execution, delivery, performance, validity or enforcement of this Joinder Agreement or any other agreement, instrument or document to be executed and delivered pursuant hereto. 4. No Impairment and Ratification. Each Subsidiary Guarantor consents to the entering into of this Joinder Agreement by each of the Borrowers (including the New Borrower), each of the Subsidiary Guarantors and the Lenders and agrees that neither this Joinder Agreement nor anything contained herein or in any other document or instrument delivered in connection herewith shall diminish or impair its liability in any respect under its Guaranty, which Guaranty is, by the execution and delivery of this Joinder Agreement, ratified, confirmed and reaffirmed in their entirety, and acknowledged to continue in full force and effect. 5. Ratification. Except as expressly amended by this Joinder Agreement, the Credit Agreement, the Pledge Agreement and the Guaranties are and shall be unchanged, and all of the terms, provisions, covenants, agreements, conditions, schedules and exhibits thereof or thereto shall remain and continue in full force and effect and are hereby incorporated by reference, and hereby ratified, reaffirmed and confirmed by the Borrowers (including the New Borrower), each Subsidiary Guarantor and the Lenders in all respects on and as of the effective date of this Amendment. Each Subsidiary Guarantor and each of the Borrowers (including the New Borrower) acknowledges and agrees that all liens, security interests, and pledges heretofore given to the Lenders to secure their respective indebtedness to the Lenders shall also secure all obligations arising hereunder. 6. Conditions. The Lenders' agreements and consents in this Joinder Agreement are and shall be subject to the prior satisfaction of the following conditions precedent: (a) Execution and Delivery of this Joinder Agreement. All of the parties to this Joinder Agreement shall have executed and delivered a counterpart hereof. (b) Evidence of Existence and Authorzation. The Administrative Agent shall have received the following: (i) for the New Borrower, a copy of charter documents, by-laws and resolutions relating to New Borrower's execution and delivery of this Joinder Agreement, all certified as true, correct and complete by the Secretary or an Assistant Secretary of the New Borrower; (ii) for Parent, a copy of the charter documents reflecting the merger of CI Holdings, Inc., with and into the Parent, all certified as true, correct and complete by the Secretary or an Assistant Secretary of the Parent; and (iii) for all Obligors, copies of resolutions relating to the execution and delivery of this Joinder Agreement, all certified as true, correct and complete by the Secretary or an Assistant Secretary of each Obligor. (c) Chattel Search Results. The Administrative Agent shall have received legal opinions, UCC-11 Reports or reports from nationally-recognized chattel search firms and similar information reflecting that the security interests granted to the Lenders by the New Borrower and by Lewisport are first and prior perfected security interests. (d) Legal Opinion. The Administrative Agent shall have received the legal opinion of the law firm of Messrs. Sullivan & Cromwell, substantially in the form of Exhibit A attached hereto and incorporated herein by this reference. (e) Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated herein shall be satisfactory to the Lenders and their counsel. The Lenders and their counsel shall have received copies of such documents as they may request in connection therewith, all in form and substance satisfactory to the Lenders and their counsel. (f) Financing Statements. The New Borrower shall have executed and delivered to the Administrative Agent for filing in the appropriate governmental offices all UCC-1 financing statements and other documents as the Administrative Agent determines to be necessary to perfect the security interests intended to be granted by the New Borrower under the Pledge Agreement. 7. General Provisions. (a) Entire Agreement. This Agreement, the Credit Agreement, the Pledge Agreement and the other documents to which the Borrowers (including the New Borrower) are parties pursuant to the Credit Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and thereof. No change, modification, addition or termination of this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. (b) Definitions. Terms used and not otherwise defined in this Joinder Agreement shall have the meanings given to them in the Credit Agreement, as amended from time to time. (c) Benefit. This Agreement shall be binding upon the Obligors, the New Borrower and their respective successors and assigns and shall inure to the benefit of the Lenders and their respective successors and assigns. (d) Waiver. No waiver of the provisions hereof shall be effective unless in writing and signed by the party to be charged with such waiver. No waiver shall be deemed a continuing waiver or a waiver in respect of any breach or default, whether of a similar or a different nature, unless expressly so stated in writing. (e) Governing Law. The validity, construction, interpretation and enforcement of this Agreement shall be construed in accordance with the laws of the State of New York without regard to its conflict of laws. (f) Severability. If any provision of this Agreement or its application shall be deemed invalid, illegal or unenforceable in any respect, the validity, construction, interpretation and enforceability of all other applications of that provision and of all other provisions and applications hereof shall not in any way be affected or impaired. (g) Further Assurances. From time to time at another party's request and without further consideration, the parties shall execute and deliver such further instruments and documents, and take such other action as the requesting party may reasonably request, in order to complete more effectively the transactions contemplated in this Agreement. (h) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. This Agreement may be executed by each party on separate copies, which copies, when combined so as to include the signatures of all parties, shall constitute a single counterpart of this Agreement. IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the date set out in the preamble of this Agreement but actually on the dates set forth below. Commonwealth Industries, Inc. By: Title: Commonwealth Aluminum Lewisport, Inc. By: Title: Alflex Corporation By: Title: Commonwealth Aluminum Concast, Inc. By: Title: Commonwealth Aluminum Corporation By: Title: "Subsidiary Guarantor" Commonwealth Aluminum Sales Corporation By: Title: Bank One, Indiana, NA By: Title: PNC Bank, National Association By: Title: ABN AMRO Bank N.V. By: Title: Bank of Montreal By: Title: Credit Agricole Indosuez By: Title: Mellon Bank, N.A. By: Title: The Industrial Bank of Japan, Limited By: Title: EX-10.10.4 5 EXHIBIT 10.10.4 BA235:000BA:104073:LOUISVILLE 030900:1 JOINDER AGREEMENT This Joinder Agreement (the "Joinder Agreement") is made and entered into as of December 31, 1999, by and among: (1) Commonwealth Industries, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Parent") and the successor by merger to CI Holdings, Inc.; (2) Commonwealth Aluminum Lewisport, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware and formerly known as Commonwealth Aluminum Corporation ("Lewisport"); (3) Alflex Corporation, a corporation duly organized and validly existing under the laws of the State of Delaware ("Alflex"); (4) Commonwealth Aluminum Concast, Inc., a corporation duly organized and validly existing under the laws of the State of Ohio ("CACI"); (5) Commonwealth Aluminum Corporation, a corporation duly organized and validly existing under the laws of the State of Delaware ("CAC"; each of CAC, CACI, Lewisport and Alflex is sometimes hereafter referred to as a "Borrower" and collectively as the "Borrowers"); (6) The Subsidiary of the Parent identified by the caption "Subsidiary Guarantor" on the signature pages hereto (the "Subsidiary Guarantor"); (7) Alflex E1 LLC, a limited liability company duly formed and validly existing under the laws of the State of Delaware (the "New Subsidiary Guarantor" and, together with the Parent, the Subsidiary Guarantor and the Borrowers, the "Obligors"); (8) Bank One, Indiana, NA, for itself and as administrative agent for the Lenders (as hereafter defined) (the "Administrative Agent"); (9) PNC Bank, National Association ("PNC"); (10) ABN AMRO Bank N.V. ("ABN AMRO"); (11) Bank of Montreal ("Montreal"); (12) Credit Agricole Indosuez ("Indosuez"); (13) Mellon Bank, N.A. ("Mellon Bank"); (14) The Industrial Bank of Japan, Limited ("IBJ"); and (15) Firstar Bank, NA ("Firstar" and, together with the Administrative Agent, PNC, ABN AMRO, Montreal, Indosuez, Mellon Bank, and IBJ, the "Lenders"). PRELIMINARY STATEMENTS: A. Parent, each of the Borrowers, each of the Subsidiary Guarantors and each of the Lenders are parties to a certain Second Amended and Restated Credit Agreement dated as of December 19, 1997, as amended by Amendment No. 1 to Credit Agreement dated December 22, 1998, an Agreement of Resignation, Appointment and Acceptance dated August 18, 1999, and a Joinder Agreement dated as of October 29, 1999 (as amended from time to time, the "Credit Agreement"). B. Parent, each of the Borrowers, each of the Subsidiary Guarantors and the Administrative Agent (as successor to National Westminster Bank PLC pursuant to the Agreement of Resignation, Appointment and Acceptance dated August 18, 1999) are parties to a certain Amended and Restated Pledge and Security Agreement dated as of November 29, 1996, as amended by Amendment No. 1 dated as of December 19, 1997, and by a Joinder Agreement dated as of October 29, 1999 (as amended, the "Pledge Agreement"). C. New Subsidiary Guarantor has ceased to be an Immaterial Subsidiary (as defined in the Credit Agreement) and, as required by Section 9.16 of the Credit Agreement, Parent has expressed its willingness to cause New Subsidiary Guarantor to: (i) become a Subsidiary Guarantor (as defined in the Credit Agreement) and, thereby, an Obligor, and (ii) pledge and grant a security interest in and to its Property (as defined in the Credit Agreement) pursuant to the Security Documents to the Administrative Agent for the benefit of the Lenders. NOW THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. Joinder. The New Subsidiary Guarantor hereby executes and delivers this Agreement to the Lenders, pursuant to which the New Subsidiary Guarantor joins as a "Subsidiary Guarantor" (as defined in the Credit Agreement), and becomes liable as an Obligor under, each of the documents to which the Subsidiary Guarantors are parties (including without limitation the Credit Agreement and the Pledge Agreement), jointly and severally liable with all other Subsidiary Guarantors under and with respect to such documents. Each of the other Obligors consents to the joinder of the New Subsidiary Guarantor. 2. Consent of Lenders. Each of the Lenders hereby consents to the addition of the New Subsidiary Guarantor as, and agrees that the New Subsidiary Guarantor shall be, a "Subsidiary Guarantor" under the Credit Agreement, the Pledge Agreement and each of the other documents to which the Subsidiary Guarantors are parties. 3. Affirmation of Representations and Warranties. Each of the Obligors (including the New Subsidiary Guarantor) hereby affirms that the representations and warranties contained in the Credit Agreement and in the Pledge Agreement are true and accurate as of the Effective Date and as of the date of the execution and delivery of this Joinder Agreement. Each further represents and warrants that each has the power to enter into and perform this Joinder Agreement. The making and performance by the Obligors (including the New Subsidiary Guarantor) of this Joinder Agreement has been duly authorized by all necessary action and will not: (i) violate any provision of law or of any of the Obligors' (including the New Subsidiary Guarantor's) certificates of incorporation or formation, or bylaws or limited liability company agreements, (ii) result in the breach of, or constitute a default under, any agreement or instrument to which any of the Obligors (including the New Subsidiary Guarantor) is a party or by which any of the Obligors (including the New Subsidiary Guarantor) or any of their respective property may be bound or affected, or (iii) result in the creation of any lien, charge or encumbrance upon any property or assets of any of the Obligors (including the New Subsidiary Guarantor), except as provided by this Joinder Agreement (in the case of the New Subsidiary Guarantor). No consent, approval, authorization, declaration, exemption or other action by, or notice to, any court or governmental or administrative agency or tribunal is or will be required in connection with the execution, delivery, performance, validity or enforcement of this Joinder Agreement or any other agreement, instrument or document to be executed and delivered pursuant hereto. 4. No Impairment and Ratification. Each Guarantor consents to the entering into of this Joinder Agreement by each of the Borrowers, the other Guarantors and the New Subsidiary Guarantor. Each of the Obligors agrees that neither this Joinder Agreement nor anything contained herein or in any other document or instrument delivered in connection herewith shall diminish or impair any Guarantor's liability in any respect under its Guaranty. Each Guarantor further agrees that its Guaranty is, by the execution and delivery of this Joinder Agreement, ratified, confirmed and reaffirmed in its entirety, and acknowledged to continue in full force and effect. 5. Ratification. Except as expressly amended by this Joinder Agreement, the Credit Agreement, the Pledge Agreement and the Guaranties are and shall be unchanged. All of the terms, provisions, covenants, agreements, conditions, schedules and exhibits thereof or thereto shall remain and continue in full force and effect and are hereby incorporated by reference, and hereby ratified, reaffirmed and confirmed by the Obligors (including the New Subsidiary Guarantor) and the Lenders in all respects on and as of the effective date of this Joinder Agreement. Each of the Obligors (including the New Subsidiary Guarantor) acknowledges and agrees that all liens, security interests, and pledges heretofore given to the Lenders to secure their respective indebtedness to the Lenders shall also secure all obligations arising hereunder. 6. Conditions. The Lenders' agreements and consents in this Joinder Agreement are and shall be subject to the prior satisfaction of the following conditions precedent: (a) Execution and Delivery of this Joinder Agreement. All of the parties to this Joinder Agreement shall have executed and delivered a counterpart hereof. (b) Evidence of Existence and Authorzation. The Administrative Agent shall have received the following: (i) for the New Subsidiary Guarantor, a copy of charter documents, limited liability company agreement and resolutions relating to New Subsidiary Guarantor's execution and delivery of this Joinder Agreement, all certified as true, correct and complete by the sole member of the New Subsidiary Guarantor; and (ii) for all Obligors, copies of resolutions relating to the execution and delivery of this Joinder Agreement, all certified as true, correct and complete by the Secretary or an Assistant Secretary of each Obligor. (c) Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated herein shall be satisfactory to the Lenders and their counsel. The Lenders and their counsel shall have received copies of such documents as they may request in connection therewith, all in form and substance satisfactory to the Lenders and their counsel. 7. Covenants. Each of the Obligors agrees that, by May 8, 2000, they shall cause to be delivered to the Administrative --------- Agent: (a) Chattel Search Results. Such legal opinions, UCC-11 Reports or reports from nationally-recognized chattel search firms and similar information reflecting that the security interests granted to the Administrative Agent, for the benefit of the Lenders, by the New Subsidiary Guarantor are first and prior perfected security interests. (b) Legal Opinions. The legal opinions of the law firms of: (i) Messrs. Sullivan & Cromwell, substantially in the form of Exhibit A attached hereto and incorporated herein by this reference, and (ii) Messrs. Womble, Carlisle, Sandridge & Rice, substantially in the form of Exhibit B attached hereto and incorporated herein by this reference. (c) Financing Statements. All UCC-1 financing statements and other documents, duly executed, as the Administrative Agent determines to be necessary to perfect the security interests intended to be granted by the New Subsidiary Guarantor under the Pledge Agreement. Each of the Obligors agrees that the covenants set forth in this Section 7 shall constitute affirmative covenants, that the failure to comply therewith shall constitute an Event of Default under the Credit Agreement and that except as set forth above there shall be no grace or cure period. Each of the Obligors further agrees that the Lenders shall have the right to pursue the remedies available under and/or pursuant to the Credit Agreement should the Obligors fail to comply with any of such affirmative covenants. 8. General Provisions. (a) Entire Agreement. This Agreement, the Credit Agreement, the Pledge Agreement and the other documents to which the Obligors (including the New Subsidiary Guarantor) are parties pursuant to the Credit Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and thereof. No change, modification, addition or termination of this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. (b) Definitions. Terms used and not otherwise defined in this Joinder Agreement shall have the meanings given to them in the Credit Agreement, as amended from time to time. (c) Benefit. This Agreement shall be binding upon the Obligors, including the New Subsidiary Guarantor, and their respective successors and assigns and shall inure to the benefit of the Lenders and their respective successors and assigns. (d) Waiver. No waiver of the provisions hereof shall be effective unless in writing and signed by the party to be charged with such waiver. No waiver shall be deemed a continuing waiver or a waiver in respect of any breach or default, whether of a similar or a different nature, unless expressly so stated in writing. (e) Governing Law. The validity, construction, interpretation and enforcement of this Agreement shall be construed in accordance with the laws of the State of New York without regard to its conflict of laws. (f) Severability. If any provision of this Agreement or its application shall be deemed invalid, illegal or unenforceable in any respect, the validity, construction, interpretation and enforceability of all other applications of that provision and of all other provisions and applications hereof shall not in any way be affected or impaired. (g) Further Assurances. From time to time at another party's request and without further consideration, the parties shall execute and deliver such further instruments and documents, and take such other action as the requesting party may reasonably request, in order to complete more effectively the transactions contemplated in this Agreement. (h) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. This Agreement may be executed by each party on separate copies, which copies, when combined so as to include the signatures of all parties, shall constitute a single counterpart of this Agreement. IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement, effective as of the date set out in the preamble of this Agreement. Commonwealth Industries, Inc. By: Title: Commonwealth Aluminum Lewisport, Inc. By: Title: Alflex Corporation By: Title: Commonwealth Aluminum Concast, Inc. By: Title: Commonwealth Aluminum Corporation By: Title: "Subsidiary Guarantor" Commonwealth Aluminum Sales Corporation By: Title: "New Subsidiary Guarantor" Alflex E1 LLC, by its sole member, Alflex Corporation By: Title: Bank One, Indiana, NA By: Title: PNC Bank, National Association By: Title: ABN AMRO Bank N.V. By: Title: Bank of Montreal By: Title: Credit Agricole Indosuez By: Title: Mellon Bank, N.A. By: Title: The Industrial Bank of Japan, Limited By: Title: Firstar Bank, NA By: Title: 10121015.1 EX-10.15.3 6 EXHIBIT 10.15.3 THIRD SUPPLEMENTAL INDENTURE, effective as of December 31, 1999, to the Indenture, dated as of September 20, 1996, as heretofore amended and supplemented (the "Indenture"), between Commonwealth Industries, Inc. (formerly Commonwealth Aluminum Corporation), a Delaware corporation (the "Company"), each of the Subsidiary Guarantors (as defined therein) and Harris Trust and Savings Bank, as Trustee (the "Trustee"). RECITALS: The Indenture has heretofore been amended and supplemented by a First Supplemental Indenture, dated as of November 12, 1996, and a Second Supplemental Indenture, dated as of October 16, 1998. Subsequent to the date of the Second Supplemental Indenture and prior to the date hereof, the Company has duly organized Alflex E1 LLC, a Delaware limited liability company, as a Restricted Subsidiary, and it is proposed that this limited liability company (the "new subsidiary") become an additional Subsidiary Guarantor, as permitted by Section 901(7) of the Indenture. The Company, each of the Subsidiary Guarantors and the new subsidiary have been authorized by Board Resolutions to enter into this supplemental indenture. NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE Definitions For all purposes of this supplemental indenture, unless the context otherwise requires, the terms used herein shall have the same meanings as in the Indenture. ARTICLE TWO Subsidiary Guarantors The new subsidiary is hereby subjected to the provisions (including the representations and warranties) of the Indenture as a Subsidiary Guarantor, all as contemplated by Section 1303 of the Indenture. IN WITNESS WHEREOF, the parties hereto have caused this supplemental indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. COMMONWEALTH INDUSTRIES, INC. COMMONWEALTH ALUMINUM CORPORATION COMMONWEALTH ALUMINUM CONCAST, INC. COMMONWEALTH ALUMINUM LEWISPORT, INC. COMMONWEALTH ALUMINUM SALES CORPORATION ALFLEX CORPORATION By: ______________________________ Mark V. Kaminski President and Chief Executive Officer ALFLEX E1 LLC By: Alflex Corporation, as Managing Member By: ______________________________ Mark V. Kaminski President and Chief Executive Officer Attest: By: ______________________________ Secretary HARRIS TRUST AND SAVINGS BANK, as Trustee By: ______________________________ Name: Title: Attest: By: ______________________________ Secretary COMMONWEALTH OF KENTUCKY ) ) ss.: COUNTY OF JEFFERSON ) On the _____ day of ____________________, 1999, before me personally came Mark V. Kaminski, to me known, who, being by me duly sworn, did depose and say that he is President and Chief Executive Officer of each of Commonwealth Industries, Inc., Commonwealth Aluminum Corporation, Commonwealth Aluminum Concast, Inc., Commonwealth Aluminum Lewisport, Inc., Commonwealth Aluminum Sales Corporation and Alflex Corporation, corporations described in and which executed the foregoing instrument; that he knows the seal of said corporations; that the seals affixed to said instrument are such corporate seals; that they were so affixed by authority of the Boards of Directors of said corporations, and that he signed his name thereto by like authority. ------------------------------ STATE OF ILLINOIS ) ) ss.: COUNTY OF COOK ) On the _____ day of ____________________, 1999, before me personally came ______________________________, to me known, who, being by me duly sworn, did depose and say that she is a ______________________________ of Harris Trust and Savings Bank, one of the corporations described in and which executed the foregoing instrument; that she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that she signed her name thereto by like authority. ------------------------------ EX-13 7 EXHIBIT 13 Exhibit 13 ---------- Portions of the annual report to stockholders for the year ended December 31, 1999 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, 1999. 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 10 Financial Data (B) Part II, item 7 Management's Discussion and pages 11 Analysis of Financial Condition thru 16 and Results of Operations Part II, item 7A Quantitative and Qualitative pages 14 Disclosures About Market Risk thru 15 (C) Part II, item 8 Consolidated Balance Sheet page 17 Part II, item 8 Consolidated Statement of Income page 18 Part II, item 8 Consolidated Statement of page 18 Comprehensive Income Part II, item 8 Consolidated Statement of page 19 Changes in Stockholders' Equity Part II, item 8 Consolidated Statement of page 20 Cash Flows Part II, item 8 Notes to Consolidated pages 21 Financial Statements thru 41 Part II, item 8 Report of Independent Auditors page 42 The items follow: Exhibit 13 item (A) ------------------- COMMONWEALTH INDUSTRIES, INC. Consolidated Selected Financial Data (in thousands except per share data)
Year ended December 31, ----------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------------- -------------- -------------- ------------- ------------- Statement of Income Data: Net sales $ 1,045,916 $ 967,949 $1,090,777 $ 739,218 $ 671,501 Gross profit 86,865 69,455 88,043 49,312 64,750 Operating income 28,440 21,421 41,593 19,262 42,240 Income before extraordinary loss 11,011 143 9,122 14,756 33,787 Net income (1) 11,011 143 7,941 13,401 33,787 Net income per share data (1): Basic Income before extraordinary loss $ 0.68 $ 0.01 $ 0.78 $ 1.45 $ 3.32 Extraordinary loss - - (0.10) (0.13) - -------------- -------------- -------------- ------------- ------------- Net income $ 0.68 $ 0.01 $ 0.68 $ 1.32 $ 3.32 ============== ============== ============== ============= ============= Diluted Income before extraordinary loss $ 0.68 $ 0.01 $ 0.78 $ 1.45 $ 3.31 Extraordinary loss - - (0.10) (0.13) - -------------- -------------- -------------- ------------- ------------- Net income $ 0.68 $ 0.01 $ 0.68 $ 1.32 $ 3.31 ============== ============== ============== ============= ============= Cash dividends paid per share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.15 Operating Data: Depreciation and amortization $ 36,513 $ 34,728 $ 34,710 $ 22,452 $ 18,600 Capital expenditures $ 36,715 $ 33,650 $ 21,736 $ 14,841 $ 15,153 Commonwealth Aluminum business unit: Net sales $ 922,298 $ 846,696 $ 964,012 $ 704,400 $ 671,501 Shipments (pounds) 1,022,680 884,169 990,207 712,480 587,932 Alflex business unit: Net sales $ 123,618 $ 121,253 $ 126,765 $ 34,818 Shipments (feet) 576,205 517,380 521,711 136,936 Balance Sheet Data: Working capital $ 123,067 $ 115,192 $ 112,924 $ 207,061 $ 153,292 Total assets 706,322 648,399 667,421 794,582 420,684 Total debt 125,000 125,000 125,650 342,250 48,375 Total stockholders' equity 336,676 326,529 330,473 227,223 213,063 (1) 1999 net income and net income per share were decreased by $12.1 million and $0.74 per share, respectively, due to the Company's change in its inventory accounting method from first-in, first-out (FIFO) method to the last-in, first-out (LIFO) method.
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, 1999, 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, 1999 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 non-residential construction and renovation markets. The Company's principal raw materials are aluminum scrap, primary aluminum, copper and steel. Trends in the demand for aluminum sheet products in the United States and in the prices of aluminum primary metal, aluminum scrap and copper commodities affect the business of the Company. The Company's operating results also are affected by factors specific to the Company, such as the margins between selling prices for its products and its cost of raw material ("material margins") and its unit cost of converting raw material into its products ("conversion cost"). While changes in aluminum and copper prices can cause the Company's net sales to change significantly from period to period, net income is more directly impacted by 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. During 1999, net sales of the Company's aluminum sheet products increased by 9% from the year 1998 and shipment volume increased 16% over 1998. The increased shipments were made possible by capital projects at the Company's Uhrichsville, Ohio rolling mill and productivity gains at the Company's Lewisport, Kentucky rolling mill. While overall demand for aluminum sheet products remained strong, material margins during 1999 declined from the fourth quarter of 1998 levels due to higher acquisition costs for scrap aluminum. The Company increased its maintenance spending in its aluminum operations during 1999, especially in the hot mill department, to support higher volumes, increase machine reliability, and increase the probability of excellent quality and service to the Company's customers. Demand for the Company's electrical conduit and cable products continued to be strong in 1999; however, the supply of these products has increased as a result of expansions of existing production by competitors, and the entry of new participants into the market. As a result, material margins for the Company's electrical conduit and cable products have come under pressure during 1999 and are below the levels achieved in 1998. Demand for the Company's armored cable products, in particular, continues to be strong. Value added products such as MC cable represented a higher ratio of Alflex's 1999 sales compared to 1998. Other factors which contributed to the lower material margins were the normal operational challenges associated with opening a new plant (the Company opened a new plant in Rocky Mount, North Carolina during the second quarter of 1999) and the disruptions caused by Hurricane Floyd. The new plant increased production capacity of electrical conduit and cable products by 50% and enhanced the Company's competitive position by placing that capacity closer to attractive markets along the eastern United States. 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. See note 3 to the consolidated financial statements for additional information. Results of Operations for 1999, 1998 and 1997 Net Sales. Net sales for 1999 increased 8% to $1.05 billion (including $123.6 million from the Company's Alflex electrical products subsidiary) from $967.9 million (including $121.3 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. In 1998 net sales decreased 11% to $967.9 million (including $121.3 million from Alflex) from $1.09 billion (including $126.8 million from Alflex) in 1997. The decrease is due to reduced sales volume at the Lewisport mill which was partially offset by volume increases at the Company's other facilities. Unit sales volume of aluminum products decreased 11% to 884.2 million pounds in 1998 from 990.2 million pounds in 1997. Lower sales and shipment volume were caused by production problems primarily relating to higher internal rejection rates and lower production levels in anticipation of a possible work stoppage in connection with the expiration of the Company's collective bargaining agreement in July 1998 at the Company's Lewisport mill. Additionally 1998 sales volumes at the Company's continuous cast aluminum sheet operations were only slightly above 1997's level due to tighter inventory management by customers and unusually wet weather that reduced construction activity in various parts of the United States in the first half of 1998. Alflex unit sales volume was 517.4 million feet for 1998 compared to 521.7 million feet for 1997. Gross Profit. Gross profit increased 25% (to 8.3% of net sales) in 1999 after a 21% decrease (to 7.2% of net sales) in 1998. 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. The 1998 decrease was attributable to decreased sales volume due to the reasons outlined in the "net sales" section. The Company's unit manufacturing costs decreased compared to the same period in 1998 as a result of the higher volumes. For 1998 unit manufacturing costs increased compared to 1997 as a result of the lower volumes which more than offset any efficiencies due to mill optimization practices. Material margins which were higher in 1998 than in 1997 partially offset the impact of lower volumes. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 23.9% in 1999. Contributing to the increase 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. Selling, general and administrative expenses increased 3.8% in 1998. Contributing to the increase were increases at Alflex associated with the infrastructure required to support the growth of this business segment, costs incurred in acquisitions which did not materialize, expenses incurred at the Lewiport mill in anticipation of a possible strike and certain expenses relating to the Company's Year 2000 remediation effort. The realization of various operating synergies envisioned at the time of the CasTech acquisition continued to contribute to holding the 1998 increase down. Amortization of Goodwill. Amortization of goodwill, which relates to a previous acquisition, was $4.5 million in 1999, 1998 and 1997. Operating Income. Operating income increased by 33% in 1999 to $28.4 million, compared with a 1998 decrease of 48% to $21.4 million, in each case reflecting the factors mentioned above. Other Income (Expense), Net. 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. The Company had received $1.0 million of the total insurance proceeds as of December 31, 1999 with the remainder expected to be received during the first quarter of 2000. Interest Expense, Net. Interest expense in 1999 decreased 13% to $19.3 million from $22.2 million in 1998. The decrease in the Company's interest expense is primarily due to the reduction in amounts outstanding under the Company's accounts receivable securitization facility. Interest expense in 1998 decreased 27% to $22.2 million from $30.5 million in 1997. The 1998 decrease in the Company's interest expense was due to the reduction in borrowing resulting from the Company's September 1997 equity offering coupled with reduced interest rates due to the accounts receivable securitization facility also implemented in September 1997. Both transactions are described in the "Liquidity and Capital Resources" section which follows. Income Tax Expense (Benefit). Income tax expense (benefit) in 1999, 1998 and 1997 reflect the use of the Company's net operating loss ("NOL") carryforwards to offset taxable income for federal income tax purposes. At December 31, 1999, the Company had remaining available NOL carryforwards of approximately $71 million. These NOL carryforwards will expire in various amounts 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 $1.0 million in 1999 compared to an income tax benefit of $0.6 million in 1998. The 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. Extraordinary Loss on Early Extinguishment of Debt. The Company recorded an extraordinary loss on the early extinguishment of debt in 1997 of $1.5 million ($1.2 million net of income tax benefit). Net Income. Net income for 1999 increased to $11.0 million from $0.1 million in 1998, after 1998 net income had decreased from $7.9 million reported in 1997, 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 2000. On September 29, 1997, the Company completed a common stock offering of 5.75 million shares at a public offering price of $18 per share. The net proceeds from the offering of approximately $97.7 million were used to repay the entire amount outstanding under the Company's term loan agreement, totaling $95.0 million, as well as $2.7 million outstanding under the Company's revolving credit facility. On September 26, 1997, the Company sold all of its trade accounts receivables to a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously, CFC entered into a three-year accounts receivable securitization facility with a financial institution and its affiliate, whereby CFC sells, on a revolving basis, an undivided interest in certain of its receivables and receives up to $150.0 million from an unrelated third party purchaser at a cost of funds linked to commercial paper rates plus a charge for administrative and credit support services. At December 31, 1999, the Company had outstanding $106.0 million under the agreement and had $39.9 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 1999, 1998 and 1997 were $38.8 million, $46.6 million and $134.7 million, respectively. The increase in cash flow from operations in 1997 was due primarily to the accounts receivable securitization. Working capital increased to $123.1 million at December 31, 1999 from $115.2 million at December 31, 1998. Working capital increased to $115.2 million at December 31, 1998 from $112.9 million at December 31, 1997. 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, 1999, $99.2 million was available. The facility expires on September 1, 2002. Capital expenditures were $36.7 million, $33.7 million and $21.7 million in 1999, 1998 and 1997, respectively, and are estimated to be $39 million in 2000, 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 net metal position. The Company's metal position consists of inventories, purchase commitments, committed and anticipated sales, which is hedged using LME futures contracts and options. At December 31, 1999, the Company held purchase and sales commitments through 2000 totaling $69 million and $276 million, respectively. 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 deferred realized losses of $0.7 million and $2.2 million as of December 31, 1999 and 1998, respectively 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, 1999 and 1998, the Company had open aluminum futures contracts and options and natural gas futures with a fair value of $88.0 million and $100.4 million, respectively. The Company had net unrealized gains of $7.9 million and net unrealized losses of $5.6 million as of December 31, 1999 and 1998, 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 $7.9 million and net unrealized loss of $5.6 million at December 31, 1999 and 1998, respectively, consists of unrealized gains due from brokers of $10.9 million and $4.1 million, respectively, and unrealized losses due to brokers of $3.0 million and $9.7 million, respectively. 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, 1999 the Company had approximately 47,325 metric tonnes of LME futures contracts. A hypothetical 10 % change from the 1999 year-end three-month high grade aluminum price of $1,655 per metric tonne would result in a change in fair value of $7.8 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 purchased metal. 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, 1999 the Company had approximately 960,000 thousand cubic feet (MCF) of NYMEX futures contracts. A hypothetical 10 % change from the 1999 year-end three-month natural gas price of $2.3285 per MCF would result in a change in fair value of $0.2 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 purchased gas. 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, 1999, credit lines totaling $62 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, 1999 the Company had an interest rate swap contract with a notional amount of $5 million. With respect to this agreement, the Company pays a fixed rate of interest and receives a LIBOR-based floating rate. 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, 1999 was a liability of $0.09 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. Year 2000 Readiness Disclosure During 1999, the Company completed a company-wide program to make its computer systems Year 2000 compliant. The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may have recognized a date using "00" as the year 1900 rather than the year 2000. This could have resulted in a major system failure or miscalculations. As of December 31, 1999, 100 percent of the Company's computer systems, which includes mainframe, server, desktop and portable computers, embedded systems, in addition to the core business applications, were Year 2000 compliant. The total cost of the program was $8.0 million and was funded through operating cash flows. Maintenance or modification costs were expensed as incurred, while the cost of systems being replaced were capitalized and amortized over the new system's useful life. Due to these modifications and replacements, the year 2000 issues did not pose significant operational problems for the Company. The Company has notified recipients of previously made Year 2000 statements that these statements, and any other Year 2000 statements released by the Company, are retroactively identified and labeled in their entirety as Year 2000 Readiness Disclosures pursuant to Section 7(b) of the Year 2000 Information and Readiness Disclosure Act of 1998. By doing so, these prior statements are relieved from tort liability. Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in net income unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company currently expects to adopt SFAS No. 133 in the Company's first quarter 2001 reporting, as required by the Financial Accounting Standards Board's Statement of Financial Accounting Standard No. 137, issued in June 1999, which defers SFAS No. 133's effective date by one year. Management is currently evaluating the impact of SFAS No. 133 on the Company's future financial reporting. Exhibit 13 item (C) ------------------- COMMONWEALTH INDUSTRIES, INC. Consolidated Balance Sheet (in thousands except share data)
December 31, -------------------------------------- 1999 1998 ------------- ------------- Assets Current assets: Cash and cash equivalents $ - $ 6 Accounts receivable, net 118 228 Inventories 207,413 174,968 Prepayments and other current assets 53,821 25,367 ------------- ------------- Total current assets 261,352 200,569 Property, plant and equipment, net 275,531 269,837 Goodwill, net 164,610 169,086 Other noncurrent assets 4,829 8,907 ------------- ------------- Total assets $ 706,322 $ 648,399 ============= ============= Liabilities Current liabilities: Outstanding checks in excess of deposits $ 1,188 $ - Accounts payable 97,937 54,244 Accrued liabilities 39,160 31,133 ------------- ------------- Total current liabilities 138,285 85,377 Long-term debt 125,000 125,000 Other long-term liabilities 8,412 8,859 Accrued pension benefits 12,482 15,930 Accrued postretirement benefits 85,467 86,704 ------------- ------------- Total liabilities 369,646 321,870 ------------- ------------- Commitments and contingencies - - Stockholders' Equity Common stock, $0.01 par value, 50,000,000 shares authorized, 16,606,000 and 15,944,000 shares outstanding at December 31, 1999 and 1998, respectively 166 159 Additional paid-in capital 409,062 398,794 Accumulated deficit (61,866) (69,621) Unearned compensation (175) (672) Notes receivable from sale of common stock (10,511) - Accumulated other comprehensive income: Minimum pension liability adjustment - (2,131) ------------- ------------- Total stockholders' equity 336,676 326,529 ------------- ------------- Total liabilities and stockholders' equity $ 706,322 $ 648,399 ============= =============
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. Consolidated Statement of Income (in thousands except per share data)
Year ended December 31, ------------------------------------------------------- 1999 1998 1997 ------------- --------------- -------------- Net sales $1,045,916 $ 967,949 $1,090,777 Cost of goods sold 959,051 898,494 1,002,734 ------------- --------------- -------------- Gross profit 86,865 69,455 88,043 Selling, general and administrative expenses 53,949 43,558 41,972 Amortization of goodwill 4,476 4,476 4,478 ------------- --------------- -------------- Operating income 28,440 21,421 41,593 Other income (expense), net 2,861 365 487 Interest expense, net (19,333) (22,221) (30,536) ------------- --------------- -------------- Income (loss) before income taxes and extraordinary loss 11,968 (435) 11,544 Income tax expense (benefit) 957 (578) 2,422 ------------- --------------- -------------- Income before extraordinary loss 11,011 143 9,122 Extraordinary loss on early extinguishment of debt, net of income tax benefit - - (1,181) ------------- --------------- -------------- Net income $ 11,011 $ 143 $ 7,941 ============= =============== ============== Basic and diluted per share data: Income before extraordinary loss $ 0.68 $ 0.01 $ 0.78 Extraordinary loss - - (0.10) ------------- --------------- -------------- Net income $ 0.68 $ 0.01 $ 0.68 ============= =============== ============== Weighted average shares outstanding Basic 16,224 15,944 11,687 Diluted 16,281 15,947 11,723
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. Consolidated Statement of Comprehensive Income (in thousands)
Year ended December 31, ----------------------------------------------------- 1999 1998 1997 -------------- --------------- ------------ Net income $ 11,011 $ 143 $ 7,941 Other comprehensive income, net of tax: Minimum pension liability adjustment 2,131 (1,435) (696) -------------- --------------- ------------ Comprehensive income (loss) $ 13,142 $ (1,292) $ 7,245 ============== =============== ============
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, 1996 10,197,500 $ 102 $ 301,289 $ (72,188) $(1,980) $ - $ - $ 227,223 Net income - - - 7,941 - - - 7,941 Cash dividends, $0.20 per share - - - (2,328) - - - (2,328) Minimum pension liability adjustment - - - - - - (696) (696) Stock offering 5,750,000 57 97,585 - - - - 97,642 Issuance of restricted stock 2,500 - 47 - (47) - - - Forfeiture of restricted stock (22,500 - (399) - 399 - - - Amortization of unearned compensation - - - - 456 - - 456 Exercise of stock options 9,000 - 151 - - - - 151 Stock awards 5,000 - 84 - - - - 84 ------------ -------- --------- --------- --------- ---------- --------- --------- 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 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 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 =========== ======== ========= ======== ======== ========== ======== =========
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. Consolidated Statement of Cash Flows (in thousands)
Year ended December 31, --------------------------------------------------- 1999 1998 1997 ------------ ------------- ------------ Cash flows from operating activities: Net income $11,011 $ 143 $ 7,941 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 36,513 34,728 34,710 Extraordinary loss on early extinguishment of debt - - 1,495 Loss on disposal of property, plant and equipment 389 1,453 1,271 Issuance of common stock in connection with stock awards 44 72 84 Proceeds from the initial sale of accounts receivable - - 150,000 Changes in assets and liabilities: Decrease (increase) in accounts receivable, net 110 127 (46,650) (Increase) decrease in inventories (32,445) (3,335) 2,278 (Increase) decrease in prepayments and other current assets (28,454) 19,740 6,970 Decrease in other noncurrent assets 2,878 398 201 Increase (decrease) in accounts payable 43,693 (13,637) (14,459) Increase (decrease) in accrued liabilities 8,027 3,965 (9,183) (Decrease) increase in other liabilities (3,001) 2,931 13 ------------ ------------- ------------ Net cash provided by operating activities 38,765 46,585 134,671 ------------ ------------- ------------ Cash flows from investing activities: Net cash and cash equivalents (outflow) from acquisition - - (2,894) Purchases of property, plant and equipment (36,715) (33,650) (21,736) Proceeds from sale of property, plant and equipment 12 32 28 ------------ ------------- ------------ Net cash (used in) investing activities (36,703) (33,618) (24,602) ------------ ------------- ------------ Cash flows from financing activities: Increase (decrease) in outstanding checks in excess of deposits 1,188 (9,122) 9,122 Proceeds from long-term debt 46,770 45,150 294,950 Repayments of long-term debt (46,770) (45,800) (511,550) Proceeds from issuance of common stock - - 97,793 Cash dividends paid (3,256) (3,189) (2,328) ------------ ------------- ------------ Net cash (used in) financing activities (2,068) (12,961) (112,013) ------------ ------------- ------------ Net (decrease) increase in cash and cash equivalents (6) 6 (1,944) Cash and cash equivalents at beginning of period 6 - 1,944 ------------ ------------- ------------ Cash and cash equivalents at end of period $ - $ 6 $ - ============ ============= ============ Supplemental disclosures: Interest paid $ 19,672 $ 22,385 $ 27,046 Income taxes paid (refund received) 2,412 (10) (1,407) Non-cash activities: Issuance of common stock for notes receivable $ 10,511 $ - $ -
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 aluminum sheet for distributors and the transportation, construction, and consumer durables end-use markets. The electrical conduit segment manufactures flexible electrical wiring products for the commercial 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. 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 $14.7 million and $10.2 million at December 31, 1999 and 1998, 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 price exposure from committed and certain anticipated sales. Gains, losses and premiums on these instruments which effectively hedge exposures are deferred and included in income as a component of the underlying sales transaction. The Company also uses futures contracts to manage risks associated with its natural gas requirements and interest rate swaps to manage interest rate risk. 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, which in most cases coincides with shipment. In very rare instances, title could pass prior to shipment. The Company's policy states that title passing prior to shipment is only acceptable if a written request on the customer's letterhead is received and the customer must have a substantial business purpose for ordering on a bill and hold basis. The customer's written request has to specifically state that the customer accepts full legal ownership, including risk of loss, of the product on the date of billing. As further evidence of the bill and hold basis, payment is expected within terms of the pre-bill and not the actual ship dates. 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. 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. At December 31, 1999 and 1998, the Company had outstanding under the agreement $106.0 million and $120.2 million, respectively, and had $39.9 million and $15.9 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 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 $1.9 million and $2.5 million at December 31, 1999 and 1998, 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 three months and twelve months ended December 31, 1999 by $3.5 million and $12.1 million, or $0.21 and $0.74 per share, respectively. 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): 1999 1998 ---- ---- Raw materials $63,510 $34,908 Work in process 80,210 74,960 Finished goods 62,278 49,079 Expendable parts and supplies 15,895 14,910 ------- -------- 221,893 173,857 LIFO reserve (14,480) 3,659 ------- -------- 207,413 177,516 Lower of cost or market reserve - (2,548) ------- -------- $207,413 $174,968 ======= ======== Inventories of approximately $183.3 million and $33.6 million, included in the above totals (before the LIFO and lower of cost or market reserve) at December 31, 1999 and 1998, respectively, are accounted for under the LIFO method of accounting. During 1997, LIFO inventory quantities were reduced, resulting in a partial liquidation of the LIFO bases, the effect of which increased net income by approximately $0.7 million. 4. Property, Plant and Equipment Property, plant and equipment and the related accumulated depreciation at December 31 consist of the following (in thousands): 1999 1998 ---- ---- Land and improvements $21,216 $20,704 Buildings and improvements 77,958 67,100 Machinery and equipment 455,036 419,313 Construction in progress 21,359 33,273 -------- -------- 575,569 540,390 Less accumulated depreciation 300,038 270,553 -------- -------- Net property, plant and equipment $275,531 $269,837 ======== ======== Depreciation expense was $30.6 million, $28.6 million and $28.2 million for the years ended 1999, 1998 and 1997, 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, 1999, credit lines totaling $62 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 deferred realized losses of $0.7 million and $2.2 million as of December 31, 1999 and 1998, respectively, which were recorded as an increase in the carrying value of inventory. At December 31, 1999, the Company held purchase and sales commitments through 2000 totaling $69 million and $276 million, respectively. At December 31, 1999 and 1998, the Company had open aluminum futures contracts and options and natural gas futures with a fair value of $88.0 million and $100.4 million, respectively. The Company had net unrealized gains of $7.9 million and net unrealized losses of $5.6 million as of December 31, 1999 and 1998, 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 $7.9 million and net unrealized loss of $5.6 million at December 31, 1999 and 1998, respectively, consists of unrealized gains due from brokers of $10.9 million and $4.1 million, respectively, and unrealized losses due to brokers of $3.0 million and $9.7 million, respectively. 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): 1999 1998 ---- ---- Senior subordinated notes $125,000 $125,000 Revolving credit facility - - -------- -------- 125,000 125,000 Less current maturities - - -------- -------- $125,000 $125,000 ======== ======== During 1996, in connection with an acquisition, the Company refinanced its outstanding borrowings and entered into a credit agreement with a syndicate of banks led by National Westminster Bank (Bank One Corporation replaced National Westminster Bank in August 1999 as Administrative Agent). The credit agreement included a $100 million term loan and a $225 million revolving credit facility. In addition, the Company issued $125 million of 10.75% senior subordinated notes due 2006. During September 1997, the Company repaid the remaining amount of the term loan under the credit agreement with the net proceeds of approximately $97.7 million received from the September 1997 equity offering of the Company. In connection with the repayment of the term loan, the Company incurred an extraordinary loss on early extinguishment of debt of $1.5 million (or $1.2 million after tax). In addition, in December 1997, the Company amended the credit agreement to reduce the revolving credit facility from $225 million to $100 million. 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 1, 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 December 31, 1999 and 1998, letters of credit totaling $0.8 million and $0.7 million, respectively, 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 swaps 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 December 31, 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 December 31, 1999 was a liability of $0.1 million. The fixed interest rate is 6.87%. 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, 1999 and 1998, the fair value of the senior subordinated notes was approximately $124 million and $123 million, respectively. Future aggregate maturities of long-term debt at December 31, 1999 are as follows (in thousands): 1999 $ - 2000 - 2001 - 2002 - 2003 - Thereafter 125,000 -------- Total $125,000 ======== 7. Stockholders' Equity On September 29, 1997, the Company completed a common stock offering of 5.75 million shares at a public offering price of $18 per share. The net proceeds from the offering of approximately $97.7 million were used to repay the entire amount outstanding under the Company's term loan agreement, totaling $95.0 million, as well as $2.7 million outstanding under the Company's revolving credit facility. 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 which represents approximately 4% of the common shares outstanding at December 31, 1999. The outstanding principal balance of the notes at December 31, 1999 was $10,511,000 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): 1999 1998 ---- ---- Change in benefit obligation: Benefit obligation at beginning of year $85,121 $77,814 Service cost 2,716 2,508 Interest cost 5,964 5,629 Actuarial (gain) loss (4,921) 4,892 Benefits paid (5,890) (5,722) ------- ------- Benefit obligation at end of year 82,990 85,121 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year 72,379 70,530 Actual return on plan assets 13,821 7,571 Employer contribution 1,482 - Benefits paid (5,890) (5,722) ------- ------- Fair value of plan assets at end of year 81,792 72,379 ------- ------- Funded status (1,198) (12,742) Unrecognized net actuarial (gain) loss (7,098) 6,018 Unrecognized prior service cost (3,879) (3,907) Unrecognized net transition (asset) (307) (538) ------- ------- Net amount recognized $(12,482) $(11,169) ======== ======== Amounts recognized in the consolidated balance sheet consist of: Prepaid (accrued) pension cost $(12,482) $(15,930) Intangible asset - 2,630 Accumulated other comprehensive income - 2,131 ------- ------- Net amount recognized $(12,482) $(11,169) ======== ======== The liabilities as of December 31, 1999 and 1998 disclosed above reflect the change in the defined benefit plan covering the salaried employees to a cash balance formula effective January 1, 1998. In addition, reflected at December 31, 1998 in the Company's consolidated balance sheet is an additional minimum liability relative to its plan which was underfunded in the amount of $4.8 million at December 31, 1998. A corresponding amount is recorded at December 31, 1998 as an intangible asset to the extent it did not exceed unrecognized prior service cost, while the excess was charged to stockholders' equity. None of the plans required an additional minimum liability at December 31, 1999. The weighted average assumptions and components of net pension expense for the years ended December 31 are as follows (in thousands): 1999 1998 1997 ---- ---- ---- Weighted average assumptions: Discount rate 7.75% 7.00% 7.25% Expected return on plan assets 8.00 9.25 9.25 Rate of compensation increase 4.50 4.50 4.50 Components of net pension expense: Service cost $2,716 $2,508 $2,221 Interest cost 5,964 5,629 5,719 Expected return on plan assets (5,637) (6,369) (5,764) Net amortization and deferral (207) (258) 89 ------- ------- ------- Net pension expense $2,836 $1,510 $2,265 ======= ======= ======= 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 in 1999, 1998 and 1997. 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, $1.4 million and $1.9 million for 1999, 1998 and 1997, respectively. 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. Effective January 1, 1994, the Company limited the extent of its liability for future increases in medical costs. When the average annual per retiree claim cost exceeds two times the 1993 per retiree claim cost, the employer contribution will be increased each year only for general inflation, regardless of the actual increase in the cost of providing medical benefits. Per retiree medical claims reached two times the 1993 level in 1999. Certain changes were made to the plan in 1998 as a result of a new labor agreement completed in September 1998 relating to the Company's Lewisport, Kentucky rolling mill. The changes require employees who retire to pay a portion of medical premiums under the plan based on length of service and also discontinues medical coverage upon the employees being eligible for Medicare benefits. In addition, in 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 1999 and 1998 plan changes reduced the accumulated postretirement benefit obligation by $6.5 million and $14.1 million, respectively, which is being amortized over the average remaining service lives of the Company's active employees and has the effect of reducing net periodic postretirement benefits cost. The financial status of the plan at December 31, 1999 and 1998 is as follows (in thousands): 1999 1998 ---- ---- Change in benefit obligation: Benefit obligation at beginning of year $56,454 $69,030 Service cost 867 1,827 Interest cost 3,657 4,439 Amendments (6,464) (14,073) Actuarial (gain) loss (731) (2,854) Benefits paid (2,359) (1,915) ------- ------- Benefit obligation at end of year 51,424 56,454 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year - - Actual return on plan assets - - Employer contribution 2,359 1,915 Benefits paid (2,359) (1,915) ------- ------- Fair value of plan assets at end of year - - ------- ------- Funded status (51,424) (56,454) Unrecognized net actuarial gain (12,470) (11,931) Unrecognized prior service cost (21,573) (18,319) -------- -------- Prepaid (accrued) postretirement benefit cost $(85,467) $(86,704) ======== ======== The weighted average assumptions and components of net postretirement benefit expense for the years ended December 31 are as follows (in thousands): 1999 1998 1997 ---- ---- ---- Weighted average assumptions: Discount rate 7.75% 7.00% 7.25% Components of net postretirement benefit expense: Service cost $ 867 $1,827 $1,934 Interest cost 3,657 4,439 4,529 Amortization of prior service cost (3,209) (1,318) (927) Recognized net actuarial loss (193) (413) (658) ------ ------ ------ Net postretirement benefit expense $1,122 $4,535 $4,878 ====== ====== ====== 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, 1999 and the combined service and interest cost components of postretirement benefit expense for the year then ended would be increased by approximately $5.1 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, 1999 and the combined service and interest cost components of postretirement benefit expense for the year then ended would be decreased by approximately $4.5 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): 1999 1998 1997 ---- ---- ---- Current: Federal $ 419 $(1,093) $ 606 State and Local 538 515 1,816 ----- ------ ----- 957 (578) 2,422 Deferred: Federal - - - State and Local - - - ----- ------ ------ $957 $(578) $2,422 ===== ====== ====== Deferred tax assets and liabilities at December 31 are as follows (in thousands):
1999 1998 ---- ---- Assets Liabilities Assets Liabilities --------- ----------- --------- ----------- Inventory $ - $ 1,373 $ 2,460 $ - Property, plant and equipment - 53,787 - 55,171 Accrued and other liabilities 7,407 - 8,217 - Accrued pension costs 6,672 - 6,029 - Accrued postretirement costs 34,187 - 34,682 - Net operating loss carryforwards 28,378 - 32,576 - AMT credit carryforwards 6,699 - 5,847 - Research and development credit carryforwards 1,115 - - - Other 693 - 425 - ------- ------ ------- ------ Totals $ 85,151 $55,160 $ 90,236 $55,171 ------- ------ ------- ------ Net deferred tax asset 29,991 - 35,065 - Valuation allowance (29,991) - (35,065) - ------- ------ ------- ------ Net deferred taxes $ - $ - $ - $ - ======= ====== ======= ======
The Company has determined that at December 31, 1999 and 1998, 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, 1999, the Company had net operating loss ("NOL") carryforwards for federal tax purposes of approximately $71 million, which expire in various amounts through 2008 and approximately $6.7 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. Reconciliation of the federal statutory rate and the effective income tax rate is as follows:
1999 1998 1997 ---- ---- ---- Federal statutory rate 35.0% 35.0% 35.0% Utilization of NOL and AMT credit carryforwards (43.9) 225.8 (40.0) Nondeductible goodwill and other permanent differences 14.0 (413.5) 15.2 Adjustment of prior year accrual (3.1) - - State income taxes, net of federal income tax benefit 2.1 (77.0) 9.9 Alternative minimum tax 5.9 - 5.2 Foreign sales corporation benefits (3.4) 21.8 - Activity relating to income taxes attributed to previously accrued securities valuation reserves 1.4 340.7 (2.3) Other items - - (2.0) ------ ----- ----- Effective income tax rate 8.0% 132.8% 21.0% ====== ===== =====
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. Future regulations, under the Clean Air Act and otherwise, will impose stricter emission requirements on the aluminum industry. While the Company believes that current pollution control measures at most of the emission sources at its facilities will meet these anticipated future requirements, additional measures at some of the Company's facilities may be required. 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. 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, 1999 was $0.4 million. In determining the adequacy of the Company's aggregate environmental contingency accrual, the assets of the trust fund were taken into account. At the five other federal superfund sites, the Company is a minor contributor and has satisfied its obligations at two of the sites and expects to resolve its liability at the remaining three sites for a nominal amount. The Company is also under orders by agencies in three states for environmental remediation at four sites, two of which are currently operating and two of which have been closed. Based upon currently available information, the Company estimates the range of possible remaining expenditures with respect to the above matters is between $9 million and $13 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 $9.6 million and $9.9 million at December 31, 1999 and 1998, respectively. Of the total reserve, $2.0 million is included in "accrued liabilities" in the Company's consolidated balance sheets at both December 31, 1999 and 1998, respectively, and $7.6 million and $7.9 million is included in "other long-term liabilities" at December 31, 1999 and 1998, 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 1999 and 1998 were $1.5 million and $2.1 million, respectively. All other environmental expenditures of the Company, including remediation expenditures, for 1999, 1998 and 1997 were $2.3 million, $1.0 million and $3.1 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 1997, 1998 and 1999:
Options Restricted Stock -------------------------------------------------------- ----------------- Range of Weighted Average Shares Exercise Prices Exercise Price Shares ---------- ---------------- --------------- ------------ Outstanding December 31, 1996 196,000 $14.00 to $16.88 $15.80 197,500 Granted 203,500 $15.38 to $20.00 $15.55 2,500 Exercised (9,000) $14.00 to $16.75 $15.60 - Forfeited (45,500) $14.00 to $16.75 $15.60 (22,500) Stock no longer restricted - - - (7,500) ------- ------- 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 ======= ======= (Weighted average contractual life of 7.7 years) Exercisable Options: December 31, 1997 11,000 $14.00 to $15.50 $14.75 December 31, 1998 71,500 $14.00 to $15.50 $14.24 December 31, 1999 172,000 $14.00 to $16.88 $15.72
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Options Outstanding Exercisable -------------------------------------------------- ------------------------------- Weighted Average Weighted Weighted Range of Number Contractual Average Number Average Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price - -------------------- ---------------- ------------- --------------- ------------ -------------- $8.25 to $14.00 349,500 8.4 years $ 9.60 53,500 $14.00 $14.01 to $20.00 434,500 7.2 years $15.42 118,500 $16.50 ------- ------- $8.25 to $20.00 784,000 7.7 years $12.83 172,000 $15.72 ======= =======
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 1999, 1998 and 1997 was $3.61, $6.23 and $6.11 per share, respectively. Fair value estimates were determined using the Black-Scholes option pricing model with the following weighted average asumptions for 1999, 1998 and 1997: 1999 1998 1997 ---- ---- ---- Risk-free interest rate 4.70% 5.67% 6.22% Dividend yield 2.27% 1.40% 1.29% Volatility factor 50% 47% 39% 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 1999, 1998 and 1997 to the pro forma amounts which follow: 1999 1998 1997 ---- ---- ---- Net income (loss) As reported $11,011 $143 $7,941 Pro forma $10,515 $(442) $7,592 Basic and diluted net income (loss) per share As reported $0.68 $0.01 $0.68 Pro forma $0.65 $(0.03) $0.65 13. Net Income Per Share Computations The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations:
1999 1998 1997 ---- ---- ---- Income (numerator) amounts used for basic and diluted per share computations: Income before extraordinary loss $11,011 $ 143 $9,122 Extraordinary loss, net of income tax benefit - - (1,181) ------- ------ ------ Net income $11,011 $ 143 $7,941 ======= ====== ====== Shares (denominator) used for basic per share computations: Weighted average shares of common stock outstanding 16,224 15,944 11,687 ====== ====== ====== Shares (denominator) used for diluted per share computations: Weighted average shares of common stock outstanding 16,224 15,944 11,687 Plus: dilutive effect of stock options 57 3 36 ------ ------ ------ Adjusted weighted average shares 16,281 15,947 11,723 ====== ====== ====== Basic and diluted per share data: Income before extraordinary loss $0.68 $0.01 $0.78 Extraordinary loss - - (0.10) ------ ----- ----- Net income $0.68 $0.01 $0.68 ===== ===== =====
Options to purchase 488,000, 563,000 and 8,000 common shares for the years ended December 31, 1999, 1998 and 1997, 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): 2000 $2,864 2001 2,340 2002 1,941 2003 1,869 2004 1,083 2005-2006 30 Rental expense under cancelable and noncancelable leases for 1999, 1998 and 1997 was $4.0 million, $3.2 million and $3.0 million, respectively. 15. Selected Quarterly Financial Data (unaudited) All amounts are in thousands except net income per share.
Quarter --------------------------------------------- 1st 2nd 3rd 4th -------- -------- -------- --------- 1999 - ---- Net sales $238,750 $271,525 $275,083 $260,558 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 1998 - ---- Net sales $248,927 $258,346 $231,348 $229,328 Gross profit 18,441 13,786 15,958 21,270 Net income (loss) 2,794 (2,643) (2,139) 2,131 Basic and diluted net income (loss) per share 0.18 (0.17) (0.13) 0.13
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 conduit. The aluminum segment manufactures aluminum sheet for distributors and the transportation, construction, and consumer durables end-use markets. The electrical conduit segment manufactures flexible electrical wiring products for the commercial and do-it-yourself markets. The accounting policies of the reportable segments are the same as those described in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies". 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 1999, 1998 and 1997. 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 Conduit Other Total ---------- ---------- ---------- ----------- 1999 - ---- Net sales to external customers $922,298 $123,618 $ - $1,045,916 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 $846,696 $121,253 $ - $967,949 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 1997 - ---- Net sales to external customers $964,012 $126,765 $ - $1,090,777 Intersegment net sales 26,230 - (26,230) - Operating income 29,293 19,081 (6,781) 41,593 Depreciation and amortization 31,228 3,026 456 34,710 Total assets 576,677 94,214 (3,470) 667,421 Capital expenditures 19,936 1,800 - 21,736
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, combining balance sheet, statement of income and statement of cash flows for the Parent Company Only, Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company as of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997. 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 95,339 84,254 - (179,475) 118 Inventories - 207,413 - - 207,413 Prepayments and other current assets 192 13,649 39,980 - 53,821 ------- -------- ------ --------- -------- Total current assets 95,531 305,316 39,980 (179,475) 261,352 Property, plant and equipment, net - 275,531 - - 275,531 Goodwill, net - 164,610 - - 164,610 Other noncurrent assets 241,558 4,809 - (241,538) 4,829 ------- -------- ------ --------- -------- Total assets $ 337,089 $ 750,266 $ 39,980 $(421,013) $706,322 ======= ======== ====== ========= ======== Liabilities Current liabilities: Outstanding checks in excess of deposits $ - $ 1,188 $ - $ - $ 1,188 Accounts payable - 193,276 84,136 (179,475) 97,937 Accrued liabilities 413 38,928 (181) - 39,160 ------- -------- ------ --------- -------- Total current liabilities 413 233,392 83,955 (179,475) 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 413 464,753 83,955 (179,475) 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) 11,738 (48,975) 37,237 (61,866) Unearned compensation (175) - - - (175) Notes receivable from sale of common stock (10,511) - - - (10,511) ------- -------- ------ --------- -------- Total stockholders' equity 336,676 285,513 (43,975) (241,538) 336,676 ------- -------- ------ --------- -------- Total liabilities and stockholders' equity $337,089 $ 750,266 $ 39,980 $(421,013) $706,322 ======= ======== ====== ========= ========
Combining Balance Sheet at December 31, 1998 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals -------- ----------- ------------- ------------ --------- Assets Current assets: Cash and cash equivalents $ - $ 6 $ - $ - $ 6 Accounts receivable, net 89,091 41,115 - (129,978) 228 Inventories 0 174,968 0 0 174,968 Prepayments and other current assets 2 9,342 16,023 0 25,367 ------- -------- ------ --------- -------- Total current assets 89,093 225,431 16,023 (129,978) 200,569 Property, plant and equipment, net 0 269,837 0 0 269,837 Goodwill, net 0 169,086 0 0 169,086 Other noncurrent assets 230,504 8,887 0 (230,484) 8,907 ------- -------- ------ --------- -------- Total assets $ 319,597 $673,241 $16,023 $(360,462) $648,399 ======= ======== ====== ========= ======== Liabilities Current liabilities: Outstanding checks in excess of deposits $ - $ - $ - $ - $ - Accounts payable 0 143,185 41,037 (129,978) 54,244 Accrued liabilities (9,063) 40,487 (291) 0 31,133 ------- -------- ------ --------- -------- Total current liabilities (9,063) 183,672 40,746 (129,978) 85,377 Long-term debt 0 125,000 0 0 125,000 Other long-term liabilities 0 8,859 0 0 8,859 Accrued pension benefits 0 15,930 0 0 15,930 Accrued postretirement benefits 0 86,704 0 0 86,704 ------- -------- ------ --------- -------- Total liabilities (9,063) 420,165 40,746 (129,978) 321,870 ------- -------- ------ --------- -------- Commitments and contingencies - - - - 0 Stockholders' Equity Common stock 159 1 0 (1) 159 Additional paid-in capital 398,794 273,774 5,000 (278,774) 398,794 Accumulated deficit (69,621) (18,568) (29,723) 48,291 (69,621) Unearned compensation (672) 0 0 0 (672) Accumulated other comprehensive income: Minimum pension liability adjustment - (2,131) 0 0 (2,131) ------- -------- ------ --------- -------- Total stockholders' equity 328,660 253,076 (24,723) (230,484) 326,529 ------- -------- ------ --------- -------- Total liabilities and stockholders' equity $319,597 $673,241 $ 16,023 $(360,462) $648,399 ======= ======== ====== ========= ========
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 $ - $1,045,916 $ - $ - $1,045,916 Cost of goods sold - 959,051 - - 959,051 ------- -------- ------ --------- -------- 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 11,030 2,861 - (11,030) 2,861 Interest income (expense), net 318 (407) (19,244) - (19,333) ------- -------- ------ --------- -------- Income (loss) before income taxes 10,834 31,416 (19,252) (11,030) 11,968 Income tax expense (benefit) (177) 1,134 - - 957 ------- -------- ------ --------- -------- Net income (loss) $ 11,011 $ 30,282 $ (19,252) $ (11,030) $ 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 $ - $ 967,949 $ - $ - $ 967,949 Cost of goods sold - 898,494 - - 898,494 ------- -------- ------ --------- -------- 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 115 356 - (106) 365 Interest income (expense), net 173 891 (23,285) - (22,221) ------- -------- ------ --------- -------- Income (loss) before income taxes (964) 23,931 (23,296) (106) (435) Income tax expense (benefit) (1,107) 529 - - (578) ------- -------- ------ --------- -------- Net income (loss) $ 143 $ 23,402 $(23,296) $ (106) $ 143 ======= ======== ====== ========= ========
Combining Statement of Income for the year ended December 31, 1997 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals -------- ----------- ------------- ------------ --------- Net sales $ - $1,090,777 $ - $ - $1,090,777 Cost of goods sold - 1,002,734 - - 1,002,734 ------- -------- ------ --------- -------- Gross profit - 88,043 - - 88,043 Selling, general and administrative expenses 691 41,281 - - 41,972 Amortization of goodwill - 4,478 - - 4,478 ------- -------- ------ --------- -------- Operating income (loss) (691) 42,284 - - 41,593 Other income (expense), net 8,632 508 - (8,653) 487 Interest income (expense), net - (24,109) (6,427) - (30,536) ------- -------- ------ --------- -------- Income (loss) before income taxes and extraordinary loss 7,941 18,683 (6,427) (8,653) 11,544 Income tax expense (benefit) - 2,422 - - 2,422 ------- -------- ------ --------- -------- Income (loss) before extraordinary loss 7,941 16,261 (6,427) (8,653) 9,122 Extraordinary loss on early extinguishment of debt, net of income tax benefit - (1,181) - - (1,181) ------- -------- ------ --------- -------- Net income (loss) $ 7,941 $ 15,080 $(6,427) $ (8,653) $ 7,941 ======= ======== ====== ========= ========
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 $11,011 $ 30,282 $ (19,252) $ (11,030) $11,011 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 217 36,296 0 0 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 - (11,030) - 11,030 0 Changes in assets and liabilities: Decrease (increase) in accounts receivable, net (6,248) (43,139) 0 49,497 110 (Increase) in inventories 0 (32,445) 0 0 (32,445) (Increase) in prepayments and other current assets (190) (4,307) (23,957) 0 (28,454) (Increase) decrease in other noncurrent assets (11,054) 13,932 0 0 2,878 (Decrease) increase in accounts payable 0 50,091 43,099 (49,497) 43,693 Increase (decrease) in accrued liabilities 9,476 (1,559) 110 0 8,027 (Decrease) in other liabilities 0 (3,001) 0 0 (3,001) ------- ------- -------- -------- ------- Net cash provided by operating activities 3,256 35,509 0 0 38,765 ------- ------- -------- -------- ------- Cash flows from investing activities: Purchases of property, plant and equipment 0 (36,715) 0 0 (36,715) Proceeds from sale of property, plant and equipment 0 12 0 0 12 ------- ------- -------- -------- ------- Net cash (used in) investing activities 0 (36,703) 0 0 (36,703) ------- ------- -------- -------- ------- Cash flows from financing activities: Increase (decrease) in outstanding checks in excess of deposits 0 1,188 0 0 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 0 0 (2,068) ------- ------- -------- -------- ------- Net (decrease) in cash and cash equivalents 0 (6) 0 0 (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 $ 143 $ 23,402 $(23,296) $ (106) $ 143 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 465 34,263 - - 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 - (106) - 106 - Changes in assets and liabilities: (Increase) decrease in accounts receivable, net - (255) - 382 127 (Increase) in inventories - (3,335) - - (3,335) (Increase) decrease in prepayments and other current assets (2) (4,006) 23,748 - 19,740 Decrease (increase) in other noncurrent assets 11,675 (11,277) - - 398 Increase (decrease) in accounts payable - (13,652) 397 (382) (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: Increase (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 ======= ======= ======== ======== =======
Combining Statement of Cash Flows for the year ended December 31, 1997 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals -------- ---------- ------------- ------------ --------- Cash flows from operating activities: Net income $ 7,941 $ 15,080 $ (6,427) $(8,653) $ 7,941 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 456 34,254 0 0 34,710 Extraordinary loss on early extinguishment of debt - 1,495 - - 1,495 Loss on disposal of property, plant and equipment - 1,271 - - 1,271 Issuance of common stock in connection with stock awards 84 - - - 84 Proceeds from the initial sale of accounts receivable - 150,000 - - 150,000 Equity in undistributed net income of subsidiaries - (8,653) - 8,653 0 Changes in assets and liabilities: (Increase) in accounts receivable, net (89,091) (91,297) 0 133,738 (46,650) Decrease in inventories 0 2,278 0 0 2,278 Decrease (increase) in prepayments and other current assets 0 46,741 (39,771) 0 6,970 (Increase) decrease in other noncurrent assets (5,814) 6,015 0 0 201 (Decrease) increase in accounts payable (4,142) 82,781 40,640 (133,738) (14,459) Increase (decrease) in accrued liabilities 101 (9,842) 558 0 (9,183) Increase in other liabilities 0 13 0 0 13 ------- ------- -------- -------- ------- Net cash (used in) provided by operating activities (90,465) 230,136 (5,000) 0 134,671 ------- ------- -------- -------- ------- Cash flows from investing activities: Initial investment in subsidiary (5,000) - - 5,000 0 Net cash and cash equivalents (outflow) from acquisition - (2,894) - - (2,894) Purchases of property, plant and equipment 0 (21,736) 0 0 (21,736) Proceeds from sale of property, plant and equipment 0 28 0 0 28 ------- ------- -------- -------- ------- Net cash (used in) provided by investing activities (5,000) (24,602) 0 5,000 (24,602) ------- ------- -------- -------- ------- Cash flows from financing activities: Increase (decrease) in outstanding checks in excess of deposits 0 9,122 0 0 9,122 Proceeds from long-term debt - 294,950 - - 294,950 Repayments of long-term debt - (511,550) - - (511,550) Proceeds from issuance of common stock 97,793 - 5,000 (5,000) 97,793 Cash dividends paid (2,328) - - - (2,328) ------- ------- -------- -------- ------- Net cash provided by (used in) financing activities 95,465 (207,478) 5,000 (5,000) (112,013) ------- ------- -------- -------- ------- Net (decrease) in cash and cash equivalents 0 (1,944) 0 0 (1,944) Cash and cash equivalents at beginning of period - 1,944 - - 1,944 ------- ------- -------- -------- ------- Cash and cash equivalents at end of period $ - $ - $ - $ - $ - ======= ======= ======== ======== =======
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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 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 the opinion expressed above. 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 20, 2000 EX-21 8 EXHIBIT 21 Exhibit 21 ---------- Direct and Indirect Subsidiaries of Commonwealth Industries, Inc. Name Jurisdiction of Incorporation ----- ----------------------------- Commonwealth Financing Corp. (1) Delaware Commonwealth Aluminum Lewisport, Inc. (1) Delaware Commonwealth Aluminum Sales Corporation (2) Delaware Commonal Corporation (2) Barbados Alflex Corporation (1) Delaware Alflex E1 LLC (5) Delaware Commonwealth Aluminum Concast, Inc. (3) Ohio Commonwealth Aluminum Corporation (4) Delaware -------------------------------------------------------------------------- (1) Subsidiary of Commonwealth Industries, Inc. (2) Subsidiary of Commonwealth Aluminum Lewisport, Inc. (3) Subsidiary of Alflex Corporation. (4) Subsidiary of Commonwealth Aluminum Concast, Inc. (5) Limited Liability Company 100% owned by Alflex Corporation. EX-23 9 EXHIBIT 23 Exhibit 23 ---------- Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (File No's. 333-81055, 333-29363, 333-19383, 33-91364 and 33-90292) of Commonwealth Industries, Inc. and subsidiaries of our report dated January 20, 2000 relating to the consolidated financial statements, which appears in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 20, 2000 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Louisville, Kentucky March 22, 2000 EX-27 10 EXHIBIT 27
5 1,000 US$ year Dec-31-1999 Jan-1-1999 Dec-31-1999 1 0 0 118 0 207,413 261,352 575,569 300,038 706,322 138,285 125,000 0 0 166 336,510 706,322 1,045,916 1,045,916 959,051 959,051 0 591 19,333 11,968 957 11,011 0 0 0 11,011 0.68 0.68
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