EX-13 5 0005.txt EXHIBIT 13 Portions of the annual report to stockholders for the year ended December 31, 2000 which are expressly incorporated by reference in this filing follow. Such items are proceeded by an index which shows the location in this Annual Report on Form 10-K where such items are incorporated by reference and the location of the item in the annual report to stockholders for the year ended December 31, 2000. INDEX Reference Incorporation Page number letter in location in in annual this this report to Exhibit Form 10-K Description of Item stockholders ------- -------------- ------------------------------ ------------ (A) Part II, item 6 Consolidated Selected page 9 Financial Data (B) Part II, item 7 Management's Discussion and pages 10 Analysis of Financial Condition thru 15 and Results of Operations Part II, item 7A Quantitative and Qualitative pages 13 Disclosures About Market Risk thru 14 (C) Part II, item 8 Consolidated Balance Sheet page 16 Part II, item 8 Consolidated Statement of Income page 17 Part II, item 8 Consolidated Statement of page 17 Comprehensive Income Part II, item 8 Consolidated Statement of page 18 Changes in Stockholders' Equity Part II, item 8 Consolidated Statement of page 19 Cash Flows Part II, item 8 Notes to Consolidated pages 20 Financial Statements thru 40 Part II, item 8 Report of Independent Auditors page 41 The items follow: Exhibit 13 item (A) ------------------- COMMONWEALTH INDUSTRIES, INC. Consolidated Selected Financial Data (in thousands except per share data)
Year ended December 31, ------------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 -------------- -------------- --------------- -------------- ------------- Statement of Income Data: Net sales (1) $ 1,125,142 $ 1,074,939 $ 992,004 $ 1,115,178 $ 755,690 Gross profit 82,205 86,865 69,455 88,043 49,312 Operating income 21,929 28,440 21,421 41,593 19,262 Income before extraordinary loss 3,491 11,011 143 9,122 14,756 Net income (2) 3,491 11,011 143 7,941 13,401 Net income per share data: (2) Basic and diluted Income before extraordinary loss $ 0.21 $ 0.68 $ 0.01 $ 0.78 $ 1.45 Extraordinary loss - - - (0.10) (0.13) -------------- -------------- --------------- -------------- ------------- Net income $ 0.21 $ 0.68 $ 0.01 $ 0.68 $ 1.32 ============== ============== =============== ============== ============= Cash dividends paid per share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 Operating Data: Depreciation and amortization $ 39,351 $ 36,513 $ 34,728 $ 34,710 $ 22,452 Capital expenditures $ 18,445 $ 36,715 $ 33,650 $ 21,736 $ 14,841 Commonwealth Aluminum business unit: Net sales (1) $ 990,961 $ 944,438 $ 865,043 $ 983,340 $ 719,498 Shipments (pounds) 966,597 1,022,680 884,169 990,207 712,480 Alflex business unit: Net sales (1) $ 134,181 $ 130,501 $ 126,961 $ 131,838 $ 36,192 Shipments (feet) 592,863 576,205 517,380 521,711 136,936 Balance Sheet Data: Working capital $ 138,462 $ 123,067 $ 115,192 $ 112,924 $ 207,061 Total assets 655,340 706,322 648,399 667,421 794,582 Total debt 125,000 125,000 125,000 125,650 342,250 Total stockholders' equity 338,393 336,676 326,529 330,473 227,223 (1) Net sales for all years prior to 2000 have been restated to reflect the current classification of shipping costs incurred as a component of cost of goods sold instead of a reduction of sales in accordance with the requirements of Emerging Issues Task Force Issue No. 00-10. (2) 2000 and 1999 net income and net income per share reflect the Company's change in its inventory accounting method from first-in, first-out (FIFO) method to the last-in, first-out (LIFO) method effective January 1, 1999.
Exhibit 13 item (B) ------------------- COMMONWEALTH INDUSTRIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of the consolidated financial condition and results of operations of the Company for each of the years in the three-year period ended December 31, 2000, and certain factors that may affect the Company's prospective financial condition. This section should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2000 and the notes thereto. The following discussion contains statements which are forward-looking rather than historical fact. These forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, and involve risks and uncertainties that could render them materially different, including, but not limited to, the effect of global economic conditions, the impact of competitive products and pricing, product development and commercialization, availability and cost of critical raw materials, the rate of technological change, product demand and market acceptance risks, capacity and supply constraints or difficulties, the success of the Company in implementing its business strategy, and other risks as detailed in the Company's various Securities and Exchange Commission filings. Overview The Company manufactures non-heat treat coiled aluminum sheet for distributors and the transportation, construction and consumer durables end-use markets and electrical flexible conduit and prewired armored cable for the commercial construction and renovation markets. The Company's principal raw materials are aluminum scrap, primary aluminum, copper and steel. Trends in the demand for aluminum sheet products in the United States and in the prices of aluminum primary metal, aluminum scrap and copper commodities affect the business of the Company. The Company's operating results also are affected by factors specific to the Company, such as the margins between selling prices for its products and its cost of raw material ("material margins") and its unit cost of converting raw material into its products ("conversion cost"). While changes in aluminum and copper prices can cause the Company's net sales to change significantly from period to period, net income is more directly impacted by fluctuations in material margins. Although the demand for aluminum sheet products is cyclical, over the longer term demand has continued to increase, reflecting general population and economic growth and the advantages of aluminum's light weight, high degree of formability, resistance to corrosion and recyclability. The price of aluminum metal affects the price of the Company's products and in the longer term can have an effect on the competitive position of aluminum in relation to alternative materials. The price of primary metal is determined largely by worldwide supply and demand conditions and is highly cyclical. The price of primary aluminum in world markets greatly influences the price of aluminum scrap, the Company's principal raw material. Significant movements in the price of primary aluminum can affect the Company's margins because aluminum sheet prices do not always move simultaneously nor necessarily to the same degree as the primary markets. The Company seeks to manage its material margins by focusing on higher margin products and by sourcing the scrap and primary metal markets in the most cost-effective manner, including the use of futures contracts and options to hedge anticipated raw material requirements based on firm-priced sales and purchase orders. The Company announced during October 2000 that it had signed a 10-year guaranteed supply agreement with Glencore Ltd. ("Glencore"), a leading diversified trading and industrial company, for the purchase of primary aluminum. Under the agreement, the Company committed to purchase a minimum of 1.2 billion pounds of P1020/99.7% aluminum from Glencore over the 10-year term beginning in January 2001. During 2000, net sales of the Company's aluminum sheet products increased by 5% from the year 1999 while shipment volume decreased 5% from 1999. Demand for the Company's aluminum sheet products decreased in the last half of 2000 due to the Company's customers reducing inventories built earlier in the year, the dampening effect of higher interest rates and a general economic weakening of the truck trailer, distribution and building and construction markets. Despite the weak demand, material margins increased in 2000 compared to 1999. Part of the increase in the material margins is due to improvements in product mix, the Company's ability to utilize lower-cost raw materials as well as the effects of LIFO inventory adjustments triggered by the Company's declining inventory levels. Shipments for the Company's electrical products in 2000 were up 3% versus 1999 however demand slowed in the last quarter of 2000 as price increases on armored cable affected unit volume along with continuing competitive conditions and slower economic growth in this business. Material margins on the Company's electrical products, while improved somewhat due to the price increases mentioned above, continued to be under pressure during 2000 and are below the levels achieved in 1999 due to expansions of existing production by competitors and the entry of new participants into the market as well as the effects of higher material costs for aluminum and copper wire. Effective January 1, 1999, the Company changed its inventory accounting method for certain inventories from the first-in, first-out (FIFO) method to the last-in, first-out (LIFO) method and modified the LIFO calculation for the inventories historically recorded under the LIFO method. The Company believes the adoption of the LIFO method for all aluminum sheet inventories is preferable as LIFO is the inventory method most prevalent in the industry, provides a consistent inventory accounting method for aluminum sheet inventories, and results in more appropriate matching of cost of goods sold with related sales revenues. The effect of this change in accounting principle was to decrease net income reported for the twelve months ended December 31, 1999 by $12.1 million, or $0.74 per share compared to 1998 when FIFO was used. In addition, during 2000 LIFO inventory quantities were reduced, resulting in a partial liquidation of the LIFO bases, the effect of which increased net income for 2000 by approximately $4.5 million, or $0.27 per share. See note 3 to the consolidated financial statements for additional information. Results of Operations for 2000, 1999 and 1998 Net Sales. Net sales for 2000 increased 5% to $1.13 billion (including $134.2 million from the Company's Alflex electrical products subsidiary) from $1.07 billion (including $130.5 million from Alflex) in 1999. The increase is due to higher overall selling prices and a strong demand during the first half of 2000 which more than offset a softening in demand during the last six months of 2000 due to the reasons mentioned previously. Unit sales volume of aluminum products decreased 5% to 967 million pounds in 2000 from 1.02 billion pounds in 1999. Alflex unit sales volume was 592.9 million feet for 2000 compared to 576.2 million feet for 1999. In 1999 net sales increased 8% to $1.07 billion (including $130.5 million from Alflex) from $992.0 million (including $127.0 million from Alflex) in 1998. The increase is due to higher shipments which was partially offset by lower aluminum and copper prices. Unit sales volume of aluminum products increased 16% to 1.02 billion pounds in 1999 from 884.2 million pounds in 1998. Alflex unit sales volume was 576.2 million feet for 1999 compared to 517.4 million feet for 1998. Gross Profit. Gross profit decreased 5% (to 7.3% of net sales) in 2000 after a 25% increase (to 8.1% of net sales) in 1999 from 1998 gross profit (7.0% of net sales). The 2000 decrease was due primarily to the impact of lower material margins and higher unit manufacturing costs in the Company's electrical products business and higher unit manufacturing costs in the Company's aluminum products business. These factors more than offset higher material margins and the impact of a LIFO inventory liquidation in the Company's aluminum products business. The 1999 increase was attributable to increased sales volume which more than offset the effect of lower unit sales prices and slightly lower material margins. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 3% in 2000. Contributing to the increase were increased bad debt reserves, additional depreciation due to Y2K related projects, charges related to employee workforce reductions and an increase at Alflex associated with higher sales volume. Limiting the amount of the increase was the decrease in salary and benefits expense due to the employee workforce reductions, office consolidation including the closing of the Chicago sales office and reduction of leased space, and overall impact of cost-cutting initiatives implemented in the second half of 2000. Selling, general and administrative expenses increased 23.9% in 1999 from 1998. Contributing factors were increases at Alflex associated with the infrastructure required to support the growth of this business segment, increased costs related to Year 2000 compliance, a new variable compensation plan, a new executive compensation plan related to the Company's executive stock purchase incentive program and additional office expenses due to renovation and expansion of office facilities. Amortization of Goodwill. Amortization of goodwill was $4.5 million in 2000, 1999 and 1998. Operating Income. Operating income decreased by 23% in 2000 to $21.9 million, compared with a 1999 increase of 33% to $28.4 million, in each case reflecting the factors mentioned above. Other Income (Expense), Net. Other income (expense), net in 2000 includes $0.8 million of income related to insurance claims filed for a fire that interrupted business at the Company's Uhrichsville, Ohio aluminum mill. Other income (expense), net in 1999 includes $1.9 million of income related to insurance claims filed for a fire that destroyed an inactive production facility. Interest Expense, Net. Interest expense in 2000 increased 4% to $20.1 million from $19.3 million in 1999. The increase in the Company's interest expense is primarily due to the higher interest rates under the Company's accounts receivable securitization facility. Interest expense in 1999 decreased 13% to $19.3 million from $22.2 million in 1998. The 1999 decrease in the Company's interest expense is primarily due to the reduction in amounts outstanding under the Company's accounts receivable securitization facility. Income Tax Expense (Benefit). Income tax expense (benefit) in 2000, 1999 and 1998 reflect the use of the Company's net operating loss ("NOL") carryforwards to offset taxable income for federal income tax purposes. At December 31, 2000, the Company had remaining available NOL carryforwards of approximately $61 million. These NOL carryforwards will expire in various amounts from 2000 through 2008. The amount of taxable income that can be offset by NOL carryforwards arising prior to the initial public offering of the Company in March 1995 is subject to an annual limitation of approximately $9.6 million plus certain gains included in taxable income which are attributable to the Company prior to the initial public offering. The Company recognized an income tax expense of $0.3 million in 2000 compared to an income tax expense of $1.0 million in 1999 and an income tax benefit of $0.6 in 1998. The 1999 change is due to the increase in the Company's taxable income and a $1.5 million favorable adjustment recorded in the first quarter of 1998 to the prior year's tax expense. The adjustment resulted from the filing of amended federal income tax returns for prior years. Net Income. Net income for 2000 decreased to $3.5 million from $11.0 million in 1999, after 1999 net income had increased from the $0.1 million reported in 1998, in each case reflecting the factors described above for each year. Liquidity and Capital Resources The Company's sources of liquidity are cash flows from operations, the Company's accounts receivable securitization facility described below and borrowings under its $100 million revolving credit facility. The Company believes these sources will be sufficient to fund its working capital requirements, capital expenditures, debt service and dividend payments for at least through 2001. On September 26, 1997, the Company sold all of its trade accounts receivables to a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously, CFC entered into a three-year accounts receivable securitization facility with a financial institution and its affiliate, whereby CFC sells, on a revolving basis, an undivided interest in certain of its receivables and receives up to $150.0 million from an unrelated third party purchaser at a cost of funds linked to commercial paper rates plus a charge for administrative and credit support services. During September 2000, the Company and the financial institution extended the accounts receivable securitization facility for an additional three-year period ending in September 2003. At December 31, 2000, the Company had outstanding $69.0 million under the agreement and had $72.4 million of net residual interest in the securitized receivables. The net residual interest in the securitized receivables is included in other current assets in the Company's consolidated financial statements. The Company's cash flows from operations in 2000, 1999 and 1998 were $33.0 million, $38.8 million and $46.6 million, respectively. Working capital increased to $138.5 million at December 31, 2000 from $123.1 million at December 31, 1999 and $115.2 million at December 31, 1998. The Company's revolving credit facility permits borrowings and letters of credit up to $100.0 million outstanding at any time. Availability is subject to satisfaction of certain covenants and other requirements. At December 31, 2000 $99.2 million was available. The facility expires on September 2, 2002. Capital expenditures were $18.4 million, $36.7 million and $33.7 million in 2000, 1999 and 1998, respectively, and are estimated to be $15 million in 2001, all generally related to upgrading and expanding the Company's manufacturing and other facilities and meeting environmental requirements. The indicated annual rate of dividends being paid on the Company's Common Stock is $0.20 per share, or an annual total of about $3.3 million. Risk Management Commodity Price Risk. The price of aluminum is subject to fluctuations due to unpredictable factors on the worldwide market. To reduce this market risk, the Company follows the policy of hedging its anticipated raw material requirements based on firm-priced sales and purchase orders. The Company purchases and sells futures contracts and options on the London Metal Exchange ("LME") based on its anticipated purchase requirements, net of fixed price purchase commitments and expected inventory decrements. At December 31, 2000, the Company held purchase and sales commitments through 2001 totaling $44 million and $168 million, respectively. The Company generally buys LME futures contracts and options to purchase aluminum to hedge net anticipated purchases and sells LME futures and options to reduce the position when a firm purchase commitment is entered into. The change in market value of such LME contracts has a high correlation to the price changes of the hedged commodity (aluminum scrap and ingot). To obtain a matching of revenues and expenses realized gains or losses arising from LME contracts are included in inventories as a cost of raw materials and reflected in the consolidated statement of income when the product is sold. The Company had no deferred realized losses or gains as of December 31, 2000 and $0.7 million of deferred realized losses as of December 31, 1999 on closed futures contracts and options. Deferred realized losses are recorded as an increase in the carrying value of inventory and deferred realized gains are recorded as a reduction in the carrying value of inventory. The Company also uses futures contracts to manage risks associated with its natural gas requirements. At December 31, 2000 and 1999, the Company had open aluminum futures contracts and options and natural gas futures with a fair value of $105.5 million and $88.0 million, respectively. The Company had net unrealized gains of $7.0 million and $7.9 million as of December 31, 2000 and 1999, respectively, on these open futures contracts and options. Net unrealized gains and losses on open futures and option contracts are recorded in the consolidated balance sheet as accrued liabilities and prepayments and other current assets, respectively. The net unrealized gain of $7.0 million at December 31, 2000 consists only of unrealized gains while the net unrealized gain of $7.9 million at December 31, 1999 consists of unrealized gains due from brokers of $10.9 million and unrealized losses due to brokers of $3.0 million. Futures contracts and options are valued at the closing price on the last business day of the year. A sensitivity analysis has been prepared to estimate the Company's exposure to market risk related to its LME position. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in the price of the futures contract. On December 31, 2000 the Company had approximately 57,650 metric tonnes of LME futures contracts. A hypothetical 10 % change from the 2000 year-end three-month high grade aluminum price of $1,563 per metric tonne would result in a change in fair value of $9.0 million in these contracts. However it should be noted that any change in the fair value of these contracts would be significantly offset with an inverse change in the cost of metal to be purchased. Also, a sensitivity analysis has been prepared to estimate the Company's exposure to market risk related to its NYMEX Henry Hub natural gas futures. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in the price of the futures contract. On December 31, 2000 the Company had approximately 2.4 million cubic feet of NYMEX futures contracts. A hypothetical 10 % change from the 2000 year-end three-month natural gas price of $6.291 per cubic foot would result in a change in fair value of $1.5 million in these contracts. However it should be noted that any change in the fair value of these contracts would be significantly offset with an inverse change in the cost of gas to be purchased. Credit Risk. As discussed previously, the Company utilizes futures contracts and options to protect against exposures to commodity price risk in the aluminum and natural gas markets. The Company is exposed to losses in the event of non-performance by the counterparties to these agreements; however, the Company does not anticipate non-performance by the counterparties. Prior to conducting business with a potential customer, credit checks are performed on the customer to determine creditworthiness and assess credit risk. In addition, an indirect credit exposure review is performed on all customers. Trading partners (brokers) are evaluated for creditworthiness and risk assessment prior to initiating trading activities with the brokers. However, the Company does not require collateral to support broker transactions. In addition, all brokers trading on the LME with U.S. clients are regulated by the Commodities Trading and Futures Commission, which requires the brokers to be fully insured against unrealized losses owed to clients. At December 31, 2000, credit lines totaling $64 million were available at various brokerages used by the Company. Interest Rate Risk. The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements. At December 31, 2000 the Company had an interest rate swap contract with a notional amount of $5 million which expires in September 2001. With respect to this agreement, the Company pays a fixed rate of interest and receives a LIBOR-based floating rate. The counterparty to the interest rate contract is a major commercial bank and management believes that losses related to credit risk are remote. The fair value of this interest rate swap agreement at December 31, 2000 was a liability of $0.11 million. A sensitivity analysis has been prepared to estimate the Company's exposure to market risk related to its interest rate position. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 100 basis point change in interest rates relating to the interest rate swap agreement. A hypothetical 100 basis point change in interest rates would result in a change in fair value of $0.05 million in the interest rate swap agreement. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in net income unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company has evaluated it's hedging practices and has determined that the Company will be eligible for hedge accounting as defined under SFAS No. 133 and currently expects to adopt SFAS No. 133 in the Company's first quarter 2001 reporting, as required by the FASB's Statement of Financial Accounting Standard No. 137, issued in June 1999. Management has determined that the impact of SFAS No. 133, including Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133" which was issued in June 2000, on the Company's future financial reporting will be minimal due to the effectiveness of the Company's hedging program. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company adopted SAB 101 as required by December 31, 2000 and the adoption did not have a material impact on the Company's results of operations or financial position. In addition, during 2000, the Company began classifying shipping costs incurred as a component of cost of goods sold instead of a reduction of sales in accordance with the requirements of Emerging Issues Task Force Issue No. 00-10 which resulted from issues addressed in SAB 101. All prior year periods have been restated to conform to this classification. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 140"). The Statement is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. SFAS No. 140 also includes provisions that require additional disclosures in the financial statements for fiscal years ending after December 15, 2000. Additional disclosures have been included in note 2 to the consolidated financial statements. This Statement is not expected to have a material impact on the Company's results of operations or financial position. Exhibit 13 item (C) ------------------- COMMONWEALTH INDUSTRIES, INC. Consolidated Balance Sheet (in thousands except share data)
December 31, -------------------------------------- 2000 1999 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 11,514 $ - Accounts receivable, net 111 118 Inventories 137,685 207,413 Prepayments and other current assets 83,730 53,821 ------------- ------------- Total current assets 233,040 261,352 Property, plant and equipment, net 258,963 275,531 Goodwill, net 160,134 164,610 Other noncurrent assets 3,203 4,829 ------------- ------------- Total assets $ 655,340 $ 706,322 ============= ============= Liabilities Current liabilities: Outstanding checks in excess of deposits $ - $ 1,188 Accounts payable 53,522 97,937 Accrued liabilities 41,056 39,160 ------------- ------------- Total current liabilities 94,578 138,285 Long-term debt 125,000 125,000 Other long-term liabilities 6,369 8,412 Accrued pension benefits 9,085 12,482 Accrued postretirement benefits 81,915 85,467 ------------- ------------- Total liabilities 316,947 369,646 ------------- ------------- Commitments and contingencies - - Stockholders' Equity Common stock, $0.01 par value, 50,000,000 shares authorized, 16,528,051 and 16,606,000 shares outstanding at December 31, 2000 and 1999, respectively 165 166 Additional paid-in capital 408,505 409,062 Accumulated deficit (61,688) (61,866) Unearned compensation (7) (175) Notes receivable from sale of common stock (8,582) (10,511) Accumulated other comprehensive income: Minimum pension liability adjustment - - ------------- ------------- Total stockholders' equity 338,393 336,676 ------------- ------------- Total liabilities and stockholders' equity $ 655,340 $ 706,322 ============= =============
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. Consolidated Statement of Income (in thousands except per share data)
Year ended December 31, ------------------------------------------------------- 2000 1999 1998 -------------- --------------- ------------- Net sales $1,125,142 $1,074,939 $ 992,004 Cost of goods sold 1,042,937 988,074 922,549 -------------- --------------- ------------- Gross profit 82,205 86,865 69,455 Selling, general and administrative expenses 55,800 53,949 43,558 Amortization of goodwill 4,476 4,476 4,476 -------------- --------------- ------------- Operating income 21,929 28,440 21,421 Other income (expense), net 1,975 2,861 365 Interest expense, net (20,067) (19,333) (22,221) -------------- --------------- ------------- Income (loss) before income taxes 3,837 11,968 (435) Income tax expense (benefit) 346 957 (578) -------------- --------------- ------------- Net income $ 3,491 $ 11,011 $ 143 ============== =============== ============= Basic and diluted net income per share $ 0.21 $ 0.68 $ 0.01 ============== =============== ============= Weighted average shares outstanding Basic 16,567 16,224 15,944 Diluted 16,573 16,281 15,947
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. Consolidated Statement of Comprehensive Income (in thousands)
Year ended December 31, ------------------------------------------------------ 2000 1999 1998 -------------- -------------- ------------- Net income $ 3,491 $ 11,011 $ 143 Other comprehensive income, net of tax: Minimum pension liability adjustment - 2,131 (1,435) -------------- -------------- ------------- Comprehensive income (loss) $ 3,491 $ 13,142 $ (1,292) ============== ============== =============
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. Consolidated Statement of Changes in Stockholders' Equity (in thousands except share and per share data)
Accumulated Other Comprehensive Notes Income: Common Stock Receivable Minimum ------------------- Additional from Sale Pension Total Number of Paid-in Accumulated Unearned of Common Liability Stockholders' Shares Amount Capital Deficit Compensation Stock Adjustment Equity ---------- ------- ---------- ---------- ------------ ---------- ----------- ----------- Balance December 31, 1997 15,941,500 $ 159 $ 398,757 $ (66,575) $(1,172) $ - $ (696) $ 330,473 Net income - - - 143 - - - 143 Cash dividends, $0.20 per share - - - (3,189) - - - (3,189) Minimum pension liability adjustment - - - - - - (1,435) (1,435) Forfeiture of restricted stock (2,500) - (35) - 35 - - - Amortization of unearned compensation - - - - 465 - - 465 Issuance of stock in connection with stock awards 5,000 - 72 - - - - 72 ---------- ------- --------- --------- ---------- --------- ---------- --------- Balance December 31, 1998 15,944,000 159 398,794 (69,621) (672) - (2,131) 326,529 Net income - - - 11,011 - - - 11,011 Cash dividends, $0.20 per share - - - (3,256) - - - (3,256) Minimum pension liability adjustment - - - - - - 2,131 2,131 Forfeiture of restricted stock (20,000) - (280) - 280 - - - Amortization of unearned compensation - - - - 217 - - 217 Issuance of stock in connection with stock awards 5,000 - 44 - - - - 44 Common stock issued 677,000 7 10,504 - - (10,511) - - ---------- ------- --------- --------- ---------- ---------- ---------- --------- Balance December 31, 1999 16,606,000 166 409,062 (61,866) (175) (10,511) - 336,676 Net income - - - 3,491 - - - 3,491 Cash dividends, $0.20 per share - - - (3,313) - - - (3,313) Minimum pension liability adjustment - - - - - - - - Forfeiture of restricted stock (10,000) - (176) - 176 - - - Amortization of unearned compensation - - - - (8) - - (8) Issuance of stock in connection with stock awards 12,051 - 121 - - - - 121 Repayments of notes receivable and retirement of common stock (80,000) (1) (502) - - 1,929 - 1,426 ---------- ------- --------- --------- ---------- ---------- ---------- --------- Balance December 31, 2000 16,528,051 $ 165 $ 408,505 $ (61,688) $ (7) $(8,582) $ - $ 338,393 ========== ======= ========= ========= ========== ========== ========== =========
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. Consolidated Statement of Cash Flows (in thousands)
Year ended December 31, ------------------------------------------------- 2000 1999 1998 ------------ ------------- ---------- Cash flows from operating activities: Net income $ 3,491 $11,011 $ 143 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 39,351 36,513 34,728 Loss on disposal of property, plant and equipment 1,280 389 1,453 Issuance of common stock in connection with stock awards 121 44 72 Changes in assets and liabilities: Decrease in accounts receivable, net 7 110 127 Decrease (increase) in inventories 69,728 (32,445) (3,335) (Increase) decrease in prepayments and other current assets (29,909) (28,454) 19,740 Decrease in other noncurrent assets 426 2,878 398 (Decrease) increase in accounts payable (44,415) 43,693 (13,637) Increase in accrued liabilities 1,896 8,027 3,965 (Decrease) increase in other liabilities (8,992) (3,001) 2,931 ----------- ------------- ------------ Net cash provided by operating activities 32,984 38,765 46,585 ----------- ------------- ------------ Cash flows from investing activities: Purchases of property, plant and equipment (18,445) (36,715) (33,650) Proceeds from sale of property, plant and equipment 50 12 32 ----------- ------------- ------------ Net cash (used in) investing activities (18,395) (36,703) (33,618) ----------- ------------- ------------ Cash flows from financing activities: (Decrease) increase in outstanding checks in excess of deposits (1,188) 1,188 (9,122) Proceeds from long-term debt 57,100 46,770 45,150 Repayments of long-term debt (57,100) (46,770) (45,800) Repayments of notes receivable from sale of common stock 1,426 - - Cash dividends paid (3,313) (3,256) (3,189) ----------- ------------- ------------ Net cash (used in) financing activities (3,075) (2,068) (12,961) ----------- ------------- ------------ Net increase (decrease) in cash and cash equivalents 11,514 (6) 6 Cash and cash equivalents at beginning of period - 6 - ----------- ------------- ------------ Cash and cash equivalents at end of period $11,514 $ - $ 6 =========== ============= ============ Supplemental disclosures: Interest paid $21,098 $19,672 $22,385 Income taxes paid (refund received) 198 2,412 (10) Non-cash activities: Issuance of common stock for notes receivable $ - $10,511 $ - Repayment of notes receivable from sale of common stock with common stock and subsequent retirement of common stock 503 - -
See notes to consolidated financial statements. COMMONWEALTH INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Summary of Significant Accounting Policies Commonwealth Industries, Inc. (the "Company") operates principally in the United States in two business segments. The aluminum segment manufactures common alloy aluminum sheet for distributors and the transportation, construction, and consumer durables end-use markets. The electrical products segment manufactures flexible electrical wiring products for the commercial construction and do-it-yourself markets. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include demand deposits with banks and highly liquid investments with original maturities of three months or less. The carrying amount of cash and cash equivalents approximates their fair value. Concentrations of Credit Risk Futures contracts, options, cash investments and accounts receivable potentially subject the Company to concentrations of credit risk. The Company places its cash investments with high credit quality institutions. At times, such cash investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. Credit risk with respect to accounts receivable exists related to concentrations of sales to aluminum distributors, who in turn resell the Company's aluminum products to end-use markets, including the consumer durables, building and construction and transportation markets. Concentrations of credit risk with respect to accounts receivable from the sale of electrical products are limited due to the large customer base, and their dispersion across many different geographical areas. During 2000, sales to one major customer amounted to approximately 14% of the Company's net sales. No other single customer accounted for more than 10% of the Company's net sales in 2000, 1999 or 1998. The Company performs ongoing credit evaluations of its customers' financial condition but does not require collateral to support customer receivables. Inventories Inventories are stated at the lower of cost or market. The methods of accounting for inventories are described in Note 3. Long-Lived Assets Property, plant and equipment are carried at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets which generally range from 15 to 33 years for buildings and improvements and from 5 to 20 years for machinery and equipment. Repair and maintenance costs are charged against income while renewals and betterments are capitalized. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the accounts with any resulting gain or loss reflected in income. Goodwill represents the excess of cost over the fair value of net assets acquired and is amortized on a straight-line basis over forty years. Accumulated amortization was $19.1 million and $14.7 million at December 31, 2000 and 1999, respectively. The Company periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets. In the event that facts and circumstances indicate that the carrying amount of an asset or group of assets may be impaired, an evaluation of recoverability would be performed in accordance with the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". In performing the evaluation, the estimated future undiscounted cash flows associated with the asset are compared to the assets' carrying amount to determine if a write-down to fair value or discounted cash flow value is required. Financial Instruments The Company enters into futures contracts and options to manage exposures to price risk related to aluminum and natural gas purchases. Gains, losses and premiums on these instruments which effectively hedge exposures are deferred and included in income as a component of the underlying transactions. The Company also uses interest rate swap agreements to manage interest rate risk. The difference between payments made and received under the interest rate swap agreements is recorded as a component of interest expense. Income Taxes The Company accounts for income taxes using the liability method, whereby deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In valuing deferred tax assets, the Company uses judgment in determining if it is more likely than not that some portion or all of a deferred tax asset will not be realized and the amount of the required valuation allowance. Revenue Recognition The Company recognizes revenue upon passage of title to the customer. During 2000, the Company began classifying shipping costs incurred as a component of cost of goods sold instead of a reduction of sales in accordance with the requirements of Emerging Issues Task Force Issue No. 00-10. All prior year periods have been restated to conform to this classification. Computation of Net Income Per Common Share Basic net income per common share has been computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share has been computed by dividing net income by the weighted average number of common and common equivalent shares (stock options) outstanding during the period. Stock-Based Compensation Compensation cost is measured under the intrinsic value based method. Pro forma disclosures of net income and net income per share are presented, as if the fair value based method had been applied. Self Insurance The Company is substantially self-insured for losses related to workers' compensation and health claims. Losses are accrued based upon the Company's estimates of the aggregate liability for claims incurred based on Company experience and certain actuarial assumptions. Environmental Compliance and Remediation Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to existing conditions caused by past operations, which do not contribute to current or future revenues, are expensed. Liabilities for remediation costs and post-remediation monitoring are recorded when they are probable and reasonably estimable. The liability may include costs such as environmental site evaluations, consultant fees, feasibility studies, outside contractor and monitoring expenses. The assessment of this liability is calculated based on existing technology, considers funds available in the settlement trust discussed in Note 11, does not reflect any offset for possible recoveries from insurance companies and is not discounted. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in net income unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company has evaluated it's hedging practices and has determined that the Company will be eligible for hedge accounting as defined under SFAS No. 133 and currently expects to adopt SFAS No. 133 in the Company's first quarter 2001 reporting, as required by the FASB's Statement of Financial Accounting Standard No. 137, issued in June 1999. Management has determined that the impact of SFAS No. 133, including Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133" which was issued in June 2000, on the Company's future financial reporting will be minimal due to the effectiveness of the Company's hedging program. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company adopted SAB 101 as required by December 31, 2000 and the adoption did not have a material impact on the Company's results of operations or financial position. In addition, during 2000, the Company began classifying shipping costs incurred as a component of cost of goods sold instead of a reduction of sales in accordance with the requirements of Emerging Issues Task Force Issue No. 00-10 which resulted from issues addressed in SAB 101. All prior year periods have been restated to conform to this classification. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 140"). The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 also includes provisions that require additional disclosures in the financial statements for fiscal years ending after December 15, 2000. Additional disclosures have been included in note 2 to the consolidated financial statements. This Statement is not expected to have a material impact on the Company's results of operations or financial position. 2. Accounts Receivable Securitization On September 26, 1997, the Company sold all of its trade accounts receivables to a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously, CFC entered into a three-year accounts receivable securitization facility with a financial institution and its affiliate whereby CFC can sell, on a revolving basis, an undivided interest in certain of its receivables and receive up to $150.0 million from an unrelated third party purchaser at a cost of funds linked to commercial paper rates plus a charge for administrative and credit support services. During September 2000, the Company and the financial institution extended the accounts receivable securitization facility for an additional three-year period ending in September 2003. At December 31, 2000 and 1999, the Company had outstanding under the agreement $69.0 million and $106.0 million, respectively, and had $72.4 million and $39.9 million, respectively, of net residual interest in the securitized receivables which is included in other current assets in the Company's consolidated financial statements. The fair value of the net residual interest is measured at the time of the sale and is based on the sale of similar assets. In 2000, the Company received gross proceeds of $41.0 million from the sale of receivables and made gross payments of $78.0 million under the agreement. The Company maintains an allowance for uncollectible accounts based upon the expected collectibility of all consolidated trade accounts receivable, including receivables sold by CFC. The allowance was $2.9 million and $1.9 million at December 31, 2000 and 1999, respectively, and is netted against the net residual interest in the securitized receivables which is included in other current assets in the Company's consolidated financial statements. 3. Inventories Effective January 1, 1999, the Company changed its inventory accounting method for certain inventories from the first-in, first-out (FIFO) method to the last-in, first-out (LIFO) method and modified the LIFO calculation for the inventories historically recorded under the LIFO method. The Company believes the adoption of the LIFO method for all aluminum sheet inventories is preferable as LIFO is the inventory method most prevalent in the industry, provides a consistent inventory accounting method for aluminum sheet inventories, and results in more appropriate matching of cost of goods sold with related sales revenues. The effect of this change in accounting principle was to decrease net income reported for the twelve months ended December 31, 1999 by $12.1 million, or $0.74 per share compared to 1998 when FIFO was used. The Company has omitted the disclosure of the cumulative effect of this change on retained earnings as of the date of the change and the pro forma effects of retroactive application due to such amounts not being determinable. Inventories at December 31 consist of the following (in thousands): 2000 1999 ---- ---- Raw materials $50,154 $63,510 Work in process 49,473 80,210 Finished goods 33,899 62,278 Expendable parts and supplies 15,850 15,895 -------- -------- 149,376 221,893 LIFO reserve (11,691) (14,480) -------- -------- $137,685 $207,413 ======== ======== Inventories of approximately $116.5 million and $183.3 million, included in the above totals (before the LIFO reserve) at December 31, 2000 and 1999, respectively, are accounted for under the LIFO method of accounting. During 2000, LIFO inventory quantities were reduced, resulting in a partial liquidation of the LIFO bases, the effect of which increased net income by approximately $4.5 million, or $0.27 per share. 4. Property, Plant and Equipment Property, plant and equipment and the related accumulated depreciation at December 31 consist of the following (in thousands): 2000 1999 ---- ---- Land and improvements $21,804 $21,216 Buildings and improvements 77,091 77,958 Machinery and equipment 463,291 455,036 Construction in progress 18,110 21,359 ------- ------- 580,296 575,569 Less accumulated depreciation 321,333 300,038 ------- ------- Net property, plant and equipment $258,963 $275,531 ======= ======= Depreciation expense was $33.7 million, $30.6 million and $28.6 million for the years ended 2000, 1999 and 1998, respectively. 5. Financial Instruments Market and credit risk is managed by the Company through an active risk management program. This program focuses on inventory, purchase commitments and committed and anticipated sales in addition to risks associated with the Company's natural gas requirements. The Company utilizes futures contracts and options to protect against exposures to price risk in the aluminum and natural gas markets. The Company is exposed to losses in the event of non-performance by the counterparties to these agreements; however, the Company does not anticipate non-performance by the counterparties. Prior to conducting business with a potential customer, credit checks are performed on the customer to determine creditworthiness and assess credit risk. In addition, an indirect credit exposure review is performed on all customers. Trading partners (brokers) are evaluated for creditworthiness and risk assessment prior to initiating trading activities with the brokers, however, the Company does not require collateral to support broker transactions. All brokers trading on the London Metal Exchange with U.S. clients are regulated by the Commodities Trading and Futures Commission, which requires the brokers to be fully insured against unrealized losses owed to clients. At December 31, 2000, credit lines totaling $64 million were available at various brokerages used by the Company. Gains, losses and premiums on futures contracts and options which effectively hedge exposures are included in income as a component of the underlying transaction. The Company had no deferred realized losses or gains as of December 31, 2000 and $0.7 million of deferred realized losses as of December 31, 1999 which were recorded as an increase in the carrying value of inventory. At December 31, 2000, the Company held purchase and sales commitments through 2001 totaling $44 million and $168 million, respectively. At December 31, 2000 and 1999, the Company had open aluminum futures contracts and options and natural gas futures with a fair value of $105.5 million and $88.0 million, respectively. The Company had net unrealized gains of $7.0 million and $7.9 million as of December 31, 2000 and 1999, respectively, on these open futures contracts and options. Net unrealized gains and losses on open futures and option contracts are recorded in the consolidated balance sheet as accrued liabilities and prepayments and other current assets, respectively. The net unrealized gain of $7.0 million at December 31, 2000 consists only of unrealized gains due from brokers while the net unrealized gain of $7.9 million at December 31, 1999 consists of unrealized gains due from brokers of $10.9 million and unrealized losses due to brokers of $3.0 million. Futures contracts and options are valued at the closing price on the last business day of the year. 6. Long-term Debt Long-term debt of the Company at December 31 consisted of the following (in thousands): 2000 1999 ---- ---- Senior subordinated notes $125,000 $125,000 Revolving credit facility - - -------- -------- 125,000 125,000 Less current maturities - - -------- -------- $125,000 $125,000 ======== ======== In October 1996 the Company issued $125 million of 10.75% senior subordinated notes due 2006. Interest is payable semi-annually on April 1 and October 1 of each year. The Company has a credit agreement with a syndicate of banks led by Bank One Corporation. The credit agreement includes a $100 million revolving credit facility. The credit agreement is collateralized by a pledge of all of the outstanding stock of the Company's subsidiaries and substantially all of the Company's assets. Up to $30 million of the revolving credit facility is available for standby and commercial letters of credit. The revolving credit facility commitment terminates on September 2, 2002. Borrowings under the credit agreement bear interest at a variable base rate per annum plus up to an additional 1.75% depending on the results of a quarterly financial test as defined in the agreement. In addition, the Company must pay to the lenders under the credit agreement, a quarterly commitment fee ranging from 0.425% to 0.500%. The Company must pay a fee ranging from 1.325% to 1.750% per annum on the carrying amount of each outstanding letter of credit. At both December 31, 2000 and 1999, letters of credit totaling $0.8 million were outstanding under the revolving credit facility. The credit agreement includes covenants which, among others, relate to leverage, interest coverage, fixed charges, capital expenditures and the payment of dividends. The Company uses interest rate swap agreements to effectively convert a portion of its variable interest rates relating to the Company's revolving credit facility and accounts receivable securitization facility to fixed interest rates. At both December 31, 2000 and 1999, the Company had an interest rate swap agreement in place covering approximately $5 million of the Company's exposure to variable interest rates. The fair value of this interest rate swap agreement at both December 31, 2000 and 1999 was a liability of $0.1 million. The fixed interest rate is 6.87% and the interest rate swap agreement expires in September 2001. The counterparty to the interest rate swap agreement is a major commercial bank and management believes that losses related to credit risk are remote. Based on estimated market values at December 31, 2000 and 1999, the fair value of the senior subordinated notes was approximately $109 million and $124 million, respectively. Future aggregate maturities of long-term debt at December 31, 2000 are as follows (in thousands): 2000 $ - 2001 - 2002 - 2003 - 2004 - Thereafter 125,000 -------- Total $125,000 ======== 7. Stockholders' Equity In July 1999, the Company adopted an Executive Stock Purchase Incentive Program (the "Program") which had been authorized by the Company's stockholders at the Company's annual meeting of stockholders held in April 1999. Under the Program, the Company extended credit to certain key executives to purchase the Company's common stock at fair market value. The loans are collateralized by the shares acquired and are repayable with full-recourse to the executives. The Program provides for the key executives to earn repayment of the notes including interest, based on achieving annual and cumulative performance objectives as set forth by the Management Development and Compensation Committee of the Board of Directors. The notes bear interest at 5.96 % per annum. The principal amount of each loan is payable in four equal installments on December 31 in each of the years 2003, 2004, 2005 and 2006, in each case together with accrued and unpaid interest. A total of 677,000 shares were issued during August 1999 of which 597,000 shares are outstanding as of December 31, 2000. The outstanding principal balance of the notes at December 31, 2000 was $8,582,000 and is classified as a reduction of stockholders' equity. 8. Pension Plans The Company has two defined benefit pension plans covering certain salaried and non-salaried employees. The plan benefits are based primarily on years of service and employees' compensation during employment for all employees not covered under a collective bargaining agreement and; on stated amounts based on job grade and years of service prior to retirement for non-salaried employees covered under a collective bargaining agreement. The plans' assets consist primarily of equity securities, guaranteed investment contracts and fixed income pooled accounts. The financial status of the plans at December 31 is as follows (in thousands): 2000 1999 ---- ---- Change in benefit obligation: Benefit obligation at beginning of year $82,990 $85,121 Service cost 2,567 2,716 Interest cost 6,307 5,964 Actuarial (gain) loss 1,292 (4,921) Reduction due to curtailment (695) - Benefits paid (8,288) (5,890) ------ ------ Benefit obligation at end of year 84,173 82,990 ------ ------ Change in plan assets: Fair value of plan assets at beginning of year 81,792 72,379 Actual return on plan assets 8,589 13,821 Employer contribution 3,946 1,482 Benefits paid (8,288) (5,890) ------ ------ Fair value of plan assets at end of year 86,039 81,792 ------ ------ Funded status 1,866 (1,198) Unrecognized net actuarial (gain) loss (7,434) (7,098) Unrecognized prior service cost (3,325) (3,879) Unrecognized net transition (asset) (192) (307) ------ ------ Net amount recognized as (accrued) pension cost in the consolidated balance sheet $(9,085) $(12,482) ====== ======= The weighted average assumptions and components of net pension expense for the years ended December 31 are as follows (in thousands): 2000 1999 1998 ---- ---- ---- Weighted average assumptions: Discount rate 7.75% 7.75% 7.00% Expected return on plan assets 8.75 8.00 9.25 Rate of compensation increase 4.50 4.50 4.50 Components of net pension expense: Service cost $2,567 $2,716 $2,508 Interest cost 6,307 5,964 5,629 Expected return on plan assets (7,043) (5,637) (6,369) Net amortization and deferral (254) (207) (258) Curtailment gain (1,111) - - ------ ------ ------ Net pension expense $466 $2,836 $1,510 ====== ====== ====== The Company recorded a $1.1 million curtailment gain in one of the plans in 2000 as a result of employee workforce reductions. The Company's policy for these plans is to make contributions equal to or greater than the requirements prescribed by the Employee Retirement Income Security Act of 1974. The Company also contributes to a union sponsored defined benefit multi-employer pension plan for certain of its non-salaried employees. The Employee Retirement Income Security Act of 1974, as amended by the Multi-Employers Pension Plan Amendment Act of 1980, imposes certain liabilities upon employers who are contributors to multi-employer plans in the event of the employers' withdrawal from such a plan or upon a termination of such a plan. Management does not intend to take any action that would subject the Company to any such liabilities. The Company's contributions to the multi-employer pension plan were approximately $0.2 million for 2000, 1999 and 1998, respectively. In addition to the defined benefit pension plans described above, the Company also sponsors defined contribution plans covering certain employees. In one of the plans, the Company matches 25% to 50% of a participant's voluntary contributions (depending on the respective plant's annual earnings performance) up to a maximum of 6% of a participant's compensation. In the other plan, the Company matches 100% of the first 3% of a participant's voluntary contributions to the plan. The Company's contributions to the plans were approximately $1.5 million for 2000 and 1999 and $1.4 million for 1998. 9. Postretirement Benefits Other Than Pensions The Company provides postretirement health care and life insurance benefits to certain employees hired on or before September 1, 1998. The Company accrues the cost of postretirement benefits within the employees' active service periods. During 1999 changes were made to the plan for salaried employees to eliminate coverage for employees eligible for Medicare and to require employee contributions based on length of service. The plan changes reduced the accumulated postretirement benefit obligation by $6.5 million in 1999 and is being amortized over the average remaining service lives of the Company's active employees, which has the effect of reducing net periodic postretirement benefits cost. The financial status of the plan at December 31 is as follows (in thousands): 2000 1999 ---- ---- Change in benefit obligation: Benefit obligation at beginning of year $51,424 $56,454 Service cost 763 867 Interest cost 3,897 3,657 Amendments - (6,464) Actuarial (gain) loss (830) (731) Reduction due to curtailment (1,020) - Benefits paid (2,134) (2,359) ------- ------- Benefit obligation at end of year 52,100 51,424 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year - - Actual return on plan assets - - Employer contribution 2,134 2,359 Benefits paid (2,134) (2,359) ------- ------- Fair value of plan assets at end of year - - ------- ------- Funded status (52,100) (51,424) Unrecognized net actuarial gain (12,937) (12,470) Unrecognized prior service cost (16,878) (21,573) ------- ------- Prepaid (accrued) postretirement benefit cost $(81,915) $(85,467) ======= ======= The weighted average assumptions and components of net postretirement benefit expense for the years ended December 31 are as follows (in thousands): 2000 1999 1998 ---- ---- ---- Weighted average assumptions: Discount rate 7.75% 7.75% 7.00% Components of net postretirement benefit expense: Service cost $763 $867 $1,827 Interest cost 3,897 3,657 4,439 Amortization of prior service cost (3,131) (3,209) (1,318) Recognized net actuarial gain (388) (193) (413) Curtailment gain (2,558) - - ------- ------ ------ Net postretirement benefit expense (income) $(1,417) $1,122 $4,535 ======= ====== ====== The Company recorded a $2.6 million curtailment gain in 2000 as a result of employee workforce reductions. For measurement purposes, the employer cap on the amount paid for retiree medical benefits is assumed to increase with general inflation at 3% per year. If the general inflation rate assumption is increased by 1%, the postretirement benefit obligation as of December 31, 2000 and the combined service and interest cost components of postretirement benefit expense for the year then ended would be increased by approximately $4.6 million and $0.5 million, respectively, and if the general inflation rate assumption is decreased by 1%, the postretirement benefit obligation as of December 31, 2000 and the combined service and interest cost components of postretirement benefit expense for the year then ended would be decreased by approximately $4.0 million and $0.4 million, respectively. 10. Income Taxes The components of income tax expense (benefit) for the years ended December 31 are as follows (in thousands): 2000 1999 1998 ---- ---- ---- Current: Federal $ (234) $ 419 $ (1,093) State and Local 580 538 515 ----- ----- ----- 346 957 (578) Deferred: Federal - - - State and Local - - - ----- ----- ----- $346 $957 $(578) ===== ===== ===== Deferred tax assets and liabilities at December 31 are as follows (in thousands):
2000 1999 ---- ---- Assets Liabilities Assets Liabilities --------- ----------- ----------- ----------- Inventory $ 854 $ - $ - $1,373 Property, plant and equipment - 50,242 - 53,787 Accrued and other liabilities 10,093 - 7,407 - Accrued pension costs 4,302 - 6,672 - Accrued postretirement costs 32,765 - 34,187 - Net operating loss carryforwards 24,553 - 28,378 - AMT credit carryforwards 6,849 - 6,699 - Research and development credit carryforwards 1,629 - 1,115 - Other 497 - 693 - ------- ------- -------- ------- Totals $ 81,542 $50,242 $ 85,151 $55,160 ------- ------- -------- ------- Net deferred tax asset 31,300 - 29,991 - Valuation allowance (31,300) - (29,991) - ------- ------- -------- ------- Net deferred taxes $ - $ - $ - $ - ======= ======= ======== =======
The Company has determined that at December 31, 2000 and 1999, its ability to realize future benefits of net deferred tax assets does not meet the "more likely than not" criteria in Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes". At December 31, 2000, the Company had net operating loss ("NOL") carryforwards for federal tax purposes of approximately $61 million, which expire in various amounts from 2001 through 2008 and approximately $6.8 million in alternative minimum tax ("AMT") credit carryforwards which do not expire. As a result of the Company's initial public offering during 1995, the Company experienced an "ownership change" within the meaning of Section 382 of the Internal Revenue Code. Consequently, the Company is subject to an annual limitation on the amount of net operating loss carryforwards that can be used to offset taxable income. The annual limitation is $9.6 million plus certain gains included in taxable income which are attributable to the Company prior to the ownership change. A reconciliation of the significant differences between the federal statutory income tax rate and the effective income tax rate on pre-tax income (loss) is as follows:
2000 1999 1998 ---- ---- ---- Federal statutory income tax rate 35.0% 35.0% (35.0)% Utilization of NOL and AMT credit carryforwards (53.0) (43.9) (225.8) Nondeductible goodwill and other permanent differences 43.0 14.0 413.5 Adjustment of prior year accrual (10.8) (3.1) - State income taxes, net of federal income tax benefit 8.3 2.1 77.0 Alternative minimum tax - 5.9 - Foreign sales corporation benefits (8.2) (3.4) (21.8) Utilization of research and development credit carryforwards (5.3) - - Activity relating to income taxes attributed to previously accrued securities valuation reserves - 1.4 (340.7) ---- ---- ----- Effective income tax rate 9.0% 8.0% (132.8)% ==== ==== =====
11. Contingencies The Company's operations are subject to increasingly stringent environmental laws and regulations governing air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances and wastes and employee health and safety. These laws can impose joint and several liability for releases or threatened releases of hazardous substances upon statutorily defined parties, including the Company, regardless of fault or the lawfulness of the original activity or disposal. The Company believes it is currently in material compliance with applicable environmental laws and regulations. Federal and state regulations continue to impose strict emission requirements on the aluminum industry. While the Company believes that current pollution control measures at the emission sources at its facilities meet current requirements, additional measures at some of the Company's facilities may be required to meet future requirements. The Company has been named as a potentially responsible party at seven federal superfund sites and has completed closure activities at two of the sites for past waste disposal activity associated with closed recycling facilities. At the five other federal superfund sites, the Company is a minor contributor and has satisfied its obligations at four of the sites and expects to resolve its liability at the remaining site for a nominal amount. The Company is also under orders by agencies in two states for environmental remediation at three sites, one of which is currently operating and two of which have been closed. A trust fund exists to fund the activity at one of the sites that was undergoing closure and was established through contributions from two other parties in exchange for indemnification from further liability. The Company is reimbursed from the trust fund for approved closure and postclosure expenditures incurred at the site. The balance remaining in the trust fund at December 31, 2000 was $0.2 million. In determining the adequacy of the Company's aggregate environmental contingency accrual, the assets of the trust fund were taken into account. Based upon currently available information, the Company estimates the range of possible remaining expenditures with respect to the above matters is between $7 million and $14 million. The Company acquired its Lewisport, Kentucky ("Lewisport") rolling mill and an aluminum smelter at Goldendale, Washington ("Goldendale"), from Lockheed Martin in 1985. In connection with the transaction, Lockheed Martin indemnified the Company against expenses relating to environmental matters arising during the period of Lockheed Martin's ownership of those facilities. Environmental sampling at Lewisport has disclosed the presence of contaminants, including polychlorinated biphenyls (PCBs), in a closed Company landfill. The Company has not yet determined the extent of the contamination or the nature and extent of remedial measures that may be required. Accordingly, the Company cannot at present estimate the cost of any remediation that may be necessary. Management believes the contamination is covered by the Lockheed Martin indemnification, which Lockheed Martin disputes. The aluminum smelter at Goldendale was operated by Lockheed Martin until 1985 and by the Company from 1985 to 1987 when it was sold to Columbia Aluminum Corporation ("Columbia"). Past aluminum smelting activities at Goldendale have resulted in environmental contamination and regulatory involvement. A 1993 Settlement Agreement among the Company, Lockheed Martin and Columbia allocates responsibility for future remediation at 11 sites at the Goldendale smelter. If remediation is required, estimates by outside consultants of the probable aggregate cost to the Company for these sites range from $1.3 million to $7.2 million. The apportionment of responsibility for other sites at Goldendale is left to alternative dispute resolution procedures if and when these locations become the subject of remedial requirements. The Company has been named as a potentially responsible party at three third-party disposal sites relating to Lockheed Martin operations, for which Lockheed Martin has assumed responsibility. The Company's aggregate loss contingency accrual for environmental matters was $9.4 million and $9.6 million at December 31, 2000 and 1999, respectively. Of the total reserve, $3.6 million and $2.0 million is included in "accrued liabilities" in the Company's consolidated balance sheets at December 31, 2000 and 1999, respectively, and $5.8 million and $7.6 million is included in "other long-term liabilities" at December 31, 2000 and 1999, respectively. While the Company believes the overall accrual is adequate to cover all environmental loss contingencies the Company has determined to be probable and reasonably estimable, it is not possible to predict the amount or timing of cost for future environmental matters which may subsequently be determined. Although the outcome of any such matters, to the extent they exceed any applicable accrual, could have a material adverse effect on the Company's consolidated results of operations or cash flows for the applicable period, the Company believes that such outcome will not have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows. The Company has incurred and will continue to incur capital and operating expenditures for matters relating to environmental control and monitoring. Capital expenditures of the Company for environmental control and monitoring for 2000 and 1999 were $0.9 million and $1.5 million, respectively. All other environmental expenditures of the Company, including remediation expenditures, for 2000, 1999 and 1998 were $2.1 million, $2.3 million and $1.0 million, respectively. The Company is also a party to various non-environmental legal proceedings and administrative actions, all arising from the ordinary course of business. Although it is impossible to predict the outcome of any legal proceeding, the Company believes any liability that may finally be determined with respect to such legal proceedings should not have a material effect on the Company's consolidated financial position, results of operations or cash flows, although resolution in any year or quarter could be material to the consolidated results of operations for that period. 12. Stock Incentives The Company has stock incentive plans covering certain officers, key employees and directors. The plans provide for the grant of options to purchase common stock, the award of shares of restricted common stock and in the case of non-employee directors, the award of shares of common stock. The total number of shares available under the plans is 1,950,000. The following summarizes activity under the plans for the years 1998, 1999 and 2000:
Options Restricted Stock --------------------------------------------------- ----------------- Range of Weighted Average Shares Exercise Prices Exercise Price Shares ---------- ----------------- ---------------- ------------ Outstanding December 31, 1997 345,000 $14.00 to $20.00 $15.68 170,000 Granted 231,500 $8.25 to $16.00 $14.40 - Exercised - - - - Forfeited (8,500) $14.00 to $16.75 $14.99 (2,500) ------- ------- Outstanding December 31, 1998 568,000 $8.25 to $20.00 $15.17 167,500 Granted 343,000 $8.81 $8.81 - Exercised - - - - Forfeited (127,000) $8.81 to $16.75 $12.46 (20,000) ------- ------- Outstanding December 31, 1999 784,000 $8.25 to $20.00 $12.83 147,500 Granted 315,000 $7.44 to $12.84 $12.76 - Exercised - - - - Forfeited (166,500) $8.25 to $16.75 $12.97 (10,000) Stock no longer restricted - - - (125,000) ------- ------- Outstanding December 31, 2000 932,500 $7.44 to $20.00 $12.78 12,500 ======= ======= (Weighted average contractual life of 7.4 years) Exercisable Options: December 31, 1998 71,500 $14.00 to $15.50 $14.24 December 31, 1999 172,000 $14.00 to $16.88 $15.72 December 31, 2000 273,500 $8.81 to $20.00 $15.32
The following table summarizes information about stock options outstanding at December 31, 2000:
Options Options Outstanding Exercisable -------------------------------------------------- ------------------------------- Weighted Average Weighted Weighted Range of Number Contractual Average Number Average Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price ------------------ -------------- ---------- -------------- ----------- -------------- $7.44 to $14.00 574,000 8.2 years $11.12 62,000 $12.86 14.01 to $20.00 358,500 6.2 years $15.43 211,500 $16.04 ------- ------- $7.44 to $20.00 932,500 7.4 years $12.78 273,500 $15.32 ======= =======
The options are issued at the fair value of the underlying stock on the date of grant and become exercisable three years from the grant date for employees and one year from the grant date for non-employee directors. The options expire ten years after the date of grant. The restricted stock, principally issued in connection with the Company's initial public offering in 1995, vests five years from the date of award. The weighted-average fair value of options granted in 2000, 1999 and 1998 was $5.76, $3.61 and $6.23 per share, respectively. Fair value estimates were determined using the Black-Scholes option pricing model with the following weighted average asumptions for 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Risk-free interest rate 6.56% 4.70% 5.67% Dividend yield 1.58% 2.27% 1.40% Volatility factor 49% 50% 47% Expected term of options (in years) 5 5 5 As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company follows the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its stock option plans, and accordingly, no compensation expense has been recognized for options and stock issued under the plans. Had compensation expense been determined based on the fair value of the stock options at the grant date consistent with the provisions of SFAS No. 123, the Company's net income and basic and diluted net income per share would have been reduced for 2000, 1999 and 1998 to the pro forma amounts which follow: 2000 1999 1998 ---- ---- ---- Net income (loss) As reported $3,491 $11,011 $143 Pro forma $2,993 $10,515 $(442) Basic and diluted net income (loss) per share As reported $0.21 $0.68 $0.01 Pro forma $0.18 $0.65 $(0.03) 13. Net Income Per Share Computations The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations:
2000 1999 1998 ---- ---- ---- Income (numerator) amounts used for basic and diluted per share computations: Net income $3,491 $11,011 $ 143 ====== ======= ===== Shares (denominator) used for basic per share computations: Weighted average shares of common stock outstanding 16,567 16,224 15,944 ====== ====== ====== Shares (denominator) used for diluted per share computations: Weighted average shares of common stock outstanding 16,567 16,224 15,944 Plus: dilutive effect of stock options 6 57 3 ------ ------ ------ Adjusted weighted average shares 16,573 16,281 15,947 ====== ====== ====== Basic and diluted net income $0.21 $0.68 $0.01 ===== ===== =====
Options to purchase 932,500, 488,000 and 563,000 common shares for the years ended December 31, 2000, 1999 and 1998, respectively, were excluded from the calculations above because the exercise prices on the options were greater than the average market price for the periods. 14. Lease Commitments Certain property, plant and equipment are leased under noncancelable leases which provide for minimum rental payments as follows (in thousands): Rental payments Less sublease Net rental required rental income payments required -------- ------------- ----------------- 2001 $3,604 $172 $3,432 2002 3,172 103 3,069 2003 2,839 29 2,810 2004 2,072 - 2,072 2005 906 - 906 2006-2015 4,322 - 4,322 Rental expense under cancelable and noncancelable leases for 2000, 1999 and 1998 was $3.8 million, $4.0 million and $3.2 million, respectively. The amount of rental expense for 2000 is net of sublease rental income of $0.03 million. There was no sublease rental income in 1999 or 1998. 15. Selected Quarterly Financial Data (unaudited) All amounts are in thousands except net income per share.
Quarter --------------------------------------------- 1st 2nd 3rd 4th -------- -------- --------- --------- 2000 ---- Net sales $320,965 $304,021 $275,565 $224,591 Gross profit 22,540 25,702 17,682 16,281 Net income (loss) 1,250 4,409 2,374 (4,542) Basic and diluted net income (loss) per share 0.08 0.27 0.14 (0.27) 1999 ---- Net sales $245,176 $279,193 $282,782 $267,788 Gross profit 20,882 27,187 18,354 20,442 Net income 2,166 6,571 882 1,392 Basic and diluted net income per share 0.14 0.41 0.05 0.08
16. Information Concerning Business Segments The Company has adopted Statement of Financial Accounting Standards No.131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). Under SFAS No. 131, the Company has determined it has two reportable segments: aluminum and electrical products. The aluminum segment manufactures aluminum sheet for distributors and the transportation, construction, and consumer durables end-use markets. The electrical products segment manufactures flexible electrical wiring products for the commercial construction and do-it-yourself markets. The accounting policies of the reportable segments are the same as those described in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies". All intersegment sales prices are market based. The Company evaluates the performance of its operating segments based upon operating income. The Company's reportable segments are strategic business units that offer different products to different customer groups. They are managed separately because each business requires different technology and marketing strategies. Summarized financial information concerning the Company's reportable segments is shown in the following table for the years 2000, 1999 and 1998 (in thousands). The "Other" column includes corporate related items, including elimination of intersegment transactions, and as it relates to segment operating income, income and expense not allocated to reportable segments.
Electrical Aluminum Products Other Total ---------- ----------- ---------- ----------- 2000 ---- Net sales to external customers $990,961 $134,181 $ - $1,125,142 Intersegment net sales 27,673 - (27,673) - Operating income (loss) 43,321 (3,616) (17,776) 21,929 Depreciation and amortization 35,191 4,168 (8) 39,351 Total assets 561,782 90,693 2,865 655,340 Capital expenditures 18,282 163 - 18,445 1999 ---- Net sales to external customers $944,438 $130,501 $ - $1,074,939 Intersegment net sales 29,090 - (29,090) - Operating income 32,213 8,451 (12,224) 28,440 Depreciation and amortization 32,699 3,597 217 36,513 Total assets 603,362 102,768 192 706,322 Capital expenditures 26,445 10,270 - 36,715 1998 ---- Net sales to external customers $865,043 $126,961 $ - $992,004 Intersegment net sales 26,267 - (26,267) - Operating income 16,853 12,885 (8,317) 21,421 Depreciation and amortization 31,151 3,113 464 34,728 Total assets 546,891 101,356 152 648,399 Capital expenditures 27,985 5,665 - 33,650
17. Stockholder Protection Rights Plan During 1996, the Company's Board of Directors adopted a stockholder protection rights plan (the "Plan"). Under the Plan, preferred share purchase rights ("Rights") are issued at the rate of one Right for each share of the Company's common stock. Each Right entitles its holder to purchase one one-hundredth of a share of Preferred Stock at an exercise price of $65, subject to adjustment. Until it is announced that a person or group has acquired 15% or more of the Company's common stock (an "Acquiring Person"), or the tenth business day after a person or group commences a tender offer that, if completed, would result in such person or group owning 15% or more of the Company's common stock, the Rights will be evidenced by the Company's common stock certificates, will automatically trade with the common stock and will not be exercisable. Thereafter, separate Rights certificates will be distributed and each Right will entitle its holder to purchase Participating Preferred Stock having economic and voting terms similar to those of one share of Common Stock for an exercise price of $65. Upon announcement that any person or group has become an Acquiring Person (the "Flip-in Date"), each Right (other than Rights beneficially owned by any Acquiring Person or transferees thereof, which Rights become void) will entitle its holder to purchase, for the exercise price, a number of shares of the Company's common stock having a market value of twice the exercise price. Also, if after an Acquiring Person controls the Company's Board of Directors, the Company is involved in a merger or sells more than 50% of its assets or earning power (or has entered into an agreement to do any of the foregoing), and, in the case of a merger, the Acquiring Person will receive different treatment than all other stockholders, each Right will entitle its holder to purchase, for the exercise price, a number of shares of common stock of the Acquiring Person having a market value of twice the exercise price. If any person or group acquires between 15% and 50% of the Company's common stock, the Company's Board of Directors may, at its option, exchange one share of the Company's common stock for each Right. Until the Rights become exercisable, they may be redeemed by the Company at a price of $0.01 per Right. The Rights expire on March 16, 2006. 18. Guarantor Financial Statements The $125 million of 10.75% senior subordinated notes due 2006 issued by the Company, and the $100 million revolving credit facility are guaranteed by the Company's wholly-owned subsidiaries (collectively the "Subsidiary Guarantors"), other than Commonwealth Financing Corp. ("CFC"), a Securitization Subsidiary (as defined in the Indenture with respect to such debt) and certain subsidiaries of the Company without substantial assets or operations. Such guarantees are full, unconditional and joint and several. Separate financial statements of the Subsidiary Guarantors are not presented because management has determined that they would not be material to investors. The following supplemental financial information sets forth on a condensed combined basis for the Parent Company Only, Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company, a combining balance sheet as of December 31, 2000 and 1999 and a statement of income and statement of cash flows for the years ended December 31, 2000, 1999 and 1998. Combining Balance Sheet at December 31, 2000 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ----------- ----------- ------------ -------- Assets Current assets: Cash and cash equivalents $ -- $ 11,514 $ -- $ -- $ 11,514 Accounts receivable, net -- 242,176 -- (242,065) 111 Inventories -- 137,685 -- -- 137,685 Prepayments and other current assets 797 10,566 72,367 -- 83,730 --------- --------- --------- --------- --------- Total current assets 797 401,941 72,367 (242,065) 233,040 Property, plant and equipment, net -- 258,963 -- -- 258,963 Goodwill, net -- 160,134 -- -- 160,134 Other noncurrent assets 605,054 1,135 -- (602,986) 3,203 --------- --------- --------- --------- --------- Total assets $ 605,851 $ 822,173 $ 72,367 $(845,051) $ 655,340 ========= ========= ========= ========= ========= Liabilities Current liabilities: Outstanding checks in excess of deposits $ -- $ -- $ -- $ -- $ -- Accounts payable 137,384 53,522 104,681 (242,065) 53,522 Accrued liabilities 5,074 36,288 (306) -- 41,056 --------- --------- --------- --------- --------- Total current liabilities 142,458 89,810 104,375 (242,065) 94,578 Long-term debt 125,000 -- -- -- 125,000 Other long-term liabilities -- 6,369 -- -- 6,369 Accrued pension benefits -- 9,085 -- -- 9,085 Accrued postretirement benefits -- 81,915 -- -- 81,915 --------- --------- --------- --------- --------- Total liabilities 267,458 187,179 104,375 (242,065) 316,947 --------- --------- --------- --------- --------- Commitments and contingencies -- -- -- -- -- Stockholders' Equity Common stock 165 1 -- (1) 165 Additional paid-in capital 408,505 486,727 5,000 (491,727) 408,505 Accumulated deficit (61,688) 148,266 (37,008) (111,258) (61,688) Unearned compensation (7) -- -- -- (7) Notes receivable from sale of common stock (8,582) -- -- -- (8,582) --------- --------- --------- --------- --------- Total stockholders' equity 338,393 634,994 (32,008) (602,986) 338,393 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 605,851 $ 822,173 $ 72,367 $(845,051) $ 655,340 ========= ========= ========= ========= =========
Combining Balance Sheet at December 31, 1999 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ----------- ----------- ------------ -------- Assets Current assets: Cash and cash equivalents $ -- $ -- $ -- $ -- $ -- Accounts receivable, net 172,266 59,526 -- (231,674) 118 Inventories -- 207,413 -- -- 207,413 Prepayments and other current assets 627 13,214 39,980 -- 53,821 --------- --------- --------- --------- --------- Total current assets 172,893 280,153 39,980 (231,674) 261,352 Property, plant and equipment, net -- 275,531 -- -- 275,531 Goodwill, net -- 164,610 -- -- 164,610 Other noncurrent assets 289,196 2,668 -- (287,035) 4,829 --------- --------- --------- --------- --------- Total assets $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322 ========= ========= ========= ========= ========= Liabilities Current liabilities: Outstanding checks in excess of deposits $ -- $ 1,188 $ -- $ -- $ 1,188 Accounts payable -- 270,203 59,408 (231,674) 97,937 Accrued liabilities 413 38,928 (181) -- 39,160 --------- --------- --------- --------- --------- Total current liabilities 413 310,319 59,227 (231,674) 138,285 Long-term debt 125,000 -- -- -- 125,000 Other long-term liabilities -- 8,412 -- -- 8,412 Accrued pension benefits -- 12,482 -- -- 12,482 Accrued postretirement benefits -- 85,467 -- -- 85,467 --------- --------- --------- --------- --------- Total liabilities 125,413 416,680 59,227 (231,674) 369,646 --------- --------- --------- --------- --------- Commitments and contingencies -- -- -- -- -- Stockholders' Equity Common stock 166 1 -- (1) 166 Additional paid-in capital 409,062 273,774 5,000 (278,774) 409,062 Accumulated deficit (61,866) 32,507 (24,247) (8,260) (61,866) Unearned compensation (175) -- -- -- (175) Notes receivable from sale of common stock (10,511) -- -- -- (10,511) --------- --------- --------- --------- --------- Total stockholders' equity 336,676 306,282 (19,247) (287,035) 336,676 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 462,089 $ 722,962 $ 39,980 $(518,709) $ 706,322 ========= ========= ========= ========= =========
Combining Statement of Income for the year ended December 31, 2000 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $1,125,142 $ -- $ -- $1,125,142 Cost of goods sold -- 1,042,937 -- -- 1,042,937 --------- --------- --------- --------- --------- Gross profit -- 82,205 -- -- 82,205 Selling, general and administrative expenses 249 55,545 6 -- 55,800 Amortization of goodwill -- 4,476 -- -- 4,476 --------- --------- --------- --------- --------- Operating income (loss) (249) 22,184 (6) -- 21,929 Other income (expense), net 17,196 1,975 -- (17,196) 1,975 Interest income (expense), net (13,312) 6,000 (12,755) -- (20,067) --------- --------- --------- --------- --------- Income (loss) before income taxes 3,635 30,159 (12,761) (17,196) 3,837 Income tax expense 144 202 -- -- 346 --------- --------- --------- --------- --------- Net income (loss) $ 3,491 $ 29,957 $ (12,761) $ (17,196) $ 3,491 ========= ========= ========= ========= =========
Combining Statement of Income for the year ended December 31, 1999 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $1,074,939 $ -- $ -- $1,074,939 Cost of goods sold -- 988,074 -- -- 988,074 --------- --------- --------- --------- --------- Gross profit -- 86,865 -- -- 86,865 Selling, general and administrative expenses 514 53,427 8 -- 53,949 Amortization of goodwill -- 4,476 -- -- 4,476 --------- --------- --------- --------- --------- Operating income (loss) (514) 28,962 (8) -- 28,440 Other income (expense), net 24,903 2,861 -- (24,903) 2,861 Interest income (expense), net (13,555) 4,280 (10,058) -- (19,333) --------- --------- --------- --------- --------- Income (loss) before income taxes 10,834 36,103 (10,066) (24,903) 11,968 Income tax expense (benefit) (177) 1,134 -- -- 957 --------- --------- --------- --------- --------- Net income (loss) $ 11,011 $ 34,969 $ (10,066) $ (24,903) $ 11,011 ========= ========= ========= ========= =========
Combining Statement of Income for the year ended December 31, 1998 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- --------- --------- --------- --------- Net sales $ -- $ 992,004 $ -- $ -- $ 992,004 Cost of goods sold -- 922,549 -- -- 922,549 --------- --------- --------- --------- --------- Gross profit -- 69,455 -- -- 69,455 Selling, general and administrative expenses 1,252 42,295 11 -- 43,558 Amortization of goodwill -- 4,476 -- -- 4,476 --------- --------- --------- --------- --------- Operating income (loss) (1,252) 22,684 (11) -- 21,421 Other income (expense), net 13,988 356 -- (13,979) 365 Interest income (expense), net (13,700) 2,320 (10,841) -- (22,221) --------- --------- --------- --------- --------- Income (loss) before income taxes (964) 25,360 (10,852) (13,979) (435) Income tax expense (benefit) (1,107) 529 -- -- (578) --------- --------- --------- --------- --------- Net income (loss) $ 143 $ 24,831 $ (10,852) $ (13,979) $ 143 ========= ========= ========= ========= =========
Combining Statement of Cash Flows for the year ended December 31, 2000 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ---------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $ 3,491 $ 29,957 $(12,761) $(17,196) $ 3,491 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization (8) 39,359 -- -- 39,351 Loss on disposal of property, plant and equipment -- 1,280 -- -- 1,280 Issuance of common stock in connection with stock awards 121 -- -- -- 121 Equity in undistributed net income of subsidiaries -- (17,196) -- 17,196 -- Changes in assets and liabilities: Decrease (increase) in accounts receivable, net 172,266 (182,650) -- 10,391 7 Decrease in inventories -- 69,728 -- -- 69,728 (Increase) decrease in prepayments and other current assets (170) 2,648 (32,387) -- (29,909) (Increase) decrease in other noncurrent assets (315,858) 316,284 -- -- 426 Increase (decrease) in accounts payable 137,384 (216,681) 45,273 (10,391) (44,415) Increase (decrease) in accrued liabilities 4,661 (2,640) (125) -- 1,896 (Decrease) in other liabilities -- (8,992) -- -- (8,992) -------- -------- -------- -------- -------- Net cash provided by operating activities 1,887 31,097 -- -- 32,984 -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment -- (18,445) -- -- (18,445) Proceeds from sale of property, plant and equipment -- 50 -- -- 50 -------- -------- -------- -------- -------- Net cash (used in) investing activities -- (18,395) -- -- (18,395) -------- -------- -------- -------- -------- Cash flows from financing activities: (Decrease) in outstanding checks in excess of deposits -- (1,188) -- -- (1,188) Proceeds from long-term debt -- 57,100 -- -- 57,100 Repayments of long-term debt -- (57,100) -- -- (57,100) Repayments of notes receivable from sale of common stock 1,426 -- -- -- 1,426 Cash dividends paid (3,313) -- -- -- (3,313) -------- -------- -------- -------- -------- Net cash (used in) financing activities (1,887) (1,188) -- -- (3,075) -------- -------- -------- -------- -------- Net increase in cash and cash equivalents -- 11,514 -- -- 11,514 Cash and cash equivalents at beginning of period -- -- -- -- -- -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ 11,514 $ -- $ -- $ 11,514 ======== ======== ======== ======== ========
Combining Statement of Cash Flows for the year ended December 31, 1999 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ---------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $ 11,011 $ 34,969 $(10,066) $(24,903) $ 11,011 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization 652 35,861 -- -- 36,513 Loss on disposal of property, plant and equipment -- 389 -- -- 389 Issuance of common stock in connection with stock awards 44 -- -- -- 44 Equity in undistributed net income of subsidiaries -- (24,903) -- 24,903 -- Changes in assets and liabilities: Decrease (increase) in accounts receivable, net 7,189 (33,953) -- 26,874 110 (Increase) in inventories -- (32,445) -- -- (32,445) (Increase) in prepayments and other current assets (190) (4,307) (23,957) -- (28,454) (Increase) decrease in other noncurrent assets (24,926) 27,804 -- -- 2,878 Increase (decrease) in accounts payable -- 36,654 33,913 (26,874) 43,693 Increase (decrease) in accrued liabilities 9,476 (1,559) 110 -- 8,027 (Decrease) in other liabilities -- (3,001) -- -- (3,001) -------- -------- -------- -------- -------- Net cash provided by operating activities 3,256 35,509 -- -- 38,765 -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment -- (36,715) -- -- (36,715) Proceeds from sale of property, plant and equipment -- 12 -- -- 12 -------- -------- -------- -------- -------- Net cash (used in) investing activities -- (36,703) -- -- (36,703) -------- -------- -------- -------- -------- Cash flows from financing activities: Increase in outstanding checks in excess of deposits -- 1,188 -- -- 1,188 Proceeds from long-term debt -- 46,770 -- -- 46,770 Repayments of long-term debt -- (46,770) -- -- (46,770) Cash dividends paid (3,256) -- -- -- (3,256) -------- -------- -------- -------- -------- Net cash (used in) provided by financing activities (3,256) 1,188 -- -- (2,068) -------- -------- -------- -------- -------- Net (decrease) in cash and cash equivalents -- (6) -- -- (6) Cash and cash equivalents at beginning of period -- 6 -- -- 6 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ========
Combining Statement of Cash Flows for the year ended December 31, 1998 (in thousands)
Parent Company Subsidiary Non-guarantor Combined Only Guarantors Subsidiaries Eliminations Totals --------- ---------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $ 143 $ 24,831 $(10,852) $(13,979) $ 143 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization 900 33,828 -- -- 34,728 Loss on disposal of property, plant and equipment -- 1,453 -- -- 1,453 Issuance of common stock in connection with stock awards 72 -- -- -- 72 Equity in undistributed net income of subsidiaries -- (13,979) -- 13,979 -- Changes in assets and liabilities: Decrease (increase) in accounts receivable, net 13,439 12,189 -- (25,501) 127 (Increase) in inventories -- (3,335) -- -- (3,335) (Increase) decrease in prepayments and other current assets (2) (4,006) 23,748 -- 19,740 (Increase) decrease in other noncurrent assets (2,199) 2,597 -- -- 398 (Decrease) increase in accounts payable -- (27,091) (12,047) 25,501 (13,637) (Decrease) increase in accrued liabilities (9,164) 13,978 (849) -- 3,965 Increase in other liabilities -- 2,931 -- -- 2,931 -------- -------- -------- -------- -------- Net cash provided by operating activities 3,189 43,396 -- -- 46,585 -------- -------- -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment -- (33,650) -- -- (33,650) Proceeds from sale of property, plant and equipment -- 32 -- -- 32 -------- -------- -------- -------- -------- Net cash (used in) investing activities -- (33,618) -- -- (33,618) -------- -------- -------- -------- -------- Cash flows from financing activities: (Decrease) in outstanding checks in excess of deposits -- (9,122) -- -- (9,122) Proceeds from long-term debt -- 45,150 -- -- 45,150 Repayments of long-term debt -- (45,800) -- -- (45,800) Cash dividends paid (3,189) -- -- -- (3,189) -------- -------- -------- -------- -------- Net cash (used in) financing activities (3,189) (9,772) -- -- (12,961) -------- -------- -------- -------- -------- Net increase in cash and cash equivalents -- 6 -- -- 6 Cash and cash equivalents at beginning of period -- -- -- -- -- -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ 6 $ -- $ -- $ 6 ======== ======== ======== ======== ========
Commonwealth Industries, Inc. Report of Independent Auditors Board of Directors and Stockholders Commonwealth Industries, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows present fairly, in all material respects, the consolidated financial position of Commonwealth Industries, Inc. and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for inventories from the first-in, first-out (FIFO) method to the last-in, first-out (LIFO) method effective January 1, 1999. /s/ PricewaterhouseCoopers LLP Louisville, Kentucky January 23, 2001