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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the
Fiscal Year Ended December 31, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
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Commission File Number: 0-25642
COMMONWEALTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3245741
(State of incorporation) (I.R.S. Employer Identification No.)
500 West Jefferson Street
19th Floor
Louisville, Kentucky 40202-2823
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (502) 589-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock; Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the common stock held by non-affiliates
of the registrant as of March 1, 2002 was $81,366,000.
The number of shares outstanding of the registrant's common stock as
of March 1, 2002 was 15,984,490.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders of Commonwealth
Industries, Inc. for the year ended December 31, 2001 are incorporated by
reference into Parts I and II and portions of the definitive Proxy Statement
dated March 22, 2002 for the 2002 Annual Meeting of Stockholders to be held
April 26, 2002 are incorporated by reference into Part III.
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COMMONWEALTH INDUSTRIES, INC.
FORM 10-K
For the Year Ended December 31, 2001
INDEX
PART I Page
----
Item 1. Business........................................................3
Item 2. Properties......................................................10
Item 3. Legal Proceedings...............................................10
Item 4. Submission of Matters to a Vote of Security Holders.............11
Item E.O. Executive Officers of the Registrant............................11
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.....................................................13
Item 6. Selected Financial Data.........................................14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......14
Item 8. Financial Statements and Supplementary Data.....................14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures...................................14
PART III
Item 10. Directors and Executive Officers of the Registrant..............15
Item 11. Executive Compensation..........................................15
Item 12. Security Ownership of Certain Beneficial Owners and Management..15
Item 13 Certain Relationships and Related Transactions..................15
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K..15
Signatures......................................................22
PART I
Item 1. Business.
Commonwealth Industries, Inc. (the "Company") is one of North America's
leading manufacturers of aluminum sheet and, through its Alflex Corporation
subsidiary ("Alflex"), of electrical flexible conduit and prewired armored
cable.
The Company's aluminum sheet products are produced using the
conventional, direct -chill rolling ingot casting process at the Company's
multi-purpose aluminum rolling mill at Lewisport, Kentucky, one of the largest
in North America, and by the continuous casting process at its facilities
located in Uhrichsville, Ohio, and Carson, California. The Company operates
coating lines at the Lewisport mill and at Company facilities in Bedford, Ohio,
and Torrance, California. It also operates tube mills in Carson and Kings
Mountain, North Carolina in addition to a tube fabrication facility in Pelham,
Tennessee that was purchased in September 2001. The electrical flexible conduit
and prewired armored cable products are manufactured at Alflex facilities in
Long Beach, California and Rocky Mount, North Carolina.
The aluminum sheet products manufactured by the Company are generally
referred to as common alloy products. They are produced in a number of aluminum
common alloys with thicknesses (gauge) of 0.008 to 0.250 inches, widths of up to
72 inches, and a variety of physical properties and packaging, in each case to
meet customer specifications. These products are sold to distributors and
end-users, principally for use in building and construction products such as
roofing, siding, windows and gutters; transportation equipment such as truck
trailers and bodies and automotive parts; and consumer durables such as
cookware, appliances and lawn furniture. The Company also fabricates aluminum
sheet into welded tube products for various markets. Substantially all of the
Company's aluminum sheet products are produced in response to specific customer
orders. Production of aluminum sheet products in 2001 was 822 million pounds or
about 76% of capacity compared to 943 million pounds or about 87% of capacity in
2000. In 2001, the North American market for aluminum sheet products, excluding
rigid container sheet, foil and exports, was approximately 3.7 billion pounds
versus 4.3 billion pounds in 2000.
Alflex manufactures metallic (aluminum and steel) and non-metallic
(plastic) electrical flexible conduit and prewired armored cable, utilizing
aluminum sheet manufactured by the Company. These products provide mechanical
protection for electrical wiring installed in buildings in accordance with local
building code requirements. Armored cable differs from electrical conduit in
that it is pre-wired by Alflex, whereas end-users must pull wire through
electrical conduit when conduit is installed. These products are used primarily
by electrical contractors in the construction, renovation and remodeling of
commercial and industrial facilities and multi-family dwellings. They also are
used in the heating, ventilating and air-conditioning ("HVAC"), original
equipment manufacturers ("OEM") and Do-It-Yourself ("DIY") markets. The products
include preassembled and prepackaged products for commercial and DIY markets and
commercial pre-fabricated wiring systems which provide significant savings in
labor and installation costs for end-users.
Historically, electrical wires were housed in rigid pipes in the walls
of buildings. Rigid pipe remains the most widely used means of protecting wiring
in commercial and other non-residential construction. Electrical flexible
conduit made from steel was introduced in the 1920s. Flexible conduit is
significantly easier to install than rigid pipe, resulting in cost savings to
the installer. Aluminum flexible conduit, introduced to the market by Alflex,
has in recent years become a significant factor due to its ease of installation,
lighter weight and ease of cutting compared to steel flexible conduit or rigid
pipe. In wet, harsh or corrosive environments, non-metallic or plastic jacketed
steel flexible conduit may be used. Armored cable (conduit with pre-installed
wire) made of steel or aluminum has captured an increasing share of the market
from rigid pipe due to its pre-assembly, ease of installation and overall cost
effectiveness.
The Company estimates that at December 31, 2001 it had a backlog of
firm orders for which product specifications have been defined of 168.6 million
pounds of aluminum sheet products with an aggregate sales price of $159.8
million, compared to an estimate of 163.8 million pounds with an aggregate sales
price of $167.9 million at December 31, 2000. Backlog is not a significant
factor for the Company's electrical products.
Aluminum Sheet Products
Manufacturing
The Company's aluminum sheet manufacturing facilities are comprised of
the rolling mills at Lewisport, Kentucky, Uhrichsville, Ohio, and Carson,
California, coating facilities at Lewisport, Bedford, Ohio, and Torrance,
California, tube mills at Carson and Kings Mountain, North Carolina and a tube
fabrication facility in Pelham, Tennessee.
The Lewisport mill uses the conventional, vertical direct-chill,
rolling ingot casting process. This process permits the production of
traditional aluminum sheet with strength, hardness, formability, finishing and
other characteristics preferred for many applications. The flexibility permitted
by this multi-purpose rolling mill enables the Company to target higher margin
products, manufacture a variety of products with consistent high quality and
respond quickly to shifts in market demand. In 2001, the Lewisport mill produced
421 million pounds of aluminum sheet products compared to 528 million pounds in
2000. At full capacity utilization, unit costs of converting metal to aluminum
sheet products at Lewisport are believed to be among the lowest in the industry
for plants using the conventional process.
The Uhrichsville and Carson mills use low-cost, scrap-based twin-belt
mini-mill continuous casting production technology. This process permits the
efficient production of aluminum sheet alloys used in building and construction
and other applications not requiring the more complex alloys or the physical
characteristics better provided by the conventional casting method. The process
eliminates several steps associated with conventional casting, thereby reducing
manufacturing costs. Capital costs also are significantly lower than for mills
using the conventional casting process. In 2001, the Uhrichsville and Carson
mills together produced 401 million pounds of aluminum sheet products compared
to 415 million pounds in 2000.
Aluminum Supply
Most of the aluminum metal used by the Company's rolling mills is
purchased, principally from or through aluminum scrap dealers or brokers, in the
form of aluminum scrap. The Company believes it is one of the largest users of
aluminum scrap other than beverage can scrap in the United States and that the
volume of its purchases assists it in obtaining scrap at competitive prices. The
Company's remaining requirements are met with purchased primary metal, including
metal produced in Russia to specifications that differ from the industry
standard for primary aluminum but that is appropriate for the Company's needs.
The Company has a 10-year 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 at current market prices from
Glencore over the 10-year term, which began in January 2001.
Casting and Rolling
At Lewisport, scrap, in some cases after processing in the Company's
recycling facilities, and primary aluminum are melted in induction or
reverbatory furnaces. Small amounts of copper, magnesium, manganese and other
metals are added to produce alloys with the desired hardness, formability and
other physical characteristics. The molten aluminum is then poured through a
mold surrounded by circulating water which cools and solidifies into an ingot
about 24 inches thick and weighing as much as 40,000 pounds. The cooled ingot is
conveyed to the rolling mill area for further processing.
The rolling ingots are heated to a malleable state in soaking pits or
tunnel furnaces. Then, in the next two stages--hot and cold rolling--the ingot
is passed between rolls under pressure, causing it to become thinner and longer.
The first rolling stage takes place in a "reversing" mill, so named because the
ingot is passed back and forth between the work rolls, reversing itself after
each pass. After it passes through the reversing mill the aluminum sheet moves
through a continuous multi-stand hot mill, and then is cooled and cold rolled to
its final thickness.
The Uhrichsville and Carson rolling mills employ a continuous casting
process in which molten aluminum is fed into a caster which produces a
continuous thin slab that is immediately hot rolled into semi-finished aluminum
sheet in a single manufacturing process. The aluminum sheet is then cooled and
cold rolled to its final thickness as in the conventional process. The
Uhrichsville and Carson mills use twin-belt thin-slab continuous casting, which
the Company believes is the most efficient and most productive form of
continuous casting.
The Company and IMCO Recycling, Inc ("IMCO") are parties to a supply
agreement under which IMCO serves as the major supplier of molten recycled
aluminum for the Company's Uhrichsville mill. Under the IMCO supply agreement,
the Company purchases aluminum scrap and delivers it to IMCO who then processes
and converts it into molten metal at its recycling and processing facility
located adjacent to the Company's mill. The Company is responsible for the
treatment and disposal of the waste generated as a result of IMCO's processing
services on behalf of the Company. The IMCO supply agreement expires March 31,
2009. The Company has an option to purchase the IMCO facility at the end of the
supply agreement for an amount equal to five times the average earnings before
interest, taxes, depreciation and amortization of the facility as defined in the
supply agreement. The Company also has a right of first refusal if IMCO wishes
to sell the facility.
The Carson rolling mill processes its own scrap to produce molten
metal, utilizing current delacquering and melting technology.
The Company has paid a one-time license fee for certain technology used
in its continuous casting process. The license agreement allows the Company the
use of certain inventions, technical discoveries and apparatus of the licensor
in the manufacturing process.
Finishing and Coating
After hot and cold rolling is complete, the aluminum sheet is leveled
to ensure required flatness and may be slit into narrower widths, embossed or
painted to customers' specifications.
The Company is an industry leader in the development and production of
superior quality coated aluminum products and operates at Lewisport the largest
coating line integrated with a United States rolling mill. Coating lines at the
Company's Bedford and Torrance facilities serve the Uhrichsville and Carson
rolling mills. In the coating process, aluminum sheet is chemically cleaned,
painted and then cured to produce a durable coated surface.
Packaging and Shipping
Finished products are shipped to customers by truck or rail in coils of
various size and weighing up to 30,000 pounds.
Electrical Products
Alflex fabricates its flexible conduit and armored cable at its Long
Beach, California and Rocky Mount, North Carolina facilities. The Rocky Mount
facility was completed in 1999 with production starting in the second quarter of
1999. This facility increased Alflex's capacity for cable products by
approximately 50%. Alflex purchases its aluminum sheet from the Company. Alflex
also uses significant amounts of insulated copper wire and steel in its
production process.
Alflex fabricates its electrical products by slitting aluminum or steel
sheet on specialized narrow-width slitting equipment, after which the sheet is
coiled. The coils are then fed through proprietary forming machines to produce
the flexible conduit. Until 1998, Alflex followed a process that draws copper
rod into wire, coats the wire with plastic insulation and, for certain products,
wraps the coated wire with paper or plastic. The protective armoring is then
wrapped around the cabled wire. During 1998, the Company executed a strategic
alliance with BICCGeneral whereby beginning in the second half of 1999, Alflex
ceased drawing wire and coating the wire with plastic insulation, and instead
purchased all of its copper wire requirements from BICCGeneral. During the
fourth quarter of 2001, BICCGeneral sold its assets to Southwire Company and
Southwire Company is now executing the contract.
Alflex uses a specialized co-extrusion process involving both rigid and
flexible plastics (PVC) to produce its non-metallic conduit. After production,
the conduit and cable products are cut to length and packaged. Alflex designs
and builds much of the equipment used to manufacture its products. In 2001,
Alflex produced 486 million feet of electrical products compared to 580 million
feet in 2000.
Customers and Markets
The Company's aluminum sheet products are sold to distributors as well
as end-users, principally in the building and construction, transportation and
consumer durables markets.
The following table sets forth for 2001 and 2000 the percentage of
aluminum sheet net shipments contributed by each of these classes of customers
and the Company's estimate of its share of these markets in North America.
% of Net Shipments % Market Share
------------------ --------------
2001 2000 2001 2000
---- ---- ---- ----
Building and construction 47 44 37 36
Distribution 33 34 22 23
Transportation 7 13 9 15
Consumer durables and other 13 9 13 11
--- ---
100 100
=== ===
The building and construction sector is the largest end-use market
other than the packaging market for common alloy aluminum sheet products.
The Company believes it is the largest supplier of common alloy
aluminum sheet to distributors. Distributors, in some cases after slitting,
punching, leveling or other processing, resell the Company's products into
end-use markets, including the building and construction, transportation and
consumer durables markets.
The Company is one of the largest suppliers of aluminum sheet products
to North American manufacturers of transportation equipment, including truck
trailers and bodies, recreational vehicles and automobile parts. This market has
been severely impacted by the current economic conditions. The commercial
transportation market is off 50% from its 1999 consumption rate.
The largest volume in the category of consumer durables and other
markets for the Company is reroll stock sold for further processing and
conversion for a variety of markets. Other major end-uses of this product
category are cookware, consumer durables, pleasure boats, personal watercrafts,
appliances and irrigation pipe.
Packaging is the largest single end-use of aluminum sheet, accounting
for about one-half of the estimated world-wide market. Much of this product is
produced by large, single-purpose rolling mills. The Company does not
participate in the packaging market.
Market share estimates exclude heat-treated aluminum plate and sheet,
which the Company does not produce. The Company estimates that heat-treated
products constitute an immaterial portion of the end-use markets served by the
Company.
Company sales are made to customers located primarily throughout North
America. Sales outside North America have not been significant. During 2001 and
2000, sales to one major customer amounted to approximately 12.2% and 14.0% of
the Company's net sales. No other single customer accounted for more than 10% of
the Company's net sales in 2001 or 2000.
Sales of aluminum sheet products are made through the Company's own
sales force which is strategically located to provide North American coverage.
An integrated computer system provides the Company's employees with on-line
access to inventory status, production schedules, shipping information and
pricing data to facilitate immediate response to customer inquiries.
Many of the Company's aluminum sheet markets are seasonal. Demand in
the building and construction and transportation markets is generally stronger
in the spring and summer seasons than in the fall and winter seasons. Such
factors typically result in higher operating income in the spring and summer
months.
Alflex electrical products are sold primarily through independent
manufacturer's representatives to electrical distributors. Distributors
represented approximately 84% of Alflex net sales in 2001. The remaining sales
are made to the do-it-yourself ("DIY"), original equipment manufacturer ("OEM")
and heating ventilation and air conditioning ("HVAC") markets. The independent
manufacturer's representatives do not market Alflex's products exclusively, but
also sell complimentary products that are used in conjunction with products
manufactured and sold by Alflex. Alflex serves approximately 4,000 customers.
Alflex maintains registered trademarks on certain of its flexible
conduit and armored cable systems, including Ultratite, Galflex, the Alflex name
and its design, Electrician's Choice, Computer Blue, Duraclad, Armorlite and
PowerSnap. While Alflex considers these trademarks to be important to its
business, it does not believe it is dependent upon the trademarks for the
continuation of its business.
Competition
The Company competes in the production and sale of common alloy
aluminum sheet products with some 9 other aluminum rolling mills in North
America and with imported products.
Aluminum Company of America ("Alcoa") and Alcan Aluminium Ltd.
("Alcan") have a significantly larger share of the total United States market
for aluminum sheet products, including packaging and aluminum foil. However, in
the market for common alloy aluminum sheet products other than can sheet and
aluminum foil, the market share leaders are Alcoa, Alcan and the Company.
The Company competes with other rolled products suppliers on the basis
of quality, price, timeliness of delivery and customer service.
Aluminum also competes with other materials such as steel, plastic and
glass for various applications.
Alflex competes with national and regional competitors and imported
products in the electrical flexible conduit and prewired armored cable industry.
Competition is principally on the basis of product features, availability, price
and customer service.
Research and Development
The Company conducts research and development activities at its rolling
mills as part of its ongoing operations to satisfy emerging customer
requirements, improve product quality and reduce manufacturing costs. Outside
consultants also are utilized.
Alflex focuses its research and development activities on the
development of new products and the improvement of its conduit and cable
manufacturing processes through the development of proprietary manufacturing
equipment and the reduction of waste.
The estimated amounts spent during 2001, 2000 and 1999 on
Company-sponsored research and development activities were $0.9 million, $0.9
million and $1.4 million, respectively.
Environmental Matters
The Company's operations are subject to increasingly stringent
environmental laws and regulations governing air emissions, wastewater
discharges, the handling, disposal and remediation of hazardous substances and
wastes and employee health and safety. These laws can impose joint and several
liability for releases or threatened releases of hazardous substances upon
statutorily defined parties, including the Company, regardless of fault or the
lawfulness of the original activity or disposal. The Company believes it is
currently in material compliance with applicable environmental laws and
regulations.
Federal and state regulations continue to impose stricter 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 equipment or process changes 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.
Previously, a trust fund existed 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 was
reimbursed from the trust fund for approved closure and postclosure expenditures
incurred at the site. All remaining funds in the trust fund were paid out during
2001 and the trust was closed. Based on 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 rolling mill and an aluminum smelter
at Goldendale, Washington ("Goldendale"), from Lockheed Martin in 1985. In
connection with the transaction, Lockheed Martin indemnified the Company against
expenses relating to environmental matters arising during the period of Lockheed
Martin's ownership of those facilities.
Environmental sampling at Lewisport has disclosed the presence of
contaminants, including polychlorinated biphenyls (PCBs), in a closed Company
landfill. The Company has not yet determined the extent of the contamination or
the nature and extent of remedial measures that may be required. Accordingly,
the Company cannot at present estimate the cost of any remediation that may be
necessary. Management believes the contamination is covered by the Lockheed
Martin indemnification, which Lockheed Martin disputes.
The aluminum smelter at Goldendale was operated by Lockheed Martin
until 1985 and by the Company from 1985 to 1987 when it was sold to Columbia
Aluminum Corporation ("Columbia"). Past aluminum smelting activities at
Goldendale have resulted in environmental contamination and regulatory
involvement. A 1993 Settlement Agreement among the Company, Lockheed Martin and
Columbia allocated responsibility for future remediation at 11 sites at the
Goldendale smelter. If remediation is required, estimates by outside consultants
of the probable aggregate cost to the Company for these sites range from $1.3
million to $7.2 million. The apportionment of responsibility for other sites at
Goldendale is left to alternative dispute resolution procedures if and when
these locations become the subject of remedial requirements.
The Company has been named as a potentially responsible party at three
third-party disposal sites relating to Lockheed Martin operations, for which
Lockheed Martin has assumed responsibility.
The Company's aggregate loss contingency accrual for environmental
matters was $8.8 million at December 31, 2001, which covers all environmental
loss contingencies that the Company has determined to be probable and reasonably
estimable. It is not possible, however, to predict the amount or timing of cost
for future environmental matters which may subsequently be determined. Although
the outcome of any such matters, to the extent they exceed any applicable
accrual, could have a material adverse effect on the Company's consolidated
results of operations or cash flows for the applicable period, the Company
believes that such outcome will not have a material adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.
The Company has incurred and will continue to incur capital and
operating expenditures for matters relating to environmental control and
monitoring. Capital expenditures of the Company for environmental control and
monitoring for 2001 and 2000 were $0.2 million and $0.9 million, respectively.
All other environmental expenditures of the Company, including remediation
expenditures, for 2001, 2000 and 1999 were $1.9 million, $2.1 million, and $2.3
million, respectively. The Company has planned environmental capital
expenditures for 2002 of $0.3 million.
Employees
At December 31, 2001, the Company employed 1,795 persons, of whom 1,263
were full-time non-salaried employees including 584 at Lewisport represented by
the United Steel Workers of America ("USW") and 214 at the Uhrichsville and
Bedford facilities represented by the Glass, Molders, Pottery, Plastic & Allied
Workers International, AFL-CIO, CLC union ("GMP"). Current collective bargaining
agreements with the USW and the GMP expire in July and December 2003,
respectively. The Company believes its relationships with its employees are
good.
The Company provides gain sharing plans for certain of its non-salaried
employees. Contributions to the plans are generally based upon a formula which
compares actual performance results to targets agreed upon by management and in
some cases the bargaining units. In addition, the Company provides defined
contribution 401(k) plans for certain non-salaried and salaried employees.
Item 2. Properties.
The following table sets forth certain information with respect to the
Company's principal operating properties. Substantially all of these properties
collateralize borrowings under the Company's senior secured bank credit
facility.
Location Nature Square Feet Status
-------- ------ ----------- ------
Louisville, Kentucky Administrative offices 24,000 Leased
Lewisport, Kentucky Rolling mill and coating 1,700,000 Owned
facility
Uhrichsville, Ohio Rolling mill 285,000 Owned
Carson, California Rolling mill and tube mill 103,000 Owned
Bedford, Ohio Coating facility 121,000 Leased
Torrance, California Coating facility 60,000 Leased
Kings Mountain, North Tube mill 100,000 Leased
Carolina
Pelham, Tennessee Tube fabrication facility 60,000 Leased
Long Beach, California Alflex administrative 154,000 Leased
offices and manufacturing
facility
Rancho Dominguez, Alflex distribution center 111,000 Leased
California
Rocky Mount, North Alflex manufacturing facility 105,000 Owned
Carolina and distribution center
Item 3. Legal Proceedings.
The Company is a party to non-environmental legal proceedings and
administrative actions all of which are of an ordinary routine nature incidental
to the business. In the opinion of management such proceedings and actions
should not, individually or in the aggregate, have a material adverse effect on
the Company's consolidated financial condition, results of operations or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 2001.
Item E.O. Executive Officers of the Registrant.
The executive officers of the Company as of March 19, 2002 were:
Name Age Position with the Company
---- --- -------------------------
Mark V. Kaminski 46 President, Chief Executive Officer and Director
Donald L. Marsh, Jr. 55 Executive Vice President, Chief Financial Officer
and Secretary
John J. Wasz 41 Executive Vice President and President Alflex
Michael J. Boyle 37 Vice President Materials
Henry Del Castillo 62 Vice President Finance
Gregory P. Givan 49 Vice President and Treasurer
Katherine R. Gould 38 Vice President Organizational Development
Lenna Ruth Macdonald 39 Vice President, General Counsel and Assistant
Secretary
William R. Witherspoon 56 Vice President Aluminum Operations
John F. Barron 50 Controller and Assistant Secretary
Mr. Kaminski joined the Company in 1987 as Marketing Manager. In 1989
he was promoted to Vice President of Operations and in 1991 he became President
and Chief Executive Officer. He is a director of Secat, Inc.
Mr. Marsh joined the Company in March 1996. Prior to that time he was
Senior Vice President of Castle Energy Corporation.
Mr. Wasz joined the Company in 1985. From 1988 to 1991 he was Regional
Manager and from 1991 to 1993 he served as Distribution Marketing Manager. He
was promoted to Vice President, Marketing and Sales in December 1993. In March
1997, he moved to the position of Vice President, Materials and in November 1999
he held the position of Vice President Operations, Alflex. In June 2000, he
became Chief Operating Officer, Alflex and was promoted to his current position
in February 2002.
Mr. Boyle joined the Company in 1997 as Manager of Metals and Energy
Risk Analysis and later assumed accountability for primary metals and alloy
additives. He was promoted to his current position in January 2001. From 1994 to
1997, he worked in metal trading and risk management at Wise Metals. Prior to
1994, he held various roles in operations, sales and trading at Ormet
Corporation and Ravenswood Aluminum Corporation.
Mr. Del Castillo joined the Company in October 1997 as Alflex Business
Unit Controller and was elected to his present position in November 1999. From
1995 to 1997 he was Chief Financial Officer of Wherehouse Entertainment Inc., a
retail music and video chain undergoing financial restructuring. From 1981 to
1995 he served in a number of financial management positions, including Chief
Financial Officer, at Powerine Oil Company, an independent oil refiner.
Mr. Givan joined the Company in July 1997. From 1987 until 1997 he was
Second Vice President, Corporate Finance and Director, Corporate Finance and
Risk Management and Assistant Treasurer of Providian Corp., a financial services
company.
Ms. Gould joined the Company in July 1998. From 1996 through 1998 she
was Human Resource Manager of Gordonstone Coal Management, a joint venture
between ARCO Coal Australia and Mitsui. Prior to 1996 she held operations and
human resource management positions with Comalco Limited, an Australia-based
aluminum company.
Ms. Macdonald joined the Company in August 1999 as Principal Legal
Counsel and Assistant Secretary and was elected to her present position in May
2000. From December 1998 to 1999 she served as Real Estate Counsel for Vencor,
Inc. From 1993 to 1998 she held in-house counsel positions with Bank One
Corporation, including with its subsidiary Banc One New Hampshire Asset
Management Corporation as Assistant General Counsel and Litigation Group Leader.
Mr. Witherspoon joined the Company in 1998 as Vice President Continuous
Cast and has served in his current position since January 2001. In 1997 he was
Plant Manager for Alcan's Louisville operation. From 1979 until 1997 he held
various management positions with Logan Aluminum, including Hot Mill Business
Unit Manager. Prior to 1979 he held various management positions with Anaconda
Company.
Mr. Barron joined the Company in February 1997. From 1986 to 1996 he
held the position of Senior Vice President and Assistant Comptroller of Bank One
Kentucky, N.A.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol CMIN. On March 1, 2002, there were 170 holders of record of the
Company's Common Stock. The Company estimates that there were a total of 4,000
stockholders on that date, including beneficial owners. Since becoming publicly
owned in March 1995, the Company has paid quarterly cash dividends on its Common
Stock of $0.05 per share.
The following table sets out the high and low sales prices for the
Common Stock for each quarterly period indicated, as quoted in the Nasdaq
National Market:
2001 High Low
---- ---- ---
First Quarter $ 6.00 $3.88
Second Quarter 5.50 4.06
Third Quarter 6.50 4.00
Fourth Quarter 6.30 4.01
2000
----
First Quarter $13.44 $7.50
Second Quarter 9.25 5.31
Third Quarter 7.50 4.38
Fourth Quarter 6.00 3.56
Item 6. Selected Financial Data.
The information captioned "Consolidated Selected Financial Data"
included on page 6 of the Company's annual report to stockholders for the year
ended December 31, 2001 is incorporated herein by reference. This information
sets forth selected consolidated statement of operations, operating and balance
sheet data for the years indicated. The financial information is derived from
the audited consolidated financial statements of the Company for such years.
This information should be read in conjunction with, and is qualified by
reference to, the consolidated financial statements of the Company and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" also incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included on pages 7 through 12 of
the Company's annual report to stockholders for the year ended December 31, 2001
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information under the subcaption "Risk Management" included in the
information captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included on pages 7 through 12 of the
Company's annual report to stockholders for the year ended December 31, 2001 is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the Company and
report of independent auditors included on pages 13 through 39 of the Company's
annual report to stockholders for the year ended December 31, 2001 are
incorporated herein by reference.
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Comprehensive Income (Loss)
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 401 (other than paragraph (b) thereof)
and Item 405 of Regulation S-K may be found under the caption Board of Directors
of the Company's Proxy Statement dated March 22, 2002 for the Annual Meeting of
Stockholders to be held on April 26, 2002 (the "Proxy Statement") and is
incorporated herein by reference. The information required by Item 401(b) of
Regulation S-K may be found under Item E.O. above.
Item 11. Executive Compensation.
The information required by Item 402 of Regulation S-K may be found
under the caption Executive Compensation in the Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 403 of Regulation S-K may be found
under the caption Beneficial Ownership of Common Stock in the Proxy Statement
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 404 of Regulation S-K may be found
under the caption Board of Directors--Compensation and Other Transactions with
Directors and under the caption Executive Compensation --Management Development
and Compensation Committee Interlocks and Insider Participation in the Proxy
Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) List of Financial Statements filed
The following consolidated financial statements of the Company and
report of independent auditors included in the Company's annual report to
stockholders for the year ended December 31, 2001 were incorporated by reference
in Part II, item 8 of this report:
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Comprehensive Income (Loss)
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a) (2) List of Financial Statement Schedules filed
The following report of independent accountants and financial statement
schedule should be read in conjunction with the Company's consolidated financial
statements.
Supplemental Schedule II - Valuation and Qualifying Accounts is filed
on page 21 of this report.
Report of Independent Accountants on the Company's financial statement
schedule filed as a part hereof for the years ended December 31, 2001, 2000 and
1999 is filed on page 20 of this report.
Financial statement schedules other than listed above have been omitted
since they are either not required or not applicable or the information is
otherwise included.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter
ended December 31, 2001.
(c) Exhibits
3.1 Restated Certificate of Incorporation, effective
April 18, 1997(incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).
3.2 By-laws, dated April 17, 1997 (incorporated by
reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended
December 31,1999).
3.3 Stockholder Protection Rights Agreement, dated as of
March 6, 1996, including forms of Rights Certificate,
Election to Exercise and Certificate of Designation
and Terms of Participating Preferred Stock of the
Company (incorporated by reference to Exhibits (1),
(2) and (3) to the Company's Registration Statement
No. 0-25642 on Form 8-A).
10.1 Executive Incentive Compensation Plan, as amended
December 4, 1995(incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.2 Long-term Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.3 1999 Executive Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1999).
10.4 Salaried Employees Pension Plan (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-87294 on Form S-1).
10.5 Salaried Employees Performance Sharing Plan
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.6 1995 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999).
10.7 1997 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999).
10.7.1 Amendment, dated December 18, 2000, to 1997 Stock
Incentive Plan, as amended and restated April 23,
1999 (incorporated by reference to Exhibit 10.7.1 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 2000).
10.8 Form of Severance Agreements between the Company and
Mark V. Kaminski, Donald L. Marsh, Jr. and John J.
Wasz (incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.9 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
10.10 Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.10.1 Amendment No. 1, dated as of December 22, 1998, to
Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.10.2 Agreement, of Resignation, Appointment and
Acceptance, dated as of August 18, 1999 among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, National
Westminster Bank, as resigning agent, and Bank One,
Indiana, NA, as successor agent (incorporated by
reference to Exhibit 10.10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1999).
10.10.3 Joinder Agreement, dated as of October 29, 1999 among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One, Indiana, NA, as administrative agent
(incorporated by reference to Exhibit 10.10.3 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.10.4 Joinder Agreement, dated as of December 31, 1999
among the Company, subsidiaries of the Company, the
several lenders from time to time parties thereto,
and Bank One, Indiana, NA, as administrative agent
(incorporated by reference to Exhibit 10.10.4 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.10.5 Joinder Agreement, dated as of December 31, 2000
among the Company, subsidiaries of the Company, the
several lenders from time to time parties thereto,
and Bank One, Indiana, NA, as administrative agent
(incorporated by reference to Exhibit 10.10.5 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 2000).
10.10.6 Amendment, dated as of June 29, 2001, to Second
Amended and Restated Credit Agreement among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One Indiana, N.A., as agent, dated as of December 19,
1997 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001).
10.10.7 Amendment, dated as of December 21, 2001, to Second
Amended and Restated Credit Agreement among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One Indiana, N.A., as agent, dated as of December 19,
1997.
10.11 Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of National Westminster Bank
PLC, as agent, dated November 29, 1996 (incorporated
by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.12 Amendment No. 1, dated as of December 19, 1997, to
the Amended and Restated Pledge and Security
Agreement entered into by the Company and its
subsidiaries, collectively, in favor of National
Westminster Bank PLC, as agent, dated November 29,
1996 (incorporated by reference to Exhibit 10.11 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.13 Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.13.1 First Amendment, dated May 12, 1998, to Receivables
Purchase Agreement among Commonwealth Financing
Corp., the Company, Market Street Funding Corporation
and PNC Bank, National Association, dated as of
September 29, 1997 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
10.13.2 Second Amendment, dated September 25, 2000, to
Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
10.13.3 Third Amendment, dated September 24, 2001, to
Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001).
10.14 Supply Agreement by and among Commonwealth Aluminum
Corporation, IMCO Recycling of Ohio Inc. and IMCO
Recycling Inc., effective as of April 1, 1999
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
10.15 Indenture dated as of September 20, 1996 between the
Company, the Subsidiary Guarantors named therein and
Harris Trust and Savings Bank, Trustee (incorporated
by reference to Exhibit 4.2 to the Company's
Registration Statement No. 333-13661 on Form S-4).
10.15.1 First Supplemental Indenture, dated as of November
12, 1996, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.15.2 Second Supplemental Indenture, dated as of October
16, 1998, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.15.3 Third Supplemental Indenture, dated as of December
31, 1999, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.15.3 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.15.4 Fourth Supplemental Indenture, dated as of December
31, 2000, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.15.4 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 2000).
13 Portions of the annual report to stockholders for
the year ended December 31, 2001 which are expressly
incorporated by reference in this filing.
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
Report of Independent Accountants on Financial Statement Schedule
Board of Directors
Commonwealth Industries, Inc.
Our audits of the consolidated financial statements referred to in our
report dated March 21, 2002 appearing in the 2001 Annual Report to Stockholders
of Commonwealth Industries, Inc. and subsidiaries (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the consolidated financial statement schedule
listed in Item 14 (a) (2) of this Form 10-K. In our opinion, this consolidated
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
March 21, 2002
Supplemental Schedule II
Commonwealth Industries, Inc.
Valuation and Qualifying Accounts
December 31, 2001, 2000 and 1999
(in thousands)
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
Allowance for uncollectible accounts
December 31,2001 $2,930 $4,263 $ - $5,953 $1,240
December 31,2000 1,950 1,014 - 34 2,930
December 31,1999 2,484 591 - 1,125 1,950
Allowance for obsolete stores inventory
December 31,2001 $1,203 $ 20 $ - $ - $1,223
December 31,2000 1,221 - - 18 1,203
December 31,1999 1,100 121 - - 1,221
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on March 25, 2002.
COMMONWEALTH INDUSTRIES, INC.
By /s/ Mark V. Kaminski
---------------------------------------
Mark V. Kaminski, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Paul E.Lego
- --------------------------
Paul E. Lego Chairman of the Board March 25, 2002
/s/ Mark V. Kaminski
- --------------------------
Mark V. Kaminski President, Chief Executive Officer and Director March 25, 2002
(Principal Executive Officer)
/s/ Catherine G. Burke
- --------------------------
Catherine G. Burke Director March 25, 2002
/s/ C. Frederick Fetterolf
- --------------------------
C. Frederick Fetterolf Director March 25, 2002
/s/ Larry E. Kittelberger
- --------------------------
Larry E. Kittelberger Director March 25, 2002
/s/ John E. Merow
- --------------------------
John E. Merow Director March 25, 2002
/s/ Donald L. Marsh, Jr.
- --------------------------
Donald L. Marsh, Jr. Executive Vice President, Chief Financial March 25, 2002
Officer and Secretary (Principal Financial
Officer)
/s/ Henry Del Castillo
- --------------------------
Henry Del Castillo Vice President Finance March 25, 2002
(Principal Accounting Officer)
/s/ John F. Barron
- --------------------------
John F. Barron Controller and Assistant Secretary March 25, 2002
Exhibit Index
-------------
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation, effective
April 18, 1997(incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).
3.2 By-laws, dated April 17, 1997 (incorporated by
reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1999).
3.3 Stockholder Protection Rights Agreement, dated as of
March 6, 1996, including forms of Rights Certificate,
Election to Exercise and Certificate of Designation
and Terms of Participating Preferred Stock of the
Company (incorporated by reference to Exhibits (1),
(2) and (3) to the Company's Registration Statement
No. 0-25642 on Form 8-A).
10.1 Executive Incentive Compensation Plan, as amended
December 4, 1995(incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.2 Long-term Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.3 1999 Executive Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1999).
10.4 Salaried Employees Pension Plan (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-87294 on Form S-1).
10.5 Salaried Employees Performance Sharing Plan
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.6 1995 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999).
10.7 1997 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999).
10.7.1 Amendment, dated December 18, 2000, to 1997 Stock
Incentive Plan, as amended and restated April 23,
1999 (incorporated by reference to Exhibit 10.7.1 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 2000).
10.8 Form of Severance Agreements between the Company and
Mark V. Kaminski, Donald L. Marsh, Jr. and John J.
Wasz (incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.9 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
10.10 Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.10.1 Amendment No. 1, dated as of December 22, 1998, to
Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.10.2 Agreement, of Resignation, Appointment and
Acceptance, dated as of August 18, 1999 among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, National
Westminster Bank, as resigning agent, and Bank One,
Indiana, NA, as successor agent (incorporated by
reference to Exhibit 10.10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1999).
10.10.3 Joinder Agreement, dated as of October 29, 1999 among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One, Indiana, NA, as administrative agent
(incorporated by reference to Exhibit 10.10.3 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.10.4 Joinder Agreement, dated as of December 31, 1999
among the Company, subsidiaries of the Company, the
several lenders from time to time parties thereto,
and Bank One, Indiana, NA, as administrative agent
(incorporated by reference to Exhibit 10.10.4 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.10.5 Joinder Agreement, dated as of December 31, 2000
among the Company, subsidiaries of the Company, the
several lenders from time to time parties thereto,
and Bank One, Indiana, NA, as administrative agent
(incorporated by reference to Exhibit 10.10.5 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 2000).
10.10.6 Amendment, dated as of June 29, 2001, to Second
Amended and Restated Credit Agreement among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One, Indiana, NA, as agent, dated as of December 19,
1997 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001).
10.10.7 Amendment, dated as of December 21, 2001, to Second
Amended and Restated Credit Agreement among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One, Indiana, NA, as agent, dated as of December 19,
1997.
10.11 Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of National Westminster Bank
PLC, as agent, dated November 29, 1996 (incorporated
by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.12 Amendment No.1, dated as of December 19, 1997, to the
Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of National Westminster Bank
PLC, as agent, dated November 29, 1996 (incorporated
by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997).
10.13 Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.13.1 First Amendment, dated May 12, 1998, to Receivables
Purchase Agreement among Commonwealth Financing
Corp., the Company, Market Street Funding Corporation
and PNC Bank, National Association, dated as of
September 29, 1997 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
10.13.2 Second Amendment, dated September 25, 2000, to
Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
10.13.3 Third Amendment, dated September 24, 2001, to
Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001).
10.14 Supply Agreement by and among Commonwealth Aluminum
Corporation, IMCO Recycling of Ohio Inc. and IMCO
Recycling Inc., effective as of April 1, 1999
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
10.15 Indenture dated as of September 20, 1996 between the
Company, the Subsidiary Guarantors named therein and
Harris Trust and Savings Bank, Trustee (incorporated
by reference to Exhibit 4.2 to the Company's
Registration Statement No. 333-13661 on Form S-4).
10.15.1 First Supplemental Indenture, dated as of November
12, 1996, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.15.2 Second Supplemental Indenture, dated as of October
16, 1998, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.15.3 Third Supplemental Indenture, dated as of December
31, 1999, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.15.3 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.15.4 Fourth Supplemental Indenture, dated as of December
31, 2000, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.15.4 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 2000).
13 Portions of the annual report to stockholders for the
year ended December 31, 2001 which are expressly
incorporated by reference in this filing.
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
Exhibit 10.10.7
---------------
AMENDMENT TO CREDIT AGREEMENT
This Amendment to Credit Agreement (the "Amendment") is made and
entered into as of December 21, 2001, by and among:
(1) Commonwealth Industries, Inc., a corporation duly organized and validly
existing under the laws of the State of Delaware (the "Parent") and the
successor by merger to CI Holdings, Inc.;
(2) CA Lewisport, Inc., a corporation duly organized and validly existing
under the laws of the State of Delaware and formerly known as Commonwealth
Aluminum Lewisport, Inc., and as Commonwealth Aluminum Corporation ("Old
Lewisport");
(3) CI Holdings, Inc., a corporation duly organized and validly existing
under the laws of the State of Delaware and formerly known as Alflex Corporation
("CI Holdings");
(4) Commonwealth Aluminum Concast, Inc., a corporation duly organized and
validly existing under the laws of the State of Ohio ("CACI");
(5) Commonwealth Aluminum Corporation, a corporation duly organized and
validly existing under the laws of the State of Delaware ("CAC");
(6) Alflex Corporation, a corporation duly organized and validly existing
under the laws of the State of Delaware ("New Alflex");
(7) Commonwealth Aluminum Lewisport, LLC, a limited liability company duly
formed and validly existing under the laws of the State of Delaware ("New
Lewisport");
(8) Commonwealth Aluminum Metals, LLC, a limited liability company duly
formed and validly existing under the laws of the State of Delaware ("Metals";
each of CAC, CACI, Old Lewisport, CI Holdings, New Alflex, New Lewisport and
Metals is sometimes hereafter referred to as a "Borrower" and collectively as
the "Borrowers");
(9) The Subsidiaries of the Parent identified by the caption "Subsidiary
Guarantors" on the signature pages hereto (the "Subsidiary Guarantors"; the
Subsidiary Guarantors, the Parent and the Borrowers are sometimes hereafter
referred to collectively as the "Obligors");
(10) The Majority Lenders whose signatures appear in their respective
signature blocks at the end of this Amendment.
PRELIMINARY STATEMENTS:
A. Parent, each of the Borrowers, each of the Subsidiary Guarantors and each of
the Lenders are parties to a certain Second Amended and Restated Credit
Agreement dated as of December 19, 1997, as amended by Amendment No. 1 to Credit
Agreement dated December 22, 1998, an Agreement of Resignation, Appointment and
Acceptance dated August 18, 1999, a Amendment dated as of October 29, 1999, a
Amendment dated as of December 31, 1999, a letter agreement dated as of December
27, 2000, an Amendment dated as of June 29, 2001, and a letter dated November
30, 2001 (as amended from time to time, the "Credit Agreement").
B. Parent, each of the Borrowers, each of the Subsidiary Guarantors and the
Administrative Agent (as successor to National Westminster Bank PLC pursuant to
the Agreement of Resignation, Appointment and Acceptance dated August 18, 1999)
are parties to a certain Amended and Restated Pledge and Security Agreement
dated as of November 29, 1996, as amended by Amendment No. 1 dated as of
December 19, 1997, by a Amendment dated as of October 29, 1999, and by a
Amendment dated as of December 31, 1999 (as amended, the "Pledge Agreement").
C. The Obligors have requested that the Lenders agree to amend the Credit
Agreement in certain respects.
D. The Lenders are willing to do so, but only upon the terms and subject to
the conditions set forth in this Amendment.
NOW THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1. Definitions.
------------
All terms with their initial letters capitalized herein, but not otherwise
defined herein, shall have the meanings given such terms in the Credit
Agreement.
2. Amendments to the Credit Agreement.
----------------------------------
(a) Amendment to Section 1.01. The definition of "EBITDA" set forth in
Section 1.01 of the Credit Agreement is hereby amended and modified so that, as
amended and modified, it shall read in its entirety as follows:
"'EBITDA' shall mean:
(i) for any period that does not include the calendar quarter
ended December 31, 2001, the sum, for the Parent and its Subsidiaries
(determined on a consolidated basis without duplication in accordance
with GAAP), of the following: (a) net income for such period, plus (b)
the amount of Total Interest for such period, plus (c) income and other
taxes paid during such period, plus (d) depreciation and amortization
for such period, plus (e) extraordinary losses for such period, plus
(f) in the case of any period during calendar year 2002, an amount
equal to the amount deducted, on account of impairment of goodwill, in
calculating net income for such period in accordance with GAAP, minus
(g) extraordinary gains for such period, minus (h) interest received
during such period, and
(ii) for any period that does include the calendar quarter
ended December 31, 2001, the sum, for the Parent and its Subsidiaries
(determined on a consolidated basis without duplication in accordance
with GAAP), of the following: (a) net income for such period, plus (b)
the amount of Total Interest for such period, plus (c) income and other
taxes paid during such period, plus (d) depreciation and amortization
for such period, plus (e) extraordinary losses for such period, plus
(f) the nonrecurring losses described in Donald L. Marsh's December 14,
2001, Letter (a copy of which is attached as Schedule 1), but only to
the extent that such losses, in the aggregate, do not exceed
$179,000,000.00, (g) in the case of any period during calendar year
2002, an amount equal to the amount deducted, on account of impairment
of goodwill, in calculating net income for such period in accordance
with GAAP, minus (h) extraordinary gains for such period, minus (i)
interest received during such period."
(b) Amendment to Section 9.10. Section 9.10(a), (b) and (c) of the
Credit Agreement is hereby modified and amended so that, as modified and
amended, it shall read in its entirety as follows:
"9.10 Certain Financial Covenants.
(a) Leverage Ratio. The Parent will not permit the
Total Leverage Ratio to exceed the following respective ratios at any time
during the following respective periods:
Period Ratio
From and including
the Restatement Effective Date
to and including
December 30, 1998 3.50 to 1.00
From and including
December 31, 1998
To and including
December 30, 1999 3.25 to 1.00
From and including
December 31, 1999
To and including
December 30, 2000 3.00 to 1.00
From and including
December 31, 2000
To and including
March 31, 2001 2.75 to 1.00
From and including
April 1, 2001
to and including
September 30, 2001 3.50 to 1.00
From and including
October 1, 2001
to and including
March 15, 2002 4.00 to 1.00
From and including
March 16, 2002
to and including
June 30, 2002 3.00 to 1.00
From and including
July 1, 2002
and at all times thereafter 2.50 to 1.00
(b) Interest Coverage Ratio. The Parent will not
permit the Total Interest Coverage Ratio to be less than the following
respective ratios at any time during the following respective periods:
Periods: Ratios:
From the Restatement Effective Date
through December 30, 1998 2.00 to 1.00
From December 31, 1998
through September 29, 1999 2.25 to 1.00
From September 30, 1999
through December 30, 1999 2.50 to 1.00
From December 31, 1999
through December 30, 2000 3.00 to 1.00
From December 31, 2000
through March 31, 2001 2.75 to 1.00
From April 1, 2001
through September 30, 2001 2.00 to 1.00
From October 1, 2001
through March 15, 2002 1.75 to 1.00
From March 16, 2002
and at all times thereafter 3.00 to 1.00
(c) Fixed Charges Ratio. The Parent will not permit
the Fixed Charges Ratio to be less than the following respective ratios at
any time during the following respective periods:
Period Ratio
From the Restatement Effective
Date through December 30, 1998 1.10 to 1.00
From December 31, 1998 through
December 30, 1999 1.20 to 1.00
From December 31, 1999 through
September 30, 2001 1.25 to 1.00
From October 1, 2001 through
March 15, 2002 1.00 to 1.00
From March 16, 2002
and at all times thereafter 1.25 to 1.00"
3. Affirmation of Representations and Warranties. Each of the Obligors
hereby affirms that the representations and warranties contained in the Credit
Agreement and in the Pledge Agreement are true and accurate as of the Effective
Date and as of the date of the execution and delivery of this Amendment. Each
further represents and warrants that each has the power to enter into and
perform this Amendment. The making and performance by the Obligors of this
Amendment has been duly authorized by all necessary action and will not:
(i) violate any provision of law or of any of the
Obligors' certificates of incorporation or formation, or
bylaws or limited liability company agreements,
(ii) result in the breach of, or constitute a default under,
any agreement or instrument to which any of the Obligors is a
party or by which any of the Obligors or any of their
respective property may be bound or affected, or
(iii) result in the creation of any lien, charge or
encumbrance upon any property or assets of any of the
Obligors.
No consent, approval, authorization, declaration, exemption or other action by,
or notice to, any court or governmental or administrative agency or tribunal is
or will be required in connection with the execution, delivery, performance,
validity or enforcement of this Amendment or any other agreement, instrument or
document to be executed and delivered pursuant hereto.
4. No Impairment and Ratification. Each Guarantor consents to the
entering into of this Amendment by each of the Borrowers and the other
Guarantors. Each of the Obligors agrees that neither this Amendment nor anything
contained herein or in any other document or instrument delivered in connection
herewith shall diminish or impair any Guarantor's liability in any respect under
its Guaranty. Each Guarantor further agrees that its Guaranty is, by the
execution and delivery of this Amendment, ratified, confirmed and reaffirmed in
its entirety, and acknowledged to continue in full force and effect.
5. Ratification. Except as expressly amended by this Amendment, the
Credit Agreement, the Pledge Agreement and the Guaranties are and shall be
unchanged. All of the terms, provisions, covenants, agreements, conditions,
schedules and exhibits thereof or thereto shall remain and continue in full
force and effect and are hereby incorporated by reference, and hereby ratified,
reaffirmed and confirmed by the Obligors and the Lenders in all respects on and
as of the effective date of this Amendment. Each of the Obligors acknowledges
and agrees that all liens, security interests, and pledges heretofore given to
the Lenders to secure their respective indebtedness to the Lenders shall also
secure all obligations arising hereunder.
6. Conditions. The Lenders' agreements and consents in
----------
this Amendment are and shall be subject to the prior
satisfaction of the following conditions precedent:
(a) Execution and Delivery of this Amendment. All of
the parties to this Amendment shall have executed and delivered a
counterpart hereof.
(b) Evidence of Existence and Authorization. The Documentation
Agent shall have received for all Obligors, copies of resolutions relating to
the execution and delivery of this Amendment, all certified as true, correct and
complete by the Secretary or an Assistant Secretary of each Obligor.
(c) Legal Opinion. The Documentation Agent shall have
received the legal opinion of Lenna MacDonald, substantially in the form
of Exhibit A attached hereto and incorporated herein by this reference.
(d) Proceedings Satisfactory. All proceedings taken in
connection with the transactions contemplated herein shall be satisfactory to
the Lenders and their counsel. The Lenders and their counsel shall have received
copies of such documents as they may request in connection therewith, all in
form and substance satisfactory to the Lenders and their counsel.
7. General Provisions.
------------------
(a) Entire Agreement. This Agreement, the Credit Agreement, the Pledge Agreement
and the other documents to which the Obligors are parties pursuant to the Credit
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and thereof. No change, modification, addition or
termination of this Agreement shall be enforceable unless in writing and signed
by the party against whom enforcement is sought.
(b) Definitions. Terms used and not otherwise defined in this Amendment shall
have the meanings given to them in the Credit Agreement, as amended from time to
time.
(c) Benefit. This Agreement shall be binding upon the Obligors and their
respective successors and assigns and shall inure to the benefit of the Lenders
and their respective successors and assigns.
(d) Waiver. No waiver of the provisions hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or a waiver in respect of any breach or default,
whether of a similar or a different nature, unless expressly so stated in
writing.
(e) Governing Law. The validity, construction, interpretation and
enforcement of this Agreement shall be construed in accordance with the
laws of the State of New York without regard to its conflict of laws.
(f) Severability. If any provision of this Agreement or its application shall be
deemed invalid, illegal or unenforceable in any respect, the validity,
construction, interpretation and enforceability of all other applications of
that provision and of all other provisions and applications hereof shall not in
any way be affected or impaired.
(g) Further Assurances. From time to time at another party's request and without
further consideration, the parties shall execute and deliver such further
instruments and documents, and take such other action as the requesting party
may reasonably request, in order to complete more effectively the transactions
contemplated in this Agreement.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement. This Agreement may be
executed by each party on separate copies, which copies, when combined so as to
include the signatures of all parties, shall constitute a single counterpart of
this Agreement.
(i) Effectiveness Upon Execution By Majority Lenders. Upon its execution and
delivery by all of the Obligors and by the Majority Lenders, this Amendment
shall become effective as of December 21, 2001.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement, effective as of the date set out
in the preamble of this Agreement.
"Parent" Commonwealth Industries, Inc.
By:
------------------------------------------------------
Title:
------------------------------------------------------
"Borrowers" CA Lewisport, Inc.
By:
------------------------------------------------------
Title:
------------------------------------------------------
CI Holdings, Inc.
By:
------------------------------------------------------
Title:
------------------------------------------------------
Commonwealth Aluminum Concast, Inc.
By:
------------------------------------------------------
Title:
------------------------------------------------------
Commonwealth Aluminum Corporation
By:
------------------------------------------------------
Title:
------------------------------------------------------
Alflex Corporation
By:
------------------------------------------------------
Title:
------------------------------------------------------
Commonwealth Aluminum Lewisport, LLC
By:
------------------------------------------------------
Title:
------------------------------------------------------
Commonwealth Aluminum Metals, LLC
By:
------------------------------------------------------
Title:
------------------------------------------------------
"Subsidiary Guarantors" Commonwealth Aluminum Sales Corporation
By:
------------------------------------------------------
Title:
------------------------------------------------------
Alflex E1 LLC, by its sole
member, CI Holdings, Inc.
By:
------------------------------------------------------
Title:
------------------------------------------------------
"Majority Lenders" Bank One, Indiana, NA
By:
------------------------------------------------------
Title:
------------------------------------------------------
PNC Bank, National Association
By:
------------------------------------------------------
Title:
------------------------------------------------------
ABN AMRO Bank N.V.
By:
------------------------------------------------------
Title:
------------------------------------------------------
Bank of Montreal
By:
------------------------------------------------------
Title:
------------------------------------------------------
Credit Agricole Indosuez
By:
------------------------------------------------------
Title:
------------------------------------------------------
Mellon Bank, N.A.
By:
------------------------------------------------------
Title:
------------------------------------------------------
The Industrial Bank of Japan, Limited
By:
------------------------------------------------------
Title:
------------------------------------------------------
Firstar Bank, NA
By:
------------------------------------------------------
Title:
------------------------------------------------------
Schedule 1
- --------------
December 14, 2001
(FullName)
(Title)
(Company)
(Address1)
(Address2)
(CityStateZip)
Dear (Firstname):
On December 11, we issued a press release in which we detailed certain one-time
charges that we expect to record at the end of December, including;
|X| A reduction of about $87.6 million in the carrying amount of property,
plant and equipment, almost entirely related to the book value of our
Lewisport rolling mill.
o A reduction of about $79.9 million in the carrying amount of goodwill.
o A charge of about $4.7 million associated with the termination of CII's
1999 Executive Incentive Plan
o An increase of $4 million in the provision for uncollectible accounts
receivable, principally relating to the recent Chapter 11 bankruptcy filing
by one of our customers, Metals USA
Since for accounting purposes these non-recurring items are not extraordinary,
they will affect income from operations and, therefore, EBITDA. We are asking
our banks to approve before December 31 an amendment to the facility that will
eliminate these non-recurring items from the calculation of EBITDA. Since our
board has eliminated the Executive Incentive Plan altogether, we also ask that
the banks exclude from EBITDA the accrued expenses ($2.9 million) associated
with this plan during the first three quarters of 2001. Of this total of
approximately $179 million in charges, all are one-time.
Besides the exclusion of these non-recurring items, we are asking for the
following covenant changes for the three-month period ending 12/31/01:
|X| Leverage ratio: From 3.50 to 1.00 To 4.00 to 1.00
|X| Interest coverage ratio: From 2.00 to 1.00 To 1.75 to 1.00
|X| Fixed charges ratio: From 1.25 to 1.00 To 1.00 to 1.00
Our plan is to consolidate our banking relationships, to reduce the total
commitment and to name PNC Bank as Agent under the credit agreement. We intend
to complete this restructuring of our banking arrangements in the first quarter
of 2002 and require this amendment in order to complete the process in an
orderly manner.
Page Two
December 14, 2001
We will pay a fee of 25 basis points to banks that communicate to you their
approval of the amendment by the close of business on Friday, December 21.
Yours sincerely,
Donald L. Marsh, Jr.
dd
Exhibit A
- ---------
Opinion Letter
December 21, 2001
To the Lenders Party to the
Credit Agreement referred to below
And
Bank One, Indiana, NA
as Administrative Agent for said Lenders
One Indiana Square, Suite 308
Indianapolis, Indiana 46266
Ladies and Gentlemen:
I have acted in my capacity as General Counsel to Commonwealth Industries, Inc.
(the "Parent") in connection with the negotiation, execution and delivery by the
Parent of a certain Amendment to Credit Agreement dated as of December 21, 2001
(the "Amendment"), between the Parent, CA Lewisport, Inc. ("Lewisport"), CI
Holdings, Inc. ("Holdings"), Commonwealth Aluminum Concast, Inc. ("Concast"),
Commonwealth Aluminum Corporation ("Aluminum"), Alflex Corporation ("Alflex"),
Commonwealth Aluminum Lewisport, LLC ("New Lewisport"), Commonwealth Aluminum
Metals, LLC ("Metals"), Commonwealth Aluminum Sales Corporation ("Sales"),
Alflex E1 LLC ("E1" and, together with the Parent, Lewisport, Holdings, Concast,
Aluminum, Alflex, New Lewisport, Metals and Sales, the "Obligors"), and the
Lenders named in the Amendment, and certain related documents and the
transactions described therein. To the extent not defined herein, all
capitalized terms and phrases used in this opinion letter shall have the
meanings given those terms in the Amendment. This opinion is being furnished to
you pursuant to Section 6(c) of the Amendment.
For the purpose of rendering this opinion, I have examined and am familiar with
originals executed by the Borrower, or certified copies, of the Amendment.
I have also examined and am familiar with executed originals or certified copies
of (i) the Articles of Incorporation or Organization and Bylaws or Operating
Agreements of each of the Obligors (each as currently in full force and effect),
and (ii) resolutions of the board of directors of each of the Obligors relating
to the authorization, execution and delivery of the Amendment and the
consummation of the transactions contemplated thereby, each as currently in full
force and effect. I have also examined and relied upon such public records and
such certificates of officers of each of the Obligors as I have deemed necessary
or appropriate in rendering this opinion, and upon originals or copies,
certified or otherwise identified to my satisfaction, of such other documents,
corporate records, certificates and instruments as in my judgment are necessary
or appropriate to enable me to render the opinions expressed below. In such
review, I have assumed the authenticity of all documents submitted to me as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents submitted to me as
copies.
Based upon the foregoing, and subject to the qualifications particularly
hereinafter set forth, I am of the opinion that:
1. Each of the Obligors has the requisite corporate or company, as the case
may be, power and authority to execute and deliver the Amendment and to
perform all of the terms and provisions of the Amendment to be performed by
it.
2. Each of the Obligors has taken all corporate or company, as the case may
be, action necessary on the part of such Obligor to authorize the execution
and delivery of the Amendment, and the performance by it of its obligations
thereunder.
Although not admitted to practice in the State of Delaware, my opinions are
limited by and subject to the following:
My opinions are based solely upon the laws of the United States of
America, the Commonwealth of Kentucky and the Delaware General
Corporation Law. I express no opinion concerning the laws of any
other jurisdiction.
This opinion has been made solely for the benefit of the Administrative Agent
and the other Lenders party to the Credit Agreement, and no other person or
entity shall be entitled to rely hereon without my express prior written
consent.
Yours very truly,
Lenna Ruth Macdonald
Vice President and General Counsel
LRM/dea
Exhibit 13
----------
Portions of the annual report to stockholders for the year ended December 31,
2001 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,
2001.
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 6
Financial Data
(B) Part II, item 7 Management's Discussion and pages 7
Analysis of Financial Condition thru 12
and Results of Operations
Part II, item 7A Quantitative and Qualitative pages 11
Disclosures About Market Risk thru 12
(C) Part II, item 8 Consolidated Balance Sheet page 13
Part II, item 8 Consolidated Statement of Operations page 14
Part II, item 8 Consolidated Statement of page 14
Comprehensive Income (Loss)
Part II, item 8 Consolidated Statement of page 15
Changes in Stockholders'
Equity
Part II, item 8 Consolidated Statement of page 16
Cash Flows
Part II, item 8 Notes to Consolidated pages 17
Financial Statements thru 38
Part II, item 8 Report of Independent Auditors page 39
The items follow:
Exhibit 13 item (A)
-------------------
COMMONWEALTH INDUSTRIES, INC.
Consolidated Selected Financial Data
(in thousands except per share data)
Year ended December 31,
-----------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- --------------
Statement of Operations Data:
Net sales $ 920,504 $ 1,125,142 $1,074,939 $ 992,004 $ 1,115,178
Gross profit 47,031 82,205 86,865 69,455 88,043
Operating income (loss) (2) (178,747) 21,929 28,440 21,421 41,593
Income (loss) before extraordinary loss (2) (193,552) 3,491 11,011 143 9,122
Net income (loss) (1) (2) (3) (193,552) 3,491 11,011 143 7,941
Net income (loss) per share data: (1) (2) (3)
Basic and diluted
Income (loss) before extraordinary loss $ (11.78) $ 0.21 $ 0.68 $ 0.01 $ 0.78
Extraordinary loss - - - - (0.10)
----------- ------------ ----------- --------- --------------
Net income (loss) $ (11.78) $ 0.21 $ 0.68 $ 0.01 $ 0.68
=========== ============ =========== ========= ==============
Cash dividends paid per share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Operating Data:
Depreciation and amortization $ 35,329 $ 39,351 $ 36,513 $ 34,728 $ 34,710
Capital expenditures $ 9,002 $ 18,445 $ 36,715 $ 33,650 $ 21,736
Commonwealth Aluminum business unit:
Net sales $ 801,786 $ 990,961 $ 944,438 $ 865,043 $ 983,340
Shipments (pounds) 801,274 966,597 1,022,680 884,169 990,207
Alflex business unit:
Net sales $ 118,718 $ 134,181 $ 130,501 $ 126,961 $ 131,838
Shipments (feet) 509,326 592,863 576,205 517,380 521,711
Balance Sheet Data:
Working capital $ 121,483 $ 138,462 $ 123,067 $ 115,192 $ 112,924
Total assets 439,632 655,340 706,322 648,399 667,421
Total debt 125,000 125,000 125,000 125,000 125,650
Total stockholders' equity 134,166 338,393 336,676 326,529 330,473
(1) 2001, 2000 and 1999 net income (loss) and net income (loss) 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.
(2) 2001 includes a non-cash asset impairment charge of $167.3 million or
($10.18) per diluted share. The asset impairment charge had no tax effect.
See note 2 to the consolidated financial statements for additional
information.
(3) 1997 includes an extraordinary loss recorded on the early extinguishment of
debt of $1.5 million ($1.2 million net of income tax benefit).
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, 2001, 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, 2001 and the notes thereto including footnote 1 which
describes the Company's significant accounting policies including its 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. The
Company's most significant estimates relate to the valuation of property, plant
and equipment and goodwill, assumptions for computing pension and postretirement
benefits obligations, allowance for uncollectible accounts receivable and
environmental liabilities. 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 effect (including possible increases in the cost of
doing business) resulting from war or terrorist activities or political
uncertainties, 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.
During 2001, net sales of the Company's aluminum sheet products
decreased 19% from the year 2000 while shipment volume decreased 17% from 2000.
Demand for the Company's aluminum sheet products decreased in 2001 reflecting
ongoing weak business conditions throughout the economy generally and
specifically across the Company's various markets with the exception of
residential building and construction which remained relatively strong as a
result of interest rate reductions throughout the year. Further recovery in the
Company's key markets remains uncertain, considering slowing economic growth and
the impact on demand that has occurred as a consequence of the September
terrorist events. In addition, material margins have been declining this year
due to a highly competitive marketplace.
Demand for the Company's electrical products also decreased during
2001. Shipments were down 14% compared to the year 2000 due to weak customer
demand. Material margins for 2001 were up 19% from the margins experienced in
2000 due to increased selling prices on armored cable products and a reduction
in material costs per foot. The higher material margins for 2001 more than
offset the effect of the decline in shipment volume and higher manufacturing
unit costs compared to the year 2000 and returned the Company's electrical
products business unit to an operating profit in 2001.
During the fourth quarter of 2001, the Company recorded nonrecurring
non-cash asset impairment charges totaling $167.3 million or $10.18 per share
(before and after tax) to reduce the carrying amount of property, plant and
equipment and goodwill in accordance with the provisions of Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"). See the caption
entitled "Asset Impairment Charges" in the following section and footnote 2 to
the consolidated financial statements for additional information.
In addition, during 2001 and 2000 LIFO inventory quantities were
reduced, resulting in a partial liquidation of the LIFO bases, the effect of
which decreased the net loss in 2001 by approximately $0.03 million, which had
no effect on the per share amount and increased net income for 2000 by
approximately $4.5 million, or $0.27 per share. See note 4 to the consolidated
financial statements for additional information.
Results of Operations for 2001, 2000 and 1999
Net Sales. Net sales for 2001 decreased 18% to $920.5 million
(including $118.7 million from the Company's Alflex electrical products
subsidiary) from $1.13 billion (including $134.2 million from Alflex) in 2000.
The decrease is due to continued weak customer demand affecting virtually all of
the Company's markets with the exception of residential building and
construction which as mentioned previously remained relatively strong as a
result of interest rate reductions throughout the year. Unit sales volume of
aluminum products decreased 17% to 801 million pounds in 2001 from 967 million
pounds in 2000. Alflex unit sales volume was 509 million feet for 2001 compared
to 593 million feet for 2000.
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.
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 593 million
feet for 2000 compared to 576 million feet for 1999.
Gross Profit. Gross profit decreased 43% (to 5.1% of net sales) in 2001
after a 5% decrease (to 7.3% of net sales) in 2000 from 1999 gross profit (8.1%
of net sales). The 2001 decrease was related entirely to the aluminum business
unit where a highly competitive marketplace resulted in lower shipment volumes
and lower material margins. On the other hand, the Alflex business unit
increased its gross profit for 2001 versus the year 2000 due to improved
material margins.
The 2000 decrease from 1999 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 2% in 2001 from 2000. Contributing to the
decrease were lower incentive accruals, lower on-going salary and related
employee benefits expense due to the reductions in the workforce, lower
depreciation and one time severance expenses recorded in the fourth quarter of
2000. Limiting the amount of the decrease was a $3.2 million increase in the
provision for uncollectible accounts receivable, principally relating to the
recent Chapter 11 bankruptcy filings by certain of the Company's customers, and
a $2.5 million additional expense relating to the termination of the Company's
1999 Executive Incentive Plan.
Selling, general and administrative expenses increased 3% in 2000 from
1999. 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 a decrease in salary and benefits
expense due to 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.
Amortization of Goodwill. Amortization of goodwill was $4.0 million in
2001 and $4.5 million in both 2000 and 1999. The decrease in amortization in
2001 was due to the write-down of goodwill in the Company's aluminum business
unit during the fourth quarter of 2001. Goodwill will no longer be amortized
beginning January 2002 as required by the Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets". See note 2 to the
consolidated financial statements for additional information.
Asset Impairment Charges. Non-cash asset impairment charges of $167.3
million were recorded in 2001 related to the impairment of certain property,
plant and equipment and goodwill in the Company's aluminum business segment. The
$167.3 million asset impairment charges were composed of $85.4 million of
property, plant and equipment write-downs and $81.9 million of goodwill
write-downs. See note 2 to the consolidated financial statements for additional
information.
Operating Income (Loss). Operating income decreased $200.7 million in
2001 to an operating loss of $178.7 million, after having decreased $6.5 million
or 23% in 2000 to an operating income of $21.9 million, in each case reflecting
the asset impairment charges and the other 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 2001 decreased 23% to $15.5
million from $20.1 million in 2000. The decrease in the Company's interest
expense is primarily due to a reduction in amounts outstanding under the
Company's accounts receivable securitization facility.
Interest expense in 2000 increased 4% to $20.1 million from $19.3
million in 1999. The 2000 increase from 1999 is primarily due to the higher
interest rates under the Company's accounts receivable securitization facility.
Income Tax Expense . Income tax expense in 2000 and 1999 reflect the
use of the Company's net operating loss ("NOL") carryforwards to offset taxable
income for federal income tax purposes whereas in 2001 the Company generated an
additional NOL carryforward for federal income tax purposes. At December 31,
2001, the Company had remaining available NOL carryforwards of approximately $86
million. These NOL carryforwards will expire in various amounts from 2002
through 2021. 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. Approximately $52 million of the $86
million of NOL carryforwards mentioned previously are subject to this annual
limitation with the remaining amounts having no such annual limitation.
The Company recognized an income tax expense of $0.2 million in 2001
compared to an income tax expense of $0.3 million in 2000 and $1.0 million in
1999.
Net Income (Loss). The Company recorded a net loss for 2001 of $193.6
million after recording net income of $3.5 million in 2000 and $11.0 million in
1999, 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 (during 2001 the
Company agreed to limit borrowings under the revolving credit facility to $65
million and during March 2002 the Company amended the revolving credit facility
to further reduce the amount of the facility to $20 million). 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 2002.
During 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 2000, the Company and the financial institution extended the
accounts receivable securitization facility for an additional three-year period
ending in September 2003. In addition during September 2001, the Company and the
financial institution agreed to reduce the size of the facility to $95.0
million. At December 31, 2001 and 2000, the Company had outstanding under the
agreement $20.0 million (the minimum that is required under the agreement) and
$69.0 million, respectively, and had $82.3 million and $72.4 million,
respectively, of net residual interest in the securitized receivables. 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 the year 2001, the Company received
gross proceeds of $38.0 million from the sale of receivables and made gross
payments of $87.0 million under the agreement. Under the terms of the agreement,
the Company is required to maintain tangible net worth of $5 million, and to not
exceed certain percentages of credit sales for uncollectible accounts,
delinquent accounts and sales returns and allowances. Should the Company exceed
such limitations, the financial institution has the right to terminate the
agreement.
The Company's cash flows from operations in 2001, 2000 and 1999 were
$3.2 million, $33.0 million and $38.8 million, respectively. The cash flows from
operations decreased in 2001 primarily due to reduced income. Working capital
decreased to $121.5 million at December 31, 2001 from $138.5 million at December
31, 2000 and $123.1 million at December 31, 1999.
The Company's revolving credit facility permits borrowings and letters
of credit up to $100.0 million outstanding at any time, however, as previously
described, during 2001 the Company agreed to limit borrowings under the
revolving credit facility to $65 million and during March 2002 the Company
amended the revolving credit facility to further reduce the amount of the
facility to $20 million. Availability is subject to satisfaction of certain
covenants and other requirements. At December 31, 2001 $64.3 million was
available and after the March 2002 amendment $19.3 million was available. The
March 2002 amendment also extended the facility commitment from September 2,
2002 to March 31, 2005.
Capital expenditures were $9.0 million, $18.4 million and $36.7 million
in 2001, 2000 and 1999, respectively, and are estimated to be $14.9 million in
2002, all generally related to upgrading and expanding the Company's
manufacturing and other facilities and meeting environmental requirements.
The following schedules summarize the Company's contractual cash
obligations and unused availability of financing sources at December 31, 2001
(in thousands).
Payments Due By Period
------------------------------------------------------------
Contractual Cash Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years
- ------------------------------------------------------------------------------------------------------------
Long-term debt $125,000 $ -- $ -- $125,000 $ --
Operating leases 15,498 3,715 5,694 2,129 3,960
Standby letters of credit 740 740 -- -- --
Outstanding obligation under
Accounts receivable
Securitization agreement 20,000 20,000 -- -- --
----------------------------------------------------------------------
Total contractual cash obligations $161,238 $24,455 $5,694 $127,129 $3,960
======================================================================
Amount of Availability Per Period
Unused Availability of Total Amounts ------------------------------------------------------------
Financing Sources Available Less than 1 year 1-3 years 4-5 years Over 5 years
- ------------------------------------------------------------------------------------------------------------
Unused revolving credit
Facility $ 64,260 (1) $64,260 (1) $ -- $ -- $ --
Unused availability under
Accounts receivable
Securitization agreement 68,215 -- 68,215 -- --
------------------------------------------------------------------------
Total available $132,475 (2) $64,260 (1) $68,215 $ -- $ --
========================================================================
(1) The amount would be reduced to $19,260 and would move to the 4-5 years
period giving effect to the March 2002 amendment to the revolving credit
facility described previously.
(2) The amount would be reduced to $87,475 giving effect to the March 2002
amendment to the revolving credit facility described previously.
The Company has 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 at current
market prices from Glencore over the 10-year term beginning in January 2001.
At December 31, 2001, the Company held firm-priced aluminum purchase
and sales commitments through 2003 totaling $18 million and $160 million,
respectively. The Company hedges the impact of changes in prices related to
these commitments as explained in the caption entitled "Commodity Price Risk" in
the following section.
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 $3.2 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 a policy of hedging its anticipated raw material
purchases based on firm-priced sales and purchase orders by purchasing and
selling futures contracts, forward contracts and options on the London Metal
Exchange ("LME"). The Company also uses forward contracts and options to reduce
its risks associated with its natural gas requirements.
As described in note 6 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133") effective
January 1, 2001 and has designated virtually all of its aluminum and natural gas
futures contracts and forward contracts as cash flow hedges.
Gains and losses on these instruments that are deferred in other
comprehensive income are reclassified into net income as cost of goods sold in
the periods when the hedged transactions occur. As of December 31, 2001,
approximately $10.0 million of the $11.3 million of deferred net losses are
expected to be reclassified from other comprehensive income into net income as
cost of goods sold over the next twelve months. A net loss of $0.1 million was
recognized in cost of goods sold during the twelve months ended December 31,
2001, representing the amount of the hedges' ineffectiveness. As of December 31,
2001, the Company held open aluminum and natural gas futures contracts, forward
contracts and options having maturity dates extending through December 2003.
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, 2001 the Company
had approximately 63,075 metric tonnes of LME futures contracts. A hypothetical
10% change from the 2001 year-end three-month high grade aluminum price of
$1,351 per metric tonne would result in a change in fair value of $8.5 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 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
forward contracts. Market risk is estimated as the potential loss in fair value
resulting from a hypothetical 10% adverse change in the price of the forward
contract. On December 31, 2001 the Company had approximately 5.0 million cubic
feet of NYMEX forward contracts. A hypothetical 10% change from the 2001
year-end three-month natural gas price of $2.565 per cubic foot would result in
a change in fair value of $1.3 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. Assessments of credit worthiness and credit risk are
completed on potential and existing customers through a review of trade
references, bank references, financial statements, and independent credit bureau
reports.
Also as previously discussed, the Company utilizes futures contracts,
forward 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.
Assessments of credit risks with trading partners (brokers) are completed
through a review of the broker's ratings with credit rating agencies. 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. Brokers of natural gas
forward contracts are not regulated. At December 31, 2001, credit lines totaling
$38 million were available at various brokerages used by the Company.
Interest Rate Risk. In order to hedge a portion of its interest rate
risk, the Company was a party to an interest rate swap agreement with a notional
amount of $5 million under which the Company paid a fixed rate of interest and
received a LIBOR-based floating rate. The interest rate swap agreement expired
during September 2001 and as of December 31, 2001 the Company had no interest
rate swap agreements in effect. The Company's interest rate swap agreement which
expired during September 2001 did not qualify for hedge accounting under SFAS
No. 133 and as such the change in the fair value of the interest rate swap
agreement had been recognized currently as interest expense, net in the
Company's consolidated income statement. The amount of such change in the fair
value of the interest rate swap agreement was immaterial for the twelve months
ended December 31, 2001.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). The Statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes
Accounting Principles Board Opinion No. 17, "Intangible Assets" and amends
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), to exclude from its scope goodwill and intangible assets that
are not amortized. The Statement addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements upon
their acquisition. This Statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. Under SFAS No. 142, goodwill is no
longer amortized but reviewed for impairment annually or more frequently if
certain indicators arise, using a two-step approach. SFAS No. 142 is effective
January 1, 2002 and the Company is required to complete step one of a
transitional impairment test by June 30, 2002 and to complete step two of the
transitional impairment test, if step one indicates that the reporting unit's
carrying value exceeds its fair value, by December 31, 2002. Any impairment loss
resulting from the transitional impairment test will be recorded as a cumulative
effect of a change in accounting principle in the quarter ended March 31, 2002.
Any subsequent impairment losses would be reflected in operating income in the
consolidated statement of operations. Management is currently evaluating the
impact of SFAS No. 142 and, based on the preliminary results of step one of the
transitional impairment test for the Company's electrical products segment, the
Company will be required to perform step two of the transitional impairment test
for this segment and a goodwill write-down may be required that could have a
material impact on the Company's results of operations or financial position.
Management currently anticipates concluding step two of the transitional
impairment test and recording any indicated goodwill write-down during the
second quarter of 2002. As required by SFAS No.142 and previously described, the
Company would record the write-down as a cumulative effect of a change in
accounting principle as of January 1, 2002 and would restate the Company's first
quarter 2002 financial results.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). The Statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement supersedes SFAS No. 121, and the accounting
and reporting provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a "segment of a business" (as
previously defined in that Opinion). This Statement also amends Accounting
Research Bulletin No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The objectives of SFAS No. 144 are to address significant issues
relating to the implementation of SFAS No. 121 and to develop a single
accounting model, based on the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. The Company currently expects to adopt SFAS No. 144 in the
Company's first quarter 2002, as required. Management is currently evaluating
the impact of SFAS No. 144, but 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,
--------------------------------------
2001 2000
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 6,393 $ 11,514
Accounts receivable, net 81 111
Inventories 119,038 137,685
Net residual interest in securitized receivables 82,310 72,367
Prepayments and other current assets 3,230 11,363
------------- -------------
Total current assets 211,052 233,040
Property, plant and equipment, net 152,137 258,963
Goodwill, net 74,199 160,134
Other noncurrent assets 2,244 3,203
------------- -------------
Total assets $ 439,632 $ 655,340
============= =============
Liabilities
Current liabilities:
Accounts payable $ 50,693 $ 53,522
Accrued liabilities 38,876 41,056
------------- -------------
Total current liabilities 89,569 94,578
Long-term debt 125,000 125,000
Other long-term liabilities 6,899 6,369
Accrued pension benefits 4,576 9,085
Accrued postretirement benefits 79,422 81,915
------------- -------------
Total liabilities 305,466 316,947
------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
15,969,030 and 16,528,051 shares outstanding at
December 31, 2001 and 2000, respectively 160 165
Additional paid-in capital 405,443 408,505
Accumulated deficit (258,532) (61,688)
Unearned compensation - (7)
Notes receivable from sale of common stock (1,561) (8,582)
Accumulated other comprehensive income:
Minimum pension liability adjustment - -
Effects of cash flow hedges (11,344) -
------------- -------------
Total stockholders' equity 134,166 338,393
------------- -------------
Total liabilities and stockholders' equity $ 439,632 $ 655,340
============= =============
The accompanying notes are an intergral part of the consolidated financial
statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Operations
(in thousands except per share data)
Year ended December 31,
-------------------------------------------------------
2001 2000 1999
-------------- --------------- -------------
Net sales $ 920,504 $1,125,142 $1,074,939
Cost of goods sold 873,473 1,042,937 988,074
-------------- --------------- -------------
Gross profit 47,031 82,205 86,865
Selling, general and administrative expenses 54,523 55,800 53,949
Amortization of goodwill 3,988 4,476 4,476
Asset impairment charges 167,267 - -
-------------- --------------- -------------
Operating income (loss) (178,747) 21,929 28,440
Other income (expense), net 907 1,975 2,861
Interest expense, net (15,512) (20,067) (19,333)
-------------- --------------- -------------
Income (loss) before income taxes (193,352) 3,837 11,968
Income tax expense 200 346 957
-------------- --------------- -------------
Net income (loss) $(193,552) $ 3,491 $ 11,011
============== =============== =============
Basic and diluted net income (loss) per share $ (11.78) $ 0.21 $ 0.68
============== =============== =============
Weighted average shares outstanding
Basic 16,428 16,567 16,224
Diluted 16,428 16,573 16,281
The accompanying notes are an intergral part of the consolidated financial
statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Comprehensive Income (Loss)
(in thousands)
Year ended December 31,
------------------------------------------------------
2001 2000 1999
-------------- -------------- -------------
Net income (loss) $(193,552) $ 3,491 $ 11,011
Other comprehensive income, net of tax:
Minimum pension liability adjustment - - 2,131
Net change related to cash flow hedges:
Cumulative effect of accounting change 6,619 - -
Change in fair value of cash flow hedges (31,451) - -
Reclassification to net income 13,488 - -
-------------- -------------- -------------
Net change related to cash flow hedges (11,344) - -
-------------- -------------- -------------
Comprehensive income (loss) $(204,896) $ 3,491 $ 13,142
============== ============== =============
The accompanying notes are an intergral part of the consolidated financial
statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Changes in Stockholders' Equity
(in thousands except share and per share data)
Accumulated
Other
Comprehensive
Income:
Notes ------------------
Common Stock Receivable Minimum Effects of
----------------- Additional From Sale Pension Cash Total
Number of Paid-in Accumulated Unearned of Common Liability Flow Stockholders'
Shares Amount Capital Deficit Compensation Stock Adjustment Hedges Equity
---------- ------- ---------- ---------- ------------ --------- --------- ------ -----------
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)
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
Net income (loss) - - - (193,552) - - - - (193,552)
Cash dividends, $0.20 per share - - - (3,292) - - - - (3,292)
Effects of cash flow hedges - - - - - - - (11,344) (11,344)
Amortization of unearned compensation - - - - 7 - - - 7
Issuance of stock in connection
with stock awards 24,975 - 106 - - - - - 106
Repayments of notes receivable and
retirement of common stock (583,996) (5) (3,168) - - 7,021 - - 3,848
---------- ------- ---------- ---------- ---------- -------- -------- ------ ----------
Balance December 31, 2001 15,969,030 $ 160 $ 405,443 $(258,532) $ - $(1,561) $ - $(11,344) $ 134,166
========== ======= ========== ========== ========== ======== ======== ====== ==========
The accompanying notes are an intergral part of the consolidated financial
statements.
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Cash Flows
(in thousands)
Year ended December 31,
--------------------------------------------------
2001 2000 1999
------------ ------------- ----------
Cash flows from operating activities:
Net income (loss) $(193,552) $ 3,491 $11,011
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization 35,329 39,351 36,513
Asset impairment charges 167,267 - -
Loss on disposal of property, plant and equipment 364 1,280 389
Issuance of common stock in connection with stock awards 106 121 44
Changes in assets and liabilities:
Decrease in accounts receivable, net 30 7 110
Decrease (increase) in inventories 18,647 69,728 (32,445)
(Increase) in net residual interest in securitized receivables (9,943) (32,387) (23,957)
Decrease (increase) in prepayments and other current assets 8,133 2,478 (4,497)
(Increase) decrease in other noncurrent assets (322) 426 2,878
(Decrease) increase in accounts payable (2,829) (44,415) 43,693
(Decrease) increase in accrued liabilities (13,524) 1,896 8,027
(Decrease) in other liabilities (6,472) (8,992) (3,001)
------------ ------------- ----------
Net cash provided by operating activities 3,234 32,984 38,765
------------ ------------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (9,002) (18,445) (36,715)
Proceeds from sale of property, plant and equipment 91 50 12
------------ ------------- ----------
Net cash (used in) investing activities (8,911) (18,395) (36,703)
------------ ------------- ----------
Cash flows from financing activities:
(Decrease) increase in outstanding checks in excess of deposits - (1,188) 1,188
Proceeds from long-term debt 57,110 57,100 46,770
Repayments of long-term debt (57,110) (57,100) (46,770)
Repayments of notes receivable from sale of common stock 3,848 1,426 -
Cash dividends paid (3,292) (3,313) (3,256)
------------ ------------- ----------
Net cash provided by (used in) financing activities 556 (3,075) (2,068)
------------ ------------- ----------
Net (decrease) increase in cash and cash equivalents (5,121) 11,514 (6)
Cash and cash equivalents at beginning of period 11,514 - 6
------------ ------------- ----------
Cash and cash equivalents at end of period $ 6,393 $ 11,514 $ -
============ ============= ==========
Supplemental disclosures:
Interest paid $ 15,609 $ 21,098 $ 19,672
Income taxes paid 36 198 2,412
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 3,173 503 -
The accompanying notes are an intergral part of the 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. The Company's most significant
estimates relate to the valuation of property, plant and equipment and goodwill,
assumptions for computing pension and postretirement benefits obligations,
allowance for uncollectible accounts receivable and environmental liabilities.
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 2001 and 2000, sales to one major customer
amounted to approximately 12.2% and 14.0%, respectively, of the Company's net
sales. No other single customer accounted for more than 10% of the Company's net
sales in 2001, 2000 or 1999. 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 4.
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 $23.1 million and $19.1 million at December 31, 2001 and 2000,
respectively. Beginning January 1, 2002 goodwill will no longer be amortized,
but instead will be evaluated annually for impairment. See "Recently Issued
Accounting Standards" section of this footnote for additional information.
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. The Company recorded an impairment charge in the fourth
quarter of 2001. See footnote 2 for additional information.
Financial Instruments
The Company enters into futures contracts, forward contracts and options to
manage exposures to price risk related to aluminum and natural gas purchases.
The Company also occasionally uses interest rate swap agreements to manage
interest rate risk. Gains and losses on these financial instruments which
effectively hedge exposures are deferred, net of taxes, in other comprehensive
income and included in income when the underlying transactions occur. The
ineffective portion of the gains and losses are recorded currently in the
consolidated statement of income. Gains and losses on certain other financial
instruments entered into to mitigate risk which do not qualify for hedge
accounting are recognized currently in the consolidated statement of income. See
footnote 6 for additional information.
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.
The Company classifies shipping costs incurred as a component of cost of goods
sold in accordance with the requirements of Emerging Issues Task Force Issue No.
00-10.
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, does not reflect
any offset for possible recoveries from insurance companies and is not
discounted.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142"). The Statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes Accounting
Principles Board Opinion No. 17, "Intangible Assets" and amends Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"),
to exclude from its scope goodwill and intangible assets that are not amortized.
The Statement addresses how intangible assets that are acquired individually or
with a group of other assets (but not those acquired in a business combination)
should be accounted for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. Under SFAS No. 142, goodwill is no longer amortized but reviewed for
impairment annually or more frequently if certain indicators arise, using a
two-step approach. SFAS No. 142 is effective January 1, 2002 and the Company is
required to complete step one of a transitional impairment test by June 30, 2002
and to complete step two of the transitional impairment test, if step one
indicates that the reporting unit's carrying value exceeds its fair value, by
December 31, 2002. Any impairment loss resulting from the transitional
impairment test will be recorded as a cumulative effect of a change in
accounting principle in the quarter ended March 31, 2002. Any subsequent
impairment losses would be reflected in operating income in the consolidated
statement of operations. Management is currently evaluating the impact of SFAS
No. 142 and, based on the preliminary results of step one of the transitional
impairment test for the Company's electrical products segment, the Company will
be required to perform step two of the transitional impairment test for this
segment and a goodwill write-down may be required that could have a material
impact on the Company's results of operations or financial position. Management
currently anticipates concluding step two of the transitional impairment test
and recording any indicated goodwill write-down during the second quarter of
2002. As required by SFAS No.142 and previously described, the Company would
record the write-down as a cumulative effect of a change in accounting principle
as of January 1, 2002 and would restate the Company's first quarter 2002
financial results.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"). The Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This Statement supersedes SFAS No. 121, and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
for the disposal of a "segment of a business" (as previously defined in that
Opinion). This Statement also amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The objectives of
SFAS No. 144 are to address significant issues relating to the implementation of
SFAS No. 121 and to develop a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. The Company currently
expects to adopt SFAS No. 144 in the Company's first quarter 2002, as required.
Management is currently evaluating the impact of SFAS No. 144, but this
Statement is not expected to have a material impact on the Company's results of
operations or financial position.
2. Asset Impairment Charges
During the fourth quarter of 2001, the Company recorded a non-cash asset
impairment charge of $167.3 million or $10.18 per share (before and after tax)
related to the impairment of certain property, plant and equipment and goodwill
in its aluminum business segment. The asset impairment charges resulted from the
application of 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" (`'SFAS No.121") which requires that long-lived
assets, certain intangibles and goodwill held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable. The Company undertook the
impairment review upon concluding, in the weeks following the tragic events of
September 11, that the economic recovery forecast by the Company to restore its
aluminum rolling mill operations to profitability in the second half of 2001
would not occur, and that a continuation of poor market conditions would impact
the carrying amount of the assets. The estimated fair value of the assets was
based on anticipated cash flows of the operations in the aluminum business unit
discounted at a rate commensurate with the risk involved. The $167.3 million
impairment charge was composed of $85.4 million of property, plant and equipment
write-downs and $81.9 million of goodwill write-downs. As a result of the SFAS
No. 121 impairment charges, depreciation expense related to these property,
plant and equipment assets will decrease in future periods. Goodwill will no
longer be amortized beginning January 2002 as required by the Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
3. 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. In addition during September 2001,
the Company and the financial institution agreed to reduce the size of the
facility to $95.0 million. At December 31, 2001 and 2000, the Company had
outstanding under the agreement $20.0 million (the minimum that is required
under the agreement) and $69.0 million, respectively, and had $82.3 million and
$72.4 million, respectively, of net residual interest in the securitized
receivables. 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 2001, the Company
received gross proceeds of $38.0 million from the sale of receivables and made
gross payments of $87.0 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 $1.2 million and $2.9 million at
December 31, 2001 and 2000, respectively, and is netted against the net residual
interest in the securitized receivables in the Company's consolidated financial
statements.
Under the terms of the agreement, the Company is required to maintain tangible
net worth of $5 million, and to not exceed certain percentages of credit sales
for uncollectible accounts, delinquent accounts and sales returns and
allowances. Should the Company exceed such limitations, the financial
institution has the right to terminate the agreement.
4. Inventories
Inventories at December 31 consist of the following (in thousands):
2001 2000
---- ----
Raw materials $21,203 $50,154
Work in process 45,830 49,473
Finished goods 35,978 33,899
Expendable parts and supplies 14,223 15,850
-------- --------
117,234 149,376
LIFO reserve 1,804 (11,691)
-------- --------
$119,038 $137,685
======== ========
Inventories of approximately $102.2 million and $128.2 million, included in the
above totals (before the LIFO reserve) at December 31, 2001 and 2000,
respectively, are accounted for under the LIFO method of accounting.
During 2001 and 2000, LIFO inventory quantities were reduced, resulting in a
partial liquidation of the LIFO bases, the effect of which increased the net
loss in 2001 by approximately $0.03 million, which had no effect on the per
share amount and increased net income in 2000 by approximately $4.5 million, or
$0.27 per share.
5. Property, Plant and Equipment
Property, plant and equipment and the related accumulated depreciation at
December 31 consist of the following (in thousands):
2001 2000
---- ----
Land and improvements $17,134 $21,804
Buildings and improvements 54,825 77,091
Machinery and equipment 309,019 463,291
Construction in progress 7,224 18,110
-------- --------
388,202 580,296
Less accumulated depreciation 236,065 321,333
-------- --------
Net property, plant and equipment $152,137 $258,963
======== ========
Depreciation expense was $30.1 million, $33.7 million and $30.6 million for the
years ended 2001, 2000 and 1999, respectively. The net book value of property,
plant and equipment was reduced by $85.4 million in 2001 as a result of the
asset impairment charges described in note 2.
6. Financial Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", including Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133" ("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. Under SFAS No. 133, gains and losses that represent the
effective portion of cash flow hedge transactions are recorded in other
comprehensive income. Gains and losses on these instruments that are deferred in
other comprehensive income are reclassified into net income as cost of goods
sold in the periods when the hedged transactions occur.
The Company enters into futures contracts, forward contracts and options to
manage exposures to price risk related to aluminum and natural gas purchases.
The Company has designated the futures contracts and forward contracts as cash
flow hedges of anticipated aluminum raw material and natural gas requirements,
respectively. 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. Assessments of credit risks
with trading partners (brokers) are completed through a review of the broker's
ratings with credit rating agencies. 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. Brokers of natural gas forward contracts are
not regulated. At December 31, 2001, credit lines totaling $38 million were
available at various brokerages used by the Company.
The Company recorded a cumulative-effect-type net gain transition adjustment of
$6.6 million in accumulated other comprehensive income to recognize at fair
value all derivatives that were designated as cash-flow hedging instruments upon
adoption of SFAS No. 133 on January 1, 2001. All of this amount was reclassified
from accumulated other comprehensive income into cost of goods sold during 2001.
As of December 31, 2001, approximately $10.0 million of the $11.3 million of
deferred net losses are expected to be reclassified from other comprehensive
income into net income as cost of goods sold over the next twelve months. As of
December 31, 2001, the Company held open aluminum and natural gas futures
contracts, forward contracts and options having maturity dates extending through
December 2003. A net loss of $0.1 million was recognized in cost of goods sold
during the year ended December 31, 2001 representing the amount of the hedges'
ineffectiveness.
In order to hedge a portion of its interest rate risk, the Company was a party
to an interest rate swap agreement with a notional amount of $5 million under
which the Company paid a fixed rate of interest and received a LIBOR-based
floating rate. The interest rate swap agreement expired during September 2001
and currently the Company has no interest rate swap agreements in effect. The
Company's interest rate swap agreement which expired during September 2001 did
not qualify for hedge accounting under SFAS 133 and as such the change in the
fair value of the interest rate swap agreement had been recognized currently as
interest expense, net in the Company's consolidated income statement. The amount
of such change in the fair value of the interest rate swap agreement was
immaterial for the year ended December 31, 2001.
Prior to the adoption of SFAS No.133, gains, losses and premiums on futures
contracts, forward contracts and options which effectively hedged exposures were
included in income as a component of the underlying transaction. At December 31,
2000, the Company had open aluminum and natural gas futures contracts, forward
contracts and options with a fair value of $105.5 million. The Company had net
unrealized gains of $7.0 million as of December 31, 2000 on these open futures
contracts, forward contracts and options. Net unrealized gains and losses on
open futures contracts, forward contracts and options were recorded in the
consolidated balance sheet as accrued liabilities and prepayments and other
current assets, respectively. Futures contracts, forward contracts and options
were valued at the settlement price on the last business day of the year.
At December 31, 2001, the Company held aluminum purchase and sales commitments
through 2003 totaling $18 million and $160 million, respectively. At December
31, 2000, the Company held aluminum purchase and sales commitments through 2001
totaling $44 million and $168 million, respectively.
7. Long-term Debt and Revolving Credit Facility
Long-term debt of the Company at December 31 consisted of the following (in
thousands):
2001 2000
---- ----
Senior subordinated notes $125,000 $125,000
Revolving credit facility - -
-------- --------
125,000 125,000
Less current maturities - -
-------- --------
$125,000 $125,000
======== ========
The Company's $125 million of 10.75% senior subordinated notes are due in 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 which was led by
Bank One Corporation. During March 2002, the credit agreement was amended
("amended credit agreement") and PNC Bank replaced Bank One Corporation as the
administrative agent and several of the banks in the syndicate were replaced
with other banks. Prior to March 2002, the credit agreement included a $100
million revolving credit facility under which the Company during 2001 had agreed
to limit borrowings to $65 million. The borrowing limitation has been further
reduced to $20 million under the amended credit agreement. 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
(reduced to $7.5 million under the amended credit agreement) of the revolving
credit facility is available for standby and commercial letters of credit. The
amended credit agreement extended the revolving credit facility commitment from
September 2, 2002 to March 31, 2005.
Borrowings under the credit agreement bear interest at a variable base rate per
annum plus up to an additional 1.75% (changed to 2.00% in the amended credit
agreement) 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 facility fee ranging from 0.425% to 0.500% (changed to
0.750% in the amended credit agreement). The Company must pay a fee ranging from
1.325% to 1.750% (changed to 1.500% to 2.000% in the amended credit agreement)
per annum on the carrying amount of each outstanding letter of credit. At
December 31, 2001 and 2000, standby letters of credit totaling $0.7 million and
$0.8 million, respectively, were outstanding under the revolving credit
facility.
The credit agreement includes covenants which, among others, relate to leverage,
interest coverage, fixed charges, capital expenditures and the payment of
dividends.
The Company from time to time 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 December 31, 2000, the Company had an interest rate
swap agreement in place covering approximately $5 million of the Company's
exposure to variable interest rates. The fair value of this interest rate swap
agreement at December 31, 2000 was a liability of $0.1 million. The fixed
interest rate was 6.87%. The interest rate swap agreement expired in September
2001 and as of December 31, 2001 the Company had no interest rate swap
agreements in effect.
Based on estimated market values at December 31, 2001 and 2000, the fair value
of the senior subordinated notes was approximately $123 million and $109
million, respectively.
Future aggregate maturities of long-term debt at December 31, 2001 are as
follows (in thousands):
2002 $ -
2003 -
2004 -
2005 -
2006 125,000
--------
Total $125,000
========
8. 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
provided 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 (the "Committee")
of the Board of Directors. During December 2001, the Committee terminated the
Program and the Board of Directors, at the recommendation of the Committee,
authorized all loans to be repaid with a combination of proceeds from forfeiture
by the executives of the collateralized shares and proceeds from application of
Program termination payments made by the Company to the executives to cover the
deficiency between the loans and the value of the collateralized shares on the
date of termination of the Program. In addition, the Program termination
payments covered income tax obligations incurred by the executives as a result
of the Program termination. For certain of the executives, the Program
termination payments used to repay the loans were divided between payments made
in December 2001 and payments to be made in April 2002. A total of 677,000
shares were issued during August 1999 of which no shares are outstanding as of
December 31, 2001. The outstanding principal balance of the notes at December
31, 2001 was $1.6 million and is classified as a reduction of stockholders'
equity. The expense relating to the Program was $7.2 million, $4.7 million and
$2.7 million for the years ended 2001, 2000 and 1999, respectively.
9. 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):
2001 2000
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $84,173 $82,990
Service cost 2,548 2,567
Interest cost 6,451 6,307
Actuarial (gain) loss 5,565 1,292
Reduction due to curtailment - (695)
Benefits paid (10,313) (8,288)
------ ------
Benefit obligation at end of year 88,424 84,173
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year 86,039 81,792
Actual return on plan assets 657 8,589
Employer contribution 5,917 3,946
Benefits paid (10,313) (8,288)
------ ------
Fair value of plan assets at end of year 82,300 86,039
------ ------
Funded status (6,124) 1,866
Unrecognized net actuarial (gain) loss 4,821 (7,434)
Unrecognized prior service cost (3,307) (3,325)
Unrecognized net transition obligation (asset) 34 (192)
------ ------
Net amount recognized as (accrued) pension
cost in the consolidated balance sheet $(4,576) $(9,085)
====== ======
The weighted average assumptions and components of net pension expense for the
years ended December 31 are as follows (in thousands):
2001 2000 1999
---- ---- ----
Weighted average assumptions:
Discount rate 7.50% 7.75% 7.75%
Expected return on plan assets 8.75 8.75 8.00
Rate of compensation increase 4.50 4.50 4.50
Components of net pension expense:
Service cost $2,548 $2,567 $2,716
Interest cost 6,451 6,307 5,964
Expected return on plan assets (7,346) (7,043) (5,637)
Net amortization and deferral (245) (254) (207)
Curtailment gain - (1,111) -
----- ----- -----
Net pension expense $1,408 $466 $2,836
===== ===== =====
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 2001, 2000 and 1999, 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 $1.1
million for 2001 and $1.5 million for 2000 and 1999.
10. 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):
2001 2000
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $52,100 $51,424
Service cost 682 763
Interest cost 3,852 3,897
Amendments - -
Actuarial (gain) loss (87) (830)
Reduction due to curtailment - (1,020)
Benefits paid (3,478) (2,134)
------ ------
Benefit obligation at end of year 53,069 52,100
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year - -
Actual return on plan assets - -
Employer contribution 3,478 2,134
Benefits paid (3,478) (2,134)
------ ------
Fair value of plan assets at end of year - -
------ ------
Funded status (53,069) (52,100)
Unrecognized net actuarial gain (12,448) (12,937)
Unrecognized prior service cost (13,905) (16,878)
------ ------
Prepaid (accrued) postretirement benefit cost $(79,422) $(81,915)
====== ======
The weighted average assumptions and components of net postretirement benefit
expense for the years ended December 31 are as follows (in thousands):
2001 2000 1999
---- ---- ----
Weighted average assumptions:
Discount rate 7.50% 7.75% 7.75%
Components of net postretirement benefit expense:
Service cost $ 682 $ 763 $ 867
Interest cost 3,852 3,897 3,657
Amortization of prior service cost (2,973) (3,131) (3,209)
Recognized net actuarial gain (576) (388) (193)
Curtailment gain - (2,558) -
------ ------- ------
Net postretirement benefit expense (income) $ 985 $(1,417) $1,122
====== ======= ======
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, 2001 and the combined service and interest
cost components of postretirement benefit expense for the year then ended would
be increased by approximately $5.1 million and $0.4 million, respectively, and
if the general inflation rate assumption is decreased by 1%, the postretirement
benefit obligation as of December 31, 2001 and the combined service and interest
cost components of postretirement benefit expense for the year then ended would
be decreased by approximately $4.4 million and $0.4 million, respectively.
11. Income Taxes
The components of income tax expense (benefit) for the years ended December 31
are as follows (in thousands):
2001 2000 1999
---- ---- ----
Current:
Federal $ - $ (234) $ 419
State and Local 200 580 538
---- ---- ----
200 346 957
Deferred:
Federal - - -
State and Local - - -
---- ---- ----
$200 $346 $957
==== ==== ====
Deferred tax assets and liabilities at December 31 are as follows (in
thousands):
2001 2000
---- ----
Assets Liabilities Assets Liabilities
------ ----------- --------- -------------
Inventory $ 574 $ - $ 854 $ -
Property, plant and equipment - 12,474 - 50,242
Accrued and other liabilities 10,816 - 10,093 -
Accrued pension costs 3,351 - 4,302 -
Accrued postretirement costs 31,768 - 32,765 -
Net operating loss carryforwards 34,249 - 24,553 -
AMT credit carryforwards 6,617 - 6,849 -
Research and development credit carryforwards 1,435 - 1,629 -
Other 425 - 497 - --
------ ------ ------ ------
Totals $89,235 $12,474 $ 81,542 $50,242
------ ------ ------ ------
Net deferred tax asset 76,761 - 31,300 -
Valuation allowance (76,761) - (31,300) -
------ ------ ------ ------
Net deferred taxes $ - $ - $ - $ -
====== ====== ====== ======
The Company has determined that at December 31, 2001 and 2000, 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, 2001, the Company had net operating loss ("NOL") carryforwards
for federal tax purposes of approximately $86 million, which expire in various
amounts from 2002 through 2021 and approximately $6.6 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 NOL 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. Approximately $52
million of the $86 million of NOL carryforwards mentioned previously are subject
to this annual limitation with the remaining amounts having no such annual
limitation.
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:
2001 2000 1999
---- ---- ----
Federal statutory income tax rate (35.0)% 35.0% 35.0%
Increase (decrease) in tax rate resulting from:
NOL and AMT credit carryforwards 4.2 (53.0) (43.9)
Nondeductible goodwill and other permanent
differences 0.5 43.0 14.0
Adjustment of prior year accrual - (10.8) (3.1)
State income taxes, net of federal income tax benefit 0.1 8.3 2.1
Alternative minimum tax - - 5.9
Foreign sales corporation benefits - (8.2) (3.4)
Research and development credit carryforwards - (5.3) -
Activity relating to income taxes attributed to
previously accrued securities valuation reserves - - 1.4
Asset impairment charges 30.3 - -
----- ---- ----
Effective income tax rate 0.1% 9.0% 8.0%
===== ==== ====
12. 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.
Previously, a trust fund existed 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 was
reimbursed from the trust fund for approved closure and postclosure expenditures
incurred at the site. All remaining funds in the trust fund were paid out during
2001 and the trust was closed. 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
$8.8 million and $9.4 million at December 31, 2001 and 2000, respectively. Of
the total reserve, $2.5 million and $3.6 million is included in "accrued
liabilities" in the Company's consolidated balance sheets at December 31, 2001
and 2000, respectively, and $6.3 million and $5.8 million is included in "other
long-term liabilities" at December 31, 2001 and 2000, 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
2001 and 2000 were $0.2 million and $0.9 million, respectively. All other
environmental expenditures of the Company, including remediation expenditures,
for 2001, 2000 and 1999 were $1.9 million, $2.1 million and $2.3 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.
13. 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 1999, 2000 and
2001:
Options Restricted Stock
-------------------------------------------------- ----------------
Range of Weighted Average
Shares Exercise Prices Exercise Price Shares
--------- ------------------ ----------------- ------------
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
Granted 329,000 $4.22 $4.22 -
Exercised - - - -
Forfeited (192,000) $4.22 to $16.75 $11.91 -
Stock no longer restricted - - - (12,500)
--------- ------
Outstanding December 31, 2001 1,069,500 $4.22 to $20.00 $10.30 -
========= ======
(Weighted average contractual
life of 7.2 years)
Exercisable Options:
December 31, 1999 172,000 $14.00 to $16.88 $15.72
December 31, 2000 273,500 $8.81 to $20.00 $15.32
December 31, 2001 348,500 $7.44 to $20.00 $14.81
The following table summarizes information about stock options outstanding at
December 31, 2001:
Options Options
Outstanding Exercisable
--------------------------------------------------- ------------------------------
Weighted
Average Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- ------------------- -------------- ----------- ---------------- ------------ ---------------
$4.22 to $14.00 800,000 7.9 years $8.54 79,000 $12.40
$14.01 to $20.00 269,500 5.2 years $15.52 269,500 $15.52
--------- -------
$4.22 to $20.00 1,069,500 7.2 years $10.30 348,500 $14.81
========= =======
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, vested five years
from the date of award. The Company has no restricted stock outstanding at
December 31, 2001. The weighted-average fair value of options granted in 2001,
2000 and 1999 was $1.48, $5.76 and $3.61 per share, respectively. Fair value
estimates were determined using the Black-Scholes option pricing model with the
following weighted average asumptions for 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Risk-free interest rate 5.13% 6.56% 4.70%
Dividend yield 4.74% 1.58% 2.27%
Volatility factor 52% 49% 50%
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 loss and basic
and diluted net loss per share would have been increased for 2001 and the
Company's net income and basic and diluted net income per share would have been
reduced for 2000 and 1999 to the pro forma amounts which follow:
2001 2000 1999
---- ---- ----
Net income (loss)
As reported $(193,552) $3,491 $11,011
Pro forma $(193,658) $2,993 $10,515
Basic and diluted net income
(loss) per share
As reported $(11.78) $0.21 $0.68
Pro forma $(11.79) $0.18 $0.65
14. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:
2001 2000 1999
---- ---- ----
Income (numerator) amounts used for basic and
diluted per share computations:
Net income (loss) $(193,552) $3,491 $11,011
========= ====== =======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,428 16,567 16,224
====== ====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,428 16,567 16,224
Plus: dilutive effect of stock options - 6 57
------ ------ ------
Adjusted weighted average shares 16,428 16,573 16,281
====== ====== ======
Basic and diluted net income (loss) per share $(11.78) $0.21 $0.68
======= ===== =====
Options to purchase 770,500, 932,500 and 488,000 common shares for the years
ended December 31, 2001, 2000 and 1999, respectively, were excluded from the
calculations above because the exercise prices on the options were greater than
the average market price for the periods.
15. 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
-------- ------------- -----------------
2002 $3,818 $103 $3,715
2003 3,379 29 3,350
2004 2,344 - 2,344
2005 1,234 - 1,234
2006 895 - 895
2007-2015 3,960 - 3,960
Rental expense under cancelable and noncancelable leases for 2001, 2000 and 1999
was $4.1 million, $3.8 million and $4.0 million, respectively. The amount of
rental expense for 2001 and 2000 is net of sublease rental income of $0.17
million and $0.03 million, respectively. There was no sublease rental income in
1999.
16. Selected Quarterly Financial Data (unaudited)
All amounts are in thousands except net income (loss) per share.
Quarter
---------------------------------------------
1st 2nd 3rd 4th
------- -------- --------- ---------
2001
- ----
Net sales $230,191 $235,505 $249,914 $204,894
Gross profit 10,864 11,308 14,548 10,311
Net income (loss) (6,055) (4,900) (1,553) (181,044)
Basic and diluted net income (loss) per share (0.37) (0.30) (0.09) (11.08)
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)
The net income (loss) for the fourth quarter of 2001 includes the $167.3 million
or $10.24 per share non-cash asset impairment charges. See note 2 for additional
information.
17. Information Concerning Business Segments
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 2001, 2000 and 1999 (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. The operating income (loss)
and total assets for the aluminum business unit for 2001 includes the $167.3
million non-cash asset impairment charges recorded in the fourth quarter of
2001. See note 2 for additional information.
Electrical
Aluminum Products Other Total
---------- ----------- ----------- ------------
2001
- ----
Net sales to external customers $801,786 $118,718 $ - $920,504
Intersegment net sales 26,295 - (26,295) -
Operating income (loss) (164,153) 5,064 (19,658) (178,747)
Depreciation and amortization 31,382 3,940 7 35,329
Total assets 336,740 100,824 2,068 439,632
Capital expenditures 8,797 205 - 9,002
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
18. 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.
19. 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, 2001 and 2000 and a statement of
operations and statement of cash flows for the years ended December 31, 2001,
2000 and 1999.
Combining Balance Sheet at December 31, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ----------- ----------- ------------ --------
Assets
Current assets:
Cash and cash equivalents $ -- $ 6,393 $ -- $ -- $ 6,393
Accounts receivable, net -- 271,074 -- (270,993) 81
Inventories -- 119,038 -- -- 119,038
Net residual interest in securitized receivables -- -- 82,310 -- 82,310
Prepayments and other current assets 435 2,795 -- -- 3,230
--------- --------- --------- --------- ---------
Total current assets 435 399,300 82,310 (270,993) 211,052
Property, plant and equipment, net -- 152,137 -- -- 152,137
Goodwill, net -- 74,199 -- -- 74,199
Other noncurrent assets 424,830 611 -- (423,197) 2,244
--------- --------- --------- --------- ---------
Total assets $ 425,265 $ 626,247 $ 82,310 $(694,190) $ 439,632
========= ========= ========= ========= =========
Liabilities
Current liabilities:
Accounts payable $ 148,971 $ 50,693 $ 122,022 $(270,993) $ 50,693
Accrued liabilities 5,784 33,997 (905) -- 38,876
--------- --------- --------- --------- ---------
Total current liabilities 154,755 84,690 121,117 (270,993) 89,569
Long-term debt 125,000 -- -- -- 125,000
Other long-term liabilities -- 6,899 -- -- 6,899
Accrued pension benefits -- 4,576 -- -- 4,576
Accrued postretirement benefits -- 79,422 -- -- 79,422
--------- --------- --------- --------- ---------
Total liabilities 279,755 175,587 121,117 (270,993) 305,466
--------- --------- --------- --------- ---------
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Common stock 160 1 -- (1) 160
Additional paid-in capital 405,443 486,727 5,000 (491,727) 405,443
Accumulated deficit (258,532) (24,724) (43,807) 68,531 (258,532)
Notes receivable from sale of common stock (1,561) -- -- -- (1,561)
Accumulated other comprehensive income:
Effects of cash flow hedges -- (11,344) -- -- (11,344)
Minimum pension liability adjustment -- -- -- -- --
--------- --------- --------- --------- ---------
Total stockholders' equity 145,510 450,660 (38,807) (423,197) 134,166
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 425,265 $ 626,247 $ 82,310 $(694,190) $ 439,632
========= ========= ========= ========= =========
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:
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 Statement of Operations for the year ended December 31, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- --------- --------- --------- ---------
Net sales $ -- $ 920,504 $ -- $ -- $ 920,504
Cost of goods sold -- 873,473 -- -- 873,473
--------- --------- --------- --------- ---------
Gross profit -- 47,031 -- -- 47,031
Selling, general and administrative expenses 290 54,223 10 -- 54,523
Amortization of goodwill -- 3,988 -- -- 3,988
Asset impairment charges -- 167,267 -- -- 167,267
--------- --------- --------- --------- ---------
Operating income (loss) (290) (178,447) (10) -- (178,747)
Other income (expense), net (179,789) 907 -- 179,789 907
Interest income (expense), net (13,439) 4,704 (6,777) -- (15,512)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (193,518) (172,836) (6,787) 179,789 (193,352)
Income tax expense 34 154 12 -- 200
--------- --------- --------- --------- ---------
Net income (loss) $(193,552) $(172,990) $ (6,799) $ 179,789 $(193,552)
========= ========= ========= ========= =========
Combining Statement of Operations 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 Operations 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 Cash Flows for the year ended December 31, 2001
(in thousands)
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
--------- ---------- ---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $(193,552) $(172,990) $ (6,799) $179,789 $(193,552)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operations:
Depreciation and amortization 7 35,322 -- -- 35,329
Asset impairment charges -- 167,267 -- -- 167,267
Loss on disposal of property, plant and equipment -- 364 -- -- 364
Issuance of common stock in connection with stock awards 106 -- -- -- 106
Equity in undistributed net income of subsidiaries -- 179,789 -- (179,789) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net -- (28,898) -- 28,928 30
Decrease in inventories -- 18,647 -- -- 18,647
(Increase) in net residual interest in securitized receivables -- -- (9,943) -- (9,943)
Decrease in prepayments and other current assets 362 7,771 -- -- 8,133
Decrease (increase) in other noncurrent assets 180,224 (180,546) -- -- (322)
Increase (decrease) in accounts payable 11,587 (2,829) 17,341 (28,928) (2,829)
Increase (decrease) in accrued liabilities 710 (13,635) (599) -- (13,524)
(Decrease) in other liabilities -- (6,472) -- -- (6,472)
-------- -------- -------- -------- --------
Net cash (used in) provided by operating activities (556) 3,790 -- -- 3,234
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (9,002) -- -- (9,002)
Proceeds from sale of property, plant and equipment -- 91 -- -- 91
-------- -------- -------- -------- --------
Net cash (used in) investing activities -- (8,911) -- -- (8,911)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt -- 57,110 -- -- 57,110
Repayments of long-term debt -- (57,110) -- -- (57,110)
Repayments of notes receivable from sale of common stock 3,848 -- -- -- 3,848
Cash dividends paid (3,292) -- -- -- (3,292)
-------- -------- -------- -------- --------
Net cash provided by financing activities 556 -- -- -- 556
-------- -------- -------- -------- --------
Net (decrease) in cash and cash equivalents -- (5,121) -- -- (5,121)
Cash and cash equivalents at beginning of period -- 11,514 -- -- 11,514
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 6,393 $ -- $ -- $ 6,393
======== ======== ======== ======== ========
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) in net residual interest in securitized receivables -- -- (32,387) -- (32,387)
(Increase) decrease in prepayments and other current assets (170) 2,648 -- -- 2,478
(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 $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
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 operations, comprehensive income (loss),
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, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, 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 6 to the consolidated financial statements, the
Company adopted Financial Accounting Standards Board (FASB) Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
FASB Statement No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment to FASB Statement No. 133", effective
January 1, 2001.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
March 21, 2002
Exhibit 21
----------
Direct and Indirect Subsidiaries of Commonwealth Industries, Inc.
Name Jurisdiction of Incorporation
---- -----------------------------
Commonwealth Financing Corp. (1) Delaware
CA Lewisport, Inc. (1) Delaware
Commonwealth Aluminum Sales Corporation (2) Delaware
Commonwealth Aluminum Lewisport, LLC (8) Delaware
Commonwealth Aluminum Metals, LLC (6) Delaware
Commonal Corporation (7) Barbados
CI Holdings, Inc. (1) Delaware
Alflex Corporation (3) Delaware
Alflex E1 LLC (5) Delaware
Commonwealth Aluminum Concast, Inc. (3) Ohio
Commonwealth Aluminum Tube Enterprises, LLC (4) Delaware
Commonwealth Aluminum Corporation (9) Delaware
-------------------------------------------------------------------
(1) Subsidiary of Commonwealth Industries, Inc.
(2) Subsidiary of CA Lewisport, Inc.
(3) Subsidiary of CI Holdings, Inc.
(4) Limited Liability Company 100% owned by Commonwealth Aluminum
Concast, Inc.
(5) Limited Liability Company 100% owned by Alflex Corporation.
(6) Limited Liability Company 100% owned by Commonwealth Aluminum
Lewisport, LLC.
(7) Subsidiary of Commonwealth Aluminum Metals, LLC which was
dissolved during 2001.
(8) Limited Liability Company 73% owned by CA Lewisport, Inc.
and 27% owned by Commonwealth Aluminum Corporation.
(9) Subsidiary of Commonwealth Aluminum Concast, Inc.
Exhibit 23
----------
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (File No's. 333-81055, 333-29363, 333-19383, 33-91364
and 33-90292) of Commonwealth Industries, Inc. and subsidiaries of our report
dated March 21, 2002 relating to the consolidated financial statements, which
appears in the Annual Report to Stockholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated March 21, 2002 relating to the financial statement schedule,
which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
March 25, 2002