Back to GetFilings.com
================================================================================
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, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
-------------------
Commission File Number : 0-25642
COMMONWEALTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3245741
(State of incorporation) (I.R.S. Employer Identification No.)
500 West Jefferson Street
19th Floor
Louisville, Kentucky 40202-2823
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (502) 589-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock; Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the common stock held by non-affiliates
of the registrant as of February 23, 1998 was $226,340,000.
The number of shares outstanding of the registrant's common stock as of
February 23, 1998 was 15,946,500.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders of Commonwealth
Industries, Inc. for the year ended December 31, 1997 are incorporated by
reference into Parts I and II and portions of the definitive Proxy Statement
dated March 16, 1998 for the 1998 Annual Meeting of Stockholders to be held
April 24, 1998 are incorporated by reference into Part III.
================================================================================
COMMONWEALTH INDUSTRIES, INC.
FORM 10-K
For the Year Ended December 31, 1997
INDEX
PART I Page
----
Item 1. Business...................................................................3
Item 2. Properties................................................................11
Item 3. Legal Proceedings.........................................................11
Item 4. Submission of Matters to a Vote of Security Holders.......................11
Item E.O. Executive Officers of the Registrant......................................11
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters......12
Item 6. Selected Financial Data...................................................13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................13
Item 8. Financial Statements and Supplementary Data...............................13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.............................................13
PART III
Item 10. Directors and Executive Officers of the Registrant........................14
Item 11. Executive Compensation....................................................14
Item 12. Security Ownership of Certain Beneficial Owners and Management............14
Item 13 Certain Relationships and Related Transactions............................14
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K............14
Signatures................................................................20
PART I
Item 1. Business.
Commonwealth Industries, Inc. (the "Company") is one of North
America's leading manufacturers of aluminum sheet and, through its Alflex
Corporation subsidiary ("Alflex"), of electrical flexible conduit and prewired
armored cable.
The Company's aluminum sheet products are produced using the
conventional, direct -chill rolling ingot casting process at the Company's
multi-purpose aluminum rolling mill at Lewisport, Kentucky, one of the largest
in North America, and by the continuous casting process at its facilities
located in Uhrichsville, Ohio, and Carson, California. The Company operates
coating lines at the Lewisport mill and at Company facilities in Bedford, Ohio,
and Torrance, California. It also operates tube mills at the Bedford and Carson
locations. The electrical flexible conduit and prewired armored cable products
are manufactured at the Alflex facilities in Long Beach, California. The Ohio
and California facilities were acquired through the purchase by the Company of
CasTech Aluminum Group Inc.
("CasTech") on September 20, 1996.
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, 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; beverage cans; and consumer durables such as
cookware, appliances and lawn furniture. The Bedford and Carson facilities also
fabricate aluminum sheet into welded tube products for various markets.
Substantially all of the Company's aluminum sheet products are produced in
response to specific customer orders. Production approached one billion pounds
of aluminum sheet products in 1997. In 1996, the North American market for
aluminum sheet products, excluding sheet used to produce aluminum beverage cans,
was approximately five billion pounds.
Alflex manufactures metallic (aluminum and steel) and non-metallic
(plastic) electrical flexible conduit and prewired armored cable, utilizing
aluminum sheet manufactured by the Company. These products provide mechanical
protection for electrical wiring installed in buildings in accordance with local
building code requirements. Armored cable differs from electrical conduit in
that it is pre-wired by Alflex, whereas end-users must pull wire through
electrical conduit when conduit is installed. These products are used primarily
by electrical contractors in the construction, renovation and remodeling of
commercial and industrial facilities and multi-family dwellings. They also are
used in the heating, ventilating and air-conditioning ("HVAC"), original
equipment manufacturers ("OEM") and Do-It-Yourself ("DIY") markets. The products
include preassembled and prepackaged products for commercial and DIY markets and
commercial pre-fabricated wiring systems which provide significant savings in
labor and installation costs for end-users.
Historically, electrical wires were housed in rigid pipes in the walls
of buildings. Rigid pipe remains the most widely used means of protecting wiring
in commercial and other non-residential construction. Electrical flexible
conduit made from steel was introduced in the 1920s. Flexible conduit is
significantly easier to install than rigid pipe, resulting in cost savings to
the installer. Aluminum flexible conduit, introduced to the market by Alflex,
has in recent years become a significant factor due to its ease of installation,
lighter weight and ease of cutting compared to steel flexible conduit or rigid
pipe. In wet, harsh or corrosive environments, non-metallic or plastic jacketed
steel flexible conduit may be used. Armored cable (conduit with pre-installed
wire) made of steel or aluminum has captured an increasing share of the market
from rigid pipe due to its pre-assembly, ease of installation and overall cost
effectiveness.
The Company estimates that at December 31, 1997 it had a backlog of
firm orders for which product specifications have been defined of 306.7 million
pounds of aluminum sheet products with an aggregate sales price of $327.7
million, compared to an estimated of 175.8 million pounds with an aggregate
sales price of $163.2 million at December 31, 1996. Backlog is not a significant
factor for the Company's electrical products.
In April 1997, the Company name, formerly Commonwealth Aluminum
Corporation, was changed to Commonwealth Industries, Inc. to recognize that,
with the acquisition of the Alflex electrical conduit and armored cable
division, the Company's operations now extend beyond aluminum. The aluminum
sheet operations, which are conducted through subsidiary corporations, continue
to be conducted under the Commonwealth Aluminum name.
In September 1997, the Company sold in an underwritten public offering
5,750,000 shares of Common Stock for net proceeds of approximately $97.7
million. Also in September the Company sold $150 million of its trade
receivables pursuant to an accounts receivable securitization facility
established with a financial institution. The net proceeds of the transactions
were used to repay a portion of the debt incurred to finance the 1996
acquisition of CasTech.
Recent Development
On December 19, 1997, the Company and Noranda Aluminum, Inc. announced
they had executed a letter of intent pursuant to which the Company will explore
the purchase of the Noranda aluminum rolling mill in Scottsboro, Alabama. The
Scottsboro aluminum rolling mill has an annual capacity of approximately 300
million pounds. The letter of intent is preliminary and the consummation of any
transaction is subject to due diligence investigation, negotiation of terms,
execution of definitive documentation, and board approvals. There can be no
assurance that any transaction will be completed. It is expected that this
potential acquisition, if completed, would be funded by increasing the Company's
accounts receivable securitization facility and through other debt sources.
Aluminum Sheet Products
Manufacturing
The Company's aluminum sheet manufacturing facilities are comprised of
the Lewisport, Kentucky, rolling mill and the former CasTech rolling mills at
Uhrichsville, Ohio, and Carson, California, coating facilities at Bedford, Ohio,
and Torrance, California, and tube mills at Bedford and Carson.
The Lewisport mill uses the conventional, vertical direct-chill,
rolling ingot casting process. This process permits the production of
traditional aluminum sheet with strength, hardness, formability, finishing and
other characteristics preferred for many applications. The flexibility permitted
by this multi-purpose rolling mill enables the Company to target higher margin
products, manufacture a variety of products with consistent high quality and
respond quickly to shifts in market demand. In 1997, the Lewisport mill produced
645 million pounds of aluminum sheet products, up from 619 million pounds in
1996. The increase in production was achieved by focusing upon plant operating
efficiencies, improving employee productivity, eliminating manufacturing
bottlenecks, emphasizing on-time production and delivery to minimize scheduling
disruptions, improving plant yields, improving plant maintenance practices to
increase machine utilization and increasing market share by emphasizing quality,
on-time delivery and customer service. Increased production has reduced the unit
costs of production, in part because a large portion of the costs of a rolling
mill are fixed costs which do not vary with production volume. Unit costs of
converting metal to aluminum sheet products at Lewisport declined by 9% from
1992 to 1997 and are believed to be among the lowest in the industry for plants
using the conventional process. The Company plans to further increase production
capacity at the Lewisport mill. Achievement of further capacity increases will
require a quantity of rolling ingot which exceeds the Company's current casting
capacity. Alternatives for supplying additional rolling ingot are being reviewed
by the Company, including expanding existing casting capacity. No decision has
been made at this time.
The Uhrichsville and Carson mills use low-cost, scrap-based twin-belt
mini-mill continuous casting production technology. This process permits the
efficient production of aluminum sheet alloys used in building and construction
and other applications not requiring the more complex alloys or the physical
characteristics better provided by the conventional casting method. The process
eliminates several steps associated with conventional casting, thereby reducing
manufacturing costs. Capital costs also are significantly lower than for mills
using the conventional casting process. Since 1993, the annual capacity of the
Uhrichsville and Carson mills has been increased by over 50% from approximately
250 million pounds to 380 million pounds in 1997. The increased capacity and a
continuous improvement strategy resulted in a significant reduction in sheet
production costs. The Company believes that its continuous cast mill in
Uhrichsville has the lowest conversion costs per pound in the world. An upgrade
of the cold mill at Uhrichsville in 1996 increased mill speed capability and
significantly improved gauge and flatness control. A current capital spending
program is expected to bring the annual capacity of the continuous cast mills to
422 million pounds by midyear 1999.
Aluminum Supply
Most of the aluminum metal used by the Company's rolling mills is
purchased, principally from or through aluminum scrap dealers or brokers, in the
form of aluminum scrap. The Company believes it is one of the largest users of
aluminum scrap other than beverage can scrap in the United States, and that the
volume of its purchases assists it in obtaining scrap at competitive prices. The
Company's remaining requirements are met with purchased primary metal, including
metal produced in Russia to specifications that differ from the industry
standard for primary aluminum but that is appropriate for the Company's needs.
Casting and Rolling
At Lewisport, scrap, in some cases after processing in the Company's
recycling facilities, and primary aluminum are melted in induction or
reverbatory furnaces. Small amounts of copper, magnesium, manganese and other
metals are added to produce alloys with the desired hardness, formability and
other physical characteristics. The molten aluminum is then poured through a
mold surrounded by circulating water, which cools and solidifies into an ingot
about 24 inches thick and weighing as much as 40,000 pounds. The cooled ingot is
transported for processing in the rolling mill. The Company is developing a plan
to spend an estimated $10 million to $12 million during the 1998-2001 period to
bring the casting facilities at Lewisport constructed in 1965, which currently
supply 60% of its ingot casting needs, into compliance with more stringent clean
air regulatory regulations expected to come into effect in 2002 and to update
and improve plant infrastructure associated with those facilities. A decision to
proceed with this plan awaits the publication of proposed regulations by the
federal authorities and a review of their requirements.
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 the continuous casting
process in which molten aluminum is fed into a caster which produces a
continuous thin slab that is immediately hot rolled into semi-finished aluminum
sheet in a single manufacturing process. The aluminum sheet is then cooled and
cold rolled to its final thickness as in the conventional process. The
Uhrichsville and Carson mills use twin-belt thin-slab continuous casting, which
the Company believes is the most efficient and most productive form of
continuous casting.
The Company and IMCO Recycling, Inc ("IMCO") are parties to a Supply
Agreement under which IMCO serves as the major supplier of recycled aluminum for
the Company's Uhrichsville mill. Under the Supply Agreement, the Company
purchases aluminum scrap and delivers it to IMCO who then processes and converts
it into molten metal at its recycling and processing facility located adjacent
to the Company's mill. The Company is responsible for the treatment and disposal
of the waste generated as a result of IMCO's processing services on behalf of
the Company. The Supply Agreement expires March 31, 2003, subject to the
Company's option to renew the agreement for an additional 10-year term. The
Company has an option to purchase up to a 49% interest in the IMCO facility and
a right of first refusal if IMCO wishes to sell the facility.
The Carson rolling mill processes its own scrap to produce molten
metal, utilizing current delacquering and melting technology.
The Company has paid a one-time license fee for certain technology used
in its continuous casting process. The license agreement allows the Company the
use of certain inventions, technical discoveries and apparatus of the licensor
in the manufacturing process.
Finishing and Coating
After hot and cold rolling is complete, the aluminum sheet is leveled
to ensure required flatness and may be slit into narrower widths, embossed or
painted to customers' specifications.
The Company is an industry leader in the development and production of
superior quality coated aluminum products and operates at Lewisport the largest
coating line integrated with a United States rolling mill. Coating lines at the
Company's Bedford and Torrance facilities serve the Uhrichsville and Carson
rolling mills. In the coating process, aluminum sheet is chemically cleaned,
painted and then cured to produce a durable coated surface.
Packaging and Shipping
Finished products are shipped to customers by truck or rail in coils of
various size and weighing up to 30,000 pounds.
Electrical Products
Alflex fabricates its flexible conduit and armored cable at its Long
Beach, California, facility. Alflex purchases its aluminum sheet from the
Company's nearby Carson, California, rolling mill, making Alflex the only
backward integrated manufacturer of electric flexible conduit and cable. Alflex
also uses significant amounts of copper and steel as raw materials.
Alflex designs and builds much of the equipment used to manufacture its
products. The Company believes that the ability of Alflex to design and build
its own equipment has significantly reduced its manufacturing costs by lowering
its cost of capital, increasing output and reducing set-up times and waste.
Alflex fabricates its electrical products by slitting aluminum or steel
sheet on specialized narrow-width slitting equipment, after which the sheet is
coiled. The coils are then fed through proprietary forming machines to produce
the flexible conduit. For its cable products, Alflex draws copper into wire,
coats the wire with plastic insulation and, for certain products, wraps the
coated wire with paper or plastic. The protective armoring is then wrapped
around the cabled wire. To produce its non-metallic conduit, Alflex uses a
specialized co-extrusion process involving both rigid and flexible plastics
(PVC). After production, the conduit and cable products are cut to length and
packaged.
Alflex has designed its manufacturing processes to allow it to produce
a wide range of electrical flexible conduit and prewired armored cable products.
The Company believes this manufacturing flexibility has contributed
significantly to the growth in this business. Also, since the acquisition of the
Alflex business, the Company has increased Alflex's electrical conduit and cable
manufacturing capacity. Unit sales increased from 485 million feet in 1996 (on a
proforma basis) to 522 million feet in 1997.
Alflex net sales in 1997 were $127 million, or 11.6% of the Company's
total net sales. For the period September 20 to December 31, 1996, Alflex sales
were $35 million.
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,
beverage can and consumer durables markets.
The following table sets forth for 1997 and 1996 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
-------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Building and construction 37 24 36 15
Distribution 30 39 23 22
Transportation 11 12 19 17
Beverage cans 8 10 2 2
Consumer durables and othe 14 15 18 5
--- ---
100 100
=== ===
The inclusion of the former CasTech operations for a full year in 1997
resulted in an increase in the proportion of the Company's business accounted
for by the building and construction market and in the Company's share of the
market for building and construction and consumer durables and other.
The building and construction sector is the largest end-use market
other than beverage cans for common alloy aluminum sheet products.
The Company believes it is the largest supplier of common alloy
aluminum sheet to distributors. Distributors, in some cases after slitting,
punching, leveling or other processing, resell the Company's products into
end-use markets, including the building and construction, transportation and
consumer durables markets.
The Company is one of the largest suppliers of aluminum sheet products
to North American manufacturers of transportation equipment, including truck
trailers and bodies, recreational vehicles and automobile parts.
The Company also produces aluminum sheet for the manufacture of
beverage cans. Can sheet 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
participates in this market in recognition of the size of the market and the
strategic importance of maintaining a position in that business. In addition,
many of the advances in aluminum rolling mill technology are developed for the
production of can sheet and participation in this market supports the Company's
effort to maintain its technological proficiency for all of the Company's
products.
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. The other major end-uses of this product
category are cookware, appliances and irrigation pipe.
Market share estimates exclude heat-treated aluminum plate and sheet,
which the Company does not produce. The Company estimates that heat-treated
products constitute an immaterial portion of the end-use markets served by the
Company.
Company sales are made to customers located primarily throughout North
America. Sales outside North America have not been significant. No single
customer accounted for more than 10% of 1997 net sales.
Sales of aluminum sheet products are made through the Company's own
sales force which is strategically located to provide North American coverage.
An integrated computer system provides the Company's employees with on-line
access to inventory status, production schedules, shipping information and
pricing data to facilitate immediate response to customer inquiries.
Many of the Company's aluminum sheet markets are seasonal. Demand in
the building and construction and transportation markets is generally lower in
the fall and winter seasons than in the spring and summer. Warmer temperatures
in the spring and summer boost sales of can sheet as a result of increased
beverage consumption. Such factors typically result in higher operating income
in the spring and summer months.
Alflex electrical products are sold primarily through independent sales
representatives to electrical distributors. Distributors represented
approximately 83% of Alflex net sales in 1997. The remaining sales are made to
the DIY, OEM and HVAC markets. The independent sales representatives do not
market Alflex's products exclusively, but they may not sell products that are in
direct competition with products manufactured and sold by Alflex. Alflex serves
approximately 5,100 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 27 other aluminum rolling mills in North
America, including large, single-purpose can sheet mills, and with imported
products.
Aluminum Company of America ("Alcoa"), Alcan Aluminium Ltd. ("Alcan")
and Reynolds Metals Company have a significantly larger share of the United
States market for aluminum sheet products, including can sheet and aluminum
foil. However, in the market for common alloy aluminum sheet products other than
can sheet and aluminum foil, the market leaders are Alcoa, Alcan, Alumax Inc.,
Noranda Inc., Quanex 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, both in the electrical flexible conduit and prewired armored cable
industry and in the pipe and wire industry. Competition is principally on the
basis of product availability and features, price and customer service.
Research and Development
The Company conducts research and development activities at its rolling
mills as part of its ongoing operations to improve product quality and reduce
manufacturing costs. Outside consultants also are used.
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 scrap.
The estimated amounts spent during 1997, 1996 and 1995 on
Company-sponsored research and development activities (including amounts for
Castech prior to the acquisition) were $0.8 million, $1.4 million and $1.2
million, respectively.
Environmental Matters
The Company's operations are subject to increasingly stringent
environmental laws and regulations governing air emissions, wastewater
discharges, the handling, disposal and remediation of hazardous substances and
wastes and employee health and safety. These laws can impose joint and several
liability for releases or threatened releases of hazardous substances upon
statutorily defined parties, including the Company, regardless of fault or the
lawfulness of the original activity or disposal. The Company believes it is
currently in material compliance with applicable environmental laws and
regulations.
Future regulations, under the Clean Air Act and otherwise, are expected
to impose stricter emission requirements on the aluminum industry. While the
Company believes that current pollution control measures at most of the emission
sources at its facilities will meet these anticipated future requirements,
additional measures at some of the Company's facilities, including Lewisport as
discussed above under "Aluminum Sheet Products-Casting and Rolling", may be
required.
The Company has been named as a potentially responsible party at
four federal superfund sites which were acquired in the CasTech acquisition and
is conducting remedial investigations at two of the sites for past waste
disposal activity associated with closed recycling facilities. A trust fund
exists to fund the activity at one of the sites undergoing remediation and was
established through contributions from two other parties in exchange for
indemnification from further liability. The Company is reimbursed from the fund
as approved remediation expenditures are incurred at the site. The balance
remaining in the trust fund at December 31, 1997 was approximately $2.6 million.
In determining the adequacy of the Company's aggregate environmental contingency
accrual, the assets of the trust fund were taken into account. At the two other
federal superfund sites, the Company is a minor contributor and expects to
resolve its liability for a nominal amount. The Company is under orders by
agencies in three states for environmental remediation at sites, two of which is
currently operating and two of which have been closed. Based on currently
available information, the Company estimates the range of possible remaining
losses with respect to the above matters is between $9 million and $13 million.
The Company acquired its Lewisport rolling mill and an aluminum smelter
at Goldendale, Washington ("Goldendale"), from Lockheed Martin in 1985. In
connection with the transaction, Lockheed Martin indemnified the Company against
expenses relating to environmental matters arising during the period of Lockheed
Martin's ownership of those facilities.
Environmental sampling at Lewisport has disclosed the presence of
contaminants, including polychlorinated biphenyls (PCBs), in a closed Company
landfill. The Company has not yet determined the extent of the contamination or
the nature and extent of remedial measures that may be required. Accordingly,
the Company cannot at present estimate the cost of any remediation that may be
necessary. Management believes the contamination is covered by the Lockheed
Martin indemnification, which Lockheed Martin disputes.
The aluminum smelter at Goldendale was operated by Lockheed Martin
until 1985 and by the Company from 1985 to 1987 when it was sold to Columbia
Aluminum Corporation ("Columbia"). Past aluminum smelting activities at
Goldendale have resulted in environmental contamination and regulatory
involvement. A 1993 Settlement Agreement among the Company, Lockheed Martin and
Columbia allocated responsibility for future remediation at 11 sites at the
Goldendale smelter. If remediation is required, estimates by outside consultants
of the probable aggregate cost to the Company for these sites range from $1.3
million to $7.2 million. The apportionment of responsibility for other sites at
Goldendale is left to alternative dispute resolution procedures if and when
these locations become the subject of remedial requirements.
The Company has been named as a potentially responsible party at three
third-party disposal sites relating to Lockheed Martin operations, for which
Lockheed Martin has assumed responsibilitiy.
The Company's aggregate loss contingency accrual for environmental
matters was $10.7 million at December 31, 1997, 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 both 1997 and 1996 were $2.3 million. All other environmental
expenditures of the Company, including remediation expenditures, for 1997, 1996
and 1995 were $3.1 million, $1.5 million, and $1.9 million, respectively.
The Company has planned environmental capital expenditures for 1998 and
1999 of $4.6 million and $1.8 million, respectively, in addition to any amounts
which may be spent to meet future clean air requirements at Lewisport as
discussed above under "Aluminum Sheet Products-Casting and Rolling".
Employees
At December 31, 1997, the Company employed 2,015 persons, of whom 1,456
were full-time non-salaried employees including 747 at Lewisport represented by
the United Steel Workers of America ("USW") and 207 at the Uhrichsville and
Bedford facilities represented by the Glass, Molders, Pottery, Plastic & Allied
Workers International, AFL-CIO, CLC union ("GMP"). Three-year collective
bargaining agreements with the USW and the GMP expire in July 1998 and December
2000, respectively. The Company believes its relationships with its employees
are good.
The Company provides a gain sharing plan for its bargaining unit
employees at Lewisport. Contributions to the plan are based upon a formula which
compares actual performance results to targets agreed upon by the management and
the USW.
A profit-sharing plan is provided for all non-bargaining unit employees
at the Company's Uhrichsville, Bedford, Carson and Torrance plants, and Alflex
provides a non-qualified defined contribution plan for eligible workers.
Contributions to both plans are at the discretion of the Company's Board of
Directors.
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 22,000 Leased
Lewisport, Kentucky Rolling mill 1,700,000 Owned
Uhrichsville, Ohio Rolling mill 220,000 Owned
Carson, California Rolling mill and tube mill 103,000 Owned
Bedford, Ohio Coating facility and tube mill 103,000 Leased
Torrance, California Coating facility 60,000 Leased
Long Beach, California Alflex admininistrative 210,000 Leased
offices, manufacturing
facility 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, 1997.
Item E.O. Executive Officers of the Registrant.
The executive officers of the Company as of March 19, 1998 were:
Name Age Position with the Company
---- --- -------------------------
Mark V. Kaminski 42 President, Chief Executive Officer and Director
Roderick Macdonald 50 Executive Vice President Alflex
Donald L. Marsh, Jr. 51 Executive Vice President, Chief Financial Officer
and Secretary
Fred N. Mudge 64 Executive Vice President Commonwealth Aluminum
John F. Barron 46 Controller and Assistant Secretary
Robert R. Beal 46 Vice President Communications and Computing Services
Gregory Givan 45 Vice President and Treasurer
William G. Toler 41 Vice President Finance and Administration
Mr. Kaminski joined the Company in 1987 as Marketing Manager. In 1989
he was promoted to Vice President of Operations and in 1991 he became President
and Chief Executive Officer. He is a director of the Aluminum Association,
Washington, D. C., the Louisville, Kentucky YMCA and the Indiana University
Athletics Board.
Mr. Macdonald was employed by the Company in January 1994. From 1966
until 1993, Mr. Macdonald was an Officer in the British Army (Royal Engineers).
He retired from the British Army as a Brigadier General.
Mr. Marsh joined the Company in March 1996. Prior to that time he was
Senior Vice President of Castle Energy Corporation.
Mr. Mudge was elected to his present position in September 1996. From
1995 until that time he was Secretary of the Commonwealth of Kentucky
Transportion Cabinet, and for the preceding 10 years was President and Chief
Executive Officer of Logan Aluminum Inc.
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.
Mr. Beal has been with the Company since 1987 and was elected to his
present position in January 1998. His most recent previous position was Manager
of Process Engineering.
Mr. Givan joined the Company in July 1997. From 1987 until 1997 he was
Second Vice President, Corporate Finance and most recently Director, Corporate
Finance and Risk Management and Assistant Treasurer of Providian Corp., a
financial services company.
Mr. Toler has been with the Company since 1980 and was elected to his
present position in April 1997. His most recent previous position was Vice
President Materials.
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 February 23, 1998, there were 152 holders of record of
the Company's Common Stock. The Company estimates that there were a total of
4,800 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:
1997 High Low
---- ---- ---
First Quarter $20.25 $15.38
Second Quarter 21.00 16.00
Third Quarter 22.50 15.63
Fourth Quarter 19.50 13.50
1996
----
First Quarter $18.88 $15.38
Second Quarter 18.50 15.50
Third Quarter 17.63 13.63
Fourth Quarter 17.75 14.13
Item 6. Selected Financial Data.
The information captioned "Consolidated Selected Financial Data"
included on page 10 of the Company's annual report to stockholders for the year
ended December 31, 1997 is incorporated herein by reference. This information
sets forth selected consolidated statement of operations, operating and balance
sheet data for the years indicated. The financial information is derived from
the audited consolidated financial statements of the Company for such years.
This information should be read in conjunction with, and is qualified by
reference to, the consolidated financial statements of the Company and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" also incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included on pages 11 through 14
of the Company's annual report to stockholders for the year ended December 31,
1997 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 15 through 31 of the Company's
annual report to stockholders for the year ended December 31, 1997 are
incorporated herein by reference.
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 401 (other than paragraph (b) thereof)
and Item 405 of Regulation S-K may be found under the caption Election of
Directors of the Company's Proxy Statement dated March 16, 1998 for the Annual
Meeting of Stockholders to be held on April 24, 1998 (the "Proxy Statement") and
is incorporated herein by reference. The information required by Item 401(b) of
Regulation S-K may be found under Item E.O. above.
Item 11. Executive Compensation.
The information required by Item 402 of Regulation S-K may be found
under the caption Executive Compensation in the Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 403 of Regulation S-K may be found
under the caption Beneficial Ownership of Common Stock in the Proxy Statement
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 404 of Regulation S-K may be found
under the caption Election of Directors--Compensation and Other Transactions
with Directors; Management Development and Compensation Committee Interlocks and
Insider Participation in the Proxy Statement and is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) List of Financial Statements filed
The following consolidated financial statements of the Company and
report of independent auditors included in the Company's annual report to
stockholders for the year ended December 31, 1997 were incorporated by reference
in Part II, item 8 of this report:
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a) (2) List of Financial Statement Schedules filed
The following report of independent accountants and financial statement
schedule should be read in conjunction with the Company's consolidated financial
statements.
Supplemental Schedule II - Valuation and Qualifying Accounts is filed
on page 19 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, 1997, 1996 and
1995 is filed on page 18 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, 1997.
(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 (incorporated by reference to Exhibit 3.3 to
the Company's Registration Statement No. 33-87294 on
Form S-1).
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 Salaried Employees Pension Plan (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-87294 on Form S-1).
10.4 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).
10.5 1995 Stock Incentive Plan as amended and restated
April 17, 1997 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997).
10.6 1997 Stock Incentive Plan (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).
10.7 Form of Severance Agreements between the Company and
Mark V. Kaminski, Scott T. Davis, Roderick Macdonald,
Donald L. Marsh, Jr., James K. O'Donnell, William G.
Toler and John J. Wasz (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
10.8 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).
10.9 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.
10.10 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).
10.11 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.
10.12 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 Non-exclusive License Agreement between Hazelett
Strip-Casting Corporation and Barmet of Kentucky,
Inc. dated as of June 2, 1982 (incorporated by
reference to Exhibit 10.07 to the CasTech Aluminum
Group Inc. Registration Statement No. 33-77116 on
Form S-1).
10.14 Agreement between Hazelett Strip-Casting Corporation,
Barmet of Kentucky, Inc. and Barmet Aluminum
Corporation, dated as of November 29, 1984
(incorporated by reference to Exhibit 10.08 to the
CasTech Aluminum Group Inc. Registration Statement
No. 33-77116 on Form S-1).
10.15 Supply agreement between Barmet Aluminum Corporation
and IMCO, dated as of March 2, 1992 (incorporated by
reference to Exhibit 10.09 to the CasTech Aluminum
Group Inc. Registration Statement No. 33-77116 on
Form S-1).
10.16 Lease of 2630 El Presidio Street, Long Beach,
California by Alflex Corporation from Brian L.
Harvey, expiring October 31, 2004 (incorporated by
reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.17 Industrial Real Estate Lease of 2303 Jefferson
Street, Torrance, California, by Barmet Aluminum
Corporation from Cypress Land Company, expiring April
30, 1999 (incorporated by reference to Exhibit 10.16
to the CasTech Aluminum Group Inc. Registration
Statement No. 33-77116 on Form S-1).
10.18 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).
10.19 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).
11 Computation of Net Income Per Share.
13 Portions of the annual report to stockholders for the
year ended December 31, 1997 which are expressly
incorporated by reference in this filing.
21 Subsidiaries.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
Report of Independent Accountants
Board of Directors
Commonwealth Industries, Inc.
Our report on the consolidated financial statements of Commonwealth
Industries, Inc.dated February 6, 1998 has been incorporated by reference in
this Form 10-K from page 31 of the 1997 Annual Report to Stockholders of
Commonwealth Industries, Inc. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule listed
in the index in Item 14 (a) (2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
February 6, 1998
Supplemental Schedule II
Commonwealth Industries, Inc.
Valuation and Qualifying Accounts
December 31, 1997, 1996 and 1995
(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 31,1997 $2,235 $ 242 $ - $ 129 $2,348
December 31,1996 1,009 111 1,490 (a) 375 2,235
December 31,1995 780 310 - 81 1,009
Allowance for obsolete stores inventory
December 31,1997 $1,000 $ 100 $ - $ - $1,100
December 31,1996 1,000 - - - 1,000
December 31,1995 1,000 - - - 1,000
Note (a) - relates to the acquisition of CasTech.
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, 1998.
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, 1998
/s/ Mark V. Kaminski
- --------------------
Mark V. Kaminski President, Chief Executive Officer and Director March 25, 1998
(Principal Executive Officer)
/s/ Catherine G. Burke
- ----------------------
Catherine G. Burke Director March 25, 1998
/s/ C. Frederick Fetterolf
- --------------------------
C. Frederick Fetterolf Director March 25, 1998
/s/ John E. Merow
- -----------------
John E. Merow Director March 25, 1998
/s/ Victor Torasso
- ------------------
Victor Torasso Director March 25, 1998
/s/ Donald L. Marsh, Jr.
- ------------------------
Donald L. Marsh, Jr. Executive Vice President, Chief Financial March 25, 1998
Officer and Secretary (Principal Financial
Officer)
/s/William G. Toler
- -------------------
William G. Toler Vice President - Finance and Administration March 25, 1998
(Principal Accounting Officer)
/s/ John F. Barron
- ------------------
John F. Barron Controller March 25, 1998
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 (incorporated by reference to Exhibit 3.3 to
the Company's Registration Statement No. 33-87294 on
Form S-1).
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 Salaried Employees Pension Plan (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-87294 on Form S-1).
10.4 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).
10.5 1995 Stock Incentive Plan as amended and restated
April 17, 1997 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997).
10.6 1997 Stock Incentive Plan (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).
10.7 Form of Severance Agreements between the Company and
Mark V. Kaminski, Scott T. Davis, Roderick Macdonald,
Donald L. Marsh, Jr., James K. O'Donnell, William G.
Toler and John J. Wasz (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
10.8 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).
10.9 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.
10.10 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).
10.11 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.
10.12 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 Non-exclusive License Agreement between Hazelett
Strip-Casting Corporation and Barmet of Kentucky,
Inc. dated as of June 2, 1982 (incorporated by
reference to Exhibit 10.07 to the CasTech Aluminum
Group Inc. Registration Statement No. 33-77116 on
Form S-1).
10.14 Agreement between Hazelett Strip-Casting Corporation,
Barmet of Kentucky, Inc. and Barmet Aluminum
Corporation, dated as of November 29, 1984
(incorporated by reference to Exhibit 10.08 to the
CasTech Aluminum Group Inc. Registration Statement
No. 33-77116 on Form S-1).
10.15 Supply agreement between Barmet Aluminum Corporation
and IMCO, dated as of March 2, 1992 (incorporated by
reference to Exhibit 10.09 to the CasTech Aluminum
Group Inc. Registration Statement No. 33-77116 on
Form S-1).
10.16 Lease of 2630 El Presidio Street, Long Beach,
California by Alflex Corporation from Brian L.
Harvey, expiring October 31, 2004 (incorporated by
reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.17 Industrial Real Estate Lease of 2303 Jefferson
Street, Torrance, California, by Barmet Aluminum
Corporation from Cypress Land Company, expiring April
30, 1999 (incorporated by reference to Exhibit 10.16
to the CasTech Aluminum Group Inc. Registration
Statement No. 33-77116 on Form S-1).
10.18 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).
10.19 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).
11 Computation of Net Income Per Share.
13 Portions of the annual report to stockholders for the
year ended December 31, 1997 which are expressly
incorporated by reference in this filing.
21 Subsidiaries.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.