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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, 1999
|_| 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. |_|
The aggregate market value of the common stock held by
non-affiliates of the registrant as of March 10, 2000 was $141,942,000.
The number of shares outstanding of the registrant's common stock as of
March 10, 2000 was 16,611,835.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders of Commonwealth
Industries, Inc. for the year ended December 31, 1999 are incorporated by
reference into Parts I and II and portions of the definitive Proxy Statement
dated March 24, 2000 for the 2000 Annual Meeting of Stockholders to be held
April 28, 2000 are incorporated by reference into Part III.
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<PAGE>
COMMONWEALTH INDUSTRIES, INC.
FORM 10-K
For the Year Ended December 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I Page
----
<S> <C>
Item 1. Business.................................................................3
Item 2. Properties..............................................................11
Item 3. Legal Proceedings.......................................................11
Item 4. Submission of Matters to a Vote of Security Holders.....................11
Item E.O. Executive Officers of the Registrant....................................11
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters....12
Item 6. Selected Financial Data.................................................13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..............13
Item 8. Financial Statements and Supplementary Data.............................13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures...........................................13
PART III
Item 10. Directors and Executive Officers of the Registrant......................14
Item 11. Executive Compensation..................................................14
Item 12. Security Ownership of Certain Beneficial Owners and Management..........14
Item 13 Certain Relationships and Related Transactions..........................14
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K..........14
Signatures..............................................................20
</TABLE>
<PAGE>
PART I
Item 1. Business.
Commonwealth Industries, Inc. (the "Company") is one of North
America's leading manufacturers of aluminum sheet and, through its Alflex
Corporation subsidiary ("Alflex"), of electrical flexible conduit and prewired
armored cable.
The Company's aluminum sheet products are produced using the
conventional, direct -chill rolling ingot casting process at the Company's
multi-purpose aluminum rolling mill at Lewisport, Kentucky, one of the largest
in North America, and by the continuous casting process at its facilities
located in Uhrichsville, Ohio, and Carson, California. The Company operates
coating lines at the Lewisport mill and at Company facilities in Bedford, Ohio,
and Torrance, California. It also operates tube mills at the Bedford and Carson
locations. The electrical flexible conduit and prewired armored cable products
are manufactured at Alflex facilities in Long Beach, California and Rocky Mount,
North Carolina.
The aluminum sheet products manufactured by the Company are generally
referred to as common alloy products. They are produced in a number of aluminum
common alloys with thicknesses (gauge) of 0.008 to 0.250 inches, widths of up to
72 inches, and a variety of physical properties and packaging, in each case to
meet customer specifications. These products are sold to distributors and
end-users, principally for use in building and construction products such as
roofing, siding, windows and gutters; transportation equipment such as truck
trailers and bodies and automotive parts; and consumer durables such as
cookware, appliances and lawn furniture. The Bedford and Carson facilities also
fabricate aluminum sheet into welded tube products for various markets.
Substantially all of the Company's aluminum sheet products are produced in
response to specific customer orders. Production of aluminum sheet products in
1999 was 1.023 billion pounds or about 94% of capacity. In 1999, the North
American market for aluminum sheet products, excluding rigid container sheet,
foil and exports, was approximately 4.1 billion pounds.
Alflex manufactures metallic (aluminum and steel) and non-metallic
(plastic) electrical flexible conduit and prewired armored cable, utilizing
aluminum sheet manufactured by the Company. These products provide mechanical
protection for electrical wiring installed in buildings in accordance with local
building code requirements. Armored cable differs from electrical conduit in
that it is pre-wired by Alflex, whereas end-users must pull wire through
electrical conduit when conduit is installed. These products are used primarily
by electrical contractors in the construction, renovation and remodeling of
commercial and industrial facilities and multi-family dwellings. They also are
used in the heating, ventilating and air-conditioning ("HVAC"), original
equipment manufacturers ("OEM") and Do-It-Yourself ("DIY") markets. The products
include preassembled and prepackaged products for commercial and DIY markets and
commercial pre-fabricated wiring systems which provide significant savings in
labor and installation costs for end-users.
Historically, electrical wires were housed in rigid pipes in the walls
of buildings. Rigid pipe remains the most widely used means of protecting wiring
in commercial and other non-residential construction. Electrical flexible
conduit made from steel was introduced in the 1920s. Flexible conduit is
significantly easier to install than rigid pipe, resulting in cost savings to
the installer. Aluminum flexible conduit, introduced to the market by Alflex,
has in recent years become a significant factor due to its ease of installation,
lighter weight and ease of cutting compared to steel flexible conduit or rigid
pipe. In wet, harsh or corrosive environments, non-metallic or plastic jacketed
steel flexible conduit may be used. Armored cable (conduit with pre-installed
wire) made of steel or aluminum has captured an increasing share of the market
from rigid pipe due to its pre-assembly, ease of installation and overall cost
effectiveness.
The Company estimates that at December 31, 1999 it had a backlog of
firm orders for which product specifications have been defined of 255.5 million
pounds of aluminum sheet products with an aggregate sales price of $275.9
million, compared to an estimate of 305.9 million pounds with an aggregate sales
price of $292.2 million at December 31, 1998. Backlog is not a significant
factor for the Company's electrical products.
Aluminum Sheet Products
Manufacturing
The Company's aluminum sheet manufacturing facilities are comprised of
the rolling mills at Lewisport, Kentucky, Uhrichsville, Ohio, and Carson,
California, coating facilities at Lewisport, Bedford, Ohio, and Torrance,
California, and tube mills at Bedford and Carson.
The Lewisport mill uses the conventional, vertical direct-chill,
rolling ingot casting process. This process permits the production of
traditional aluminum sheet with strength, hardness, formability, finishing and
other characteristics preferred for many applications. The flexibility permitted
by this multi-purpose rolling mill enables the Company to target higher margin
products, manufacture a variety of products with consistent high quality and
respond quickly to shifts in market demand. In 1999, the Lewisport mill produced
617 million pounds of aluminum sheet products. At full capacity utilization,
unit costs of converting metal to aluminum sheet products at Lewisport are
believed to be among the lowest in the industry for plants using the
conventional process.
The Uhrichsville and Carson mills use low-cost, scrap-based twin-belt
mini-mill continuous casting production technology. This process permits the
efficient production of aluminum sheet alloys used in building and construction
and other applications not requiring the more complex alloys or the physical
characteristics better provided by the conventional casting method. The process
eliminates several steps associated with conventional casting, thereby reducing
manufacturing costs. Capital costs also are significantly lower than for mills
using the conventional casting process. Since 1993, the annual capacity of the
Uhrichsville and Carson mills has been increased by over 75% from approximately
250 million pounds to 445 million pounds in 1999. The increased capacity and a
continuous improvement strategy resulted in a significant reduction in sheet
production costs. The Company believes that its continuous cast mill in
Uhrichsville has the lowest conversion costs per pound in the world.
Aluminum Supply
Most of the aluminum metal used by the Company's rolling mills is
purchased, principally from or through aluminum scrap dealers or brokers, in the
form of aluminum scrap. The Company believes it is one of the largest users of
aluminum scrap other than beverage can scrap in the United States and that the
volume of its purchases assists it in obtaining scrap at competitive prices. The
Company's remaining requirements are met with purchased primary metal, including
metal produced in Russia to specifications that differ from the industry
standard for primary aluminum but that is appropriate for the Company's needs.
Casting and Rolling
At Lewisport, scrap, in some cases after processing in the Company's
recycling facilities, and primary aluminum are melted in induction or
reverbatory furnaces. Small amounts of copper, magnesium, manganese and other
metals are added to produce alloys with the desired hardness, formability and
other physical characteristics. The molten aluminum is then poured through a
mold surrounded by circulating water, which cools and solidifies into an ingot
about 24 inches thick and weighing as much as 40,000 pounds. The cooled ingot is
conveyed to the rolling mill area for further processing. During 1999, the
Company spent approximately $0.7 million and is planning to spend an estimated
additional $0.2 million during the 2000-2001 period to bring the south casting
facilities at Lewisport into compliance with more stringent clean air regulatory
regulations expected to come into effect in 2002. In addition, during 1999 the
Company spent approximately $4.2 million in the north casting facilities at
Lewisport to increase the Company's ability to utilize lower cost aluminum scrap
units.
The rolling ingots are heated to a malleable state in soaking pits or
tunnel furnaces. Then, in the next two stages--hot and cold rolling--the ingot
is passed between rolls under pressure, causing it to become thinner and longer.
The first rolling stage takes place in a "reversing" mill, so named because the
ingot is passed back and forth between the work rolls, reversing itself after
each pass. After it passes through the reversing mill the aluminum sheet moves
through a continuous multi-stand hot mill, and then is cooled and cold rolled to
its final thickness.
The Uhrichsville and Carson rolling mills employ a continuous casting
process in which molten aluminum is fed into a caster which produces a
continuous thin slab that is immediately hot rolled into semi-finished aluminum
sheet in a single manufacturing process. The aluminum sheet is then cooled and
cold rolled to its final thickness as in the conventional process. The
Uhrichsville and Carson mills use twin-belt thin-slab continuous casting, which
the Company believes is the most efficient and most productive form of
continuous casting.
The Company and IMCO Recycling, Inc ("IMCO") are parties to a Supply
Agreement under which IMCO serves as the major supplier of recycled aluminum for
the Company's Uhrichsville mill. Under the Supply Agreement, the Company
purchases aluminum scrap and delivers it to IMCO who then processes and converts
it into molten metal at its recycling and processing facility located adjacent
to the Company's mill. The Company is responsible for the treatment and disposal
of the waste generated as a result of IMCO's processing services on behalf of
the Company. The Supply Agreement expires March 31, 2009. The Company has an
option to purchase the IMCO facility and a right of first refusal if IMCO wishes
to sell the facility.
The Carson rolling mill processes its own scrap to produce molten
metal, utilizing current delacquering and melting technology.
The Company has paid a one-time license fee for certain technology used
in its continuous casting process. The license agreement allows the Company the
use of certain inventions, technical discoveries and apparatus of the licensor
in the manufacturing process.
Finishing and Coating
After hot and cold rolling is complete, the aluminum sheet is leveled
to ensure required flatness and may be slit into narrower widths, embossed or
painted to customers' specifications.
The Company is an industry leader in the development and production of
superior quality coated aluminum products and operates at Lewisport the largest
coating line integrated with a United States rolling mill. Coating lines at the
Company's Bedford and Torrance facilities serve the Uhrichsville and Carson
rolling mills. In the coating process, aluminum sheet is chemically cleaned,
painted and then cured to produce a durable coated surface.
Packaging and Shipping
Finished products are shipped to customers by truck or rail in coils of
various size and weighing up to 30,000 pounds.
Electrical Products
Alflex fabricates its flexible conduit and armored cable at its Long
Beach, California and Rocky Mount, North Carolina facilities. The Rocky Mount
facility was completed in 1999 with production starting in the second quarter of
1999. This facility increased Alflex's capacity for cable products by
approximately 50%. Alflex purchases its aluminum sheet from the Company. Alflex
also uses significant amounts of copper and steel as raw materials.
Alflex fabricates its electrical products by slitting aluminum or steel
sheet on specialized narrow-width slitting equipment, after which the sheet is
coiled. The coils are then fed through proprietary forming machines to produce
the flexible conduit. For its cable products, Alflex draws copper into wire,
coats the wire with plastic insulation and, for certain products, wraps the
coated wire with paper or plastic. The protective armoring is then wrapped
around the cabled wire. To produce its non-metallic conduit, Alflex uses a
specialized co-extrusion process involving both rigid and flexible plastics
(PVC). After production, the conduit and cable products are cut to length and
packaged. Alflex designs and builds much of the equipment used to manufacture
its products.
During 1998, the Company executed a strategic alliance with BICCGeneral
whereby beginning in the second half of 1999, Alflex ceased drawing wire and
coating the wire with plastic insulation, and instead purchases all of its
copper wire requirements from BICCGeneral.
Alflex has designed its manufacturing processes to allow it to produce
a wide range of electrical flexible conduit and prewired armored cable products.
The Company believes this manufacturing flexibility has contributed
significantly to the growth in this business. Also, since the acquisition of the
Alflex business, the Company has increased Alflex's electrical conduit and cable
manufacturing capacity. Production volume increased from 519 million feet in
1997 to 613 million feet in 1999.
Customers and Markets
The Company's aluminum sheet products are sold to distributors as well
as end-users, principally in the building and construction, transportation and
consumer durables markets. The Company ceased manufacturing rigid container
sheet ("RCS") for the packaging market during 1999 in order to focus all of the
Company's resources on its core products.
The following table sets forth for 1999 and 1998 the percentage of
aluminum sheet net shipments contributed by each of these classes of customers
and the Company's estimate of its share of these markets in North America.
% of Net Shipments % Market Share
------------------ --------------
1999 1998 1999 1998
---- ---- ---- ----
Building and construction 41 39 34 32
Distribution 31 30 22 21
Transportation 13 12 18 17
Consumer durables and other 11 11 12 11
Rigid container sheet (packaging) 4 8 1 2
--- ---
100 100
=== ===
The building and construction sector is the largest end-use market
other than the packaging market for common alloy aluminum sheet products.
The Company believes it is the largest supplier of common alloy
aluminum sheet to distributors. Distributors, in some cases after slitting,
punching, leveling or other processing, resell the Company's products into
end-use markets, including the building and construction, transportation and
consumer durables markets.
The Company is one of the largest suppliers of aluminum sheet products
to North American manufacturers of transportation equipment, including truck
trailers and bodies, recreational vehicles and automobile parts.
The largest volume in the category of consumer durables and other
markets for the Company is reroll stock sold for further processing and
conversion for a variety of markets. Other major end-uses of this product
category are cookware, appliances and irrigation pipe.
Packaging is the largest single end-use of aluminum sheet, accounting
for about one-half of the estimated world-wide market. Much of this product is
produced by large, single-purpose rolling mills. As previously mentioned, the
Company exited the packaging market during 1999.
Market share estimates exclude heat-treated aluminum plate and sheet,
which the Company does not produce. The Company estimates that heat-treated
products constitute an immaterial portion of the end-use markets served by the
Company.
Company sales are made to customers located primarily throughout North
America. Sales outside North America have not been significant. No single
customer accounted for more than 10% of 1999 net sales.
Sales of aluminum sheet products are made through the Company's own
sales force which is strategically located to provide North American coverage.
An integrated computer system provides the Company's employees with on-line
access to inventory status, production schedules, shipping information and
pricing data to facilitate immediate response to customer inquiries.
Many of the Company's aluminum sheet markets are seasonal. Demand in
the building and construction and transportation markets is generally lower in
the fall and winter seasons than in the spring and summer. Such factors
typically result in higher operating income in the spring and summer months.
Alflex electrical products are sold primarily through independent sales
representatives to electrical distributors. Distributors represented
approximately 84% of Alflex net sales in 1999. The remaining sales are made to
the do-it-yourself ("DIY"), original equipment manufacturer ("OEM") and heating
ventilation and air conditioning ("HVAC") markets. The independent sales
representatives do not market Alflex's products exclusively, but they do not
sell products that are in direct competition with products manufactured and sold
by Alflex. Alflex serves over 6,000 customers.
Alflex maintains registered trademarks on certain of its flexible
conduit and armored cable systems, including Ultratite, Galflex, the Alflex name
and its design, Electrician's Choice, Computer Blue, Duraclad, Armorlite and
PowerSnap. While Alflex considers these trademarks to be important to its
business, it does not believe it is dependent upon the trademarks for the
continuation of its business.
Competition
The Company competes in the production and sale of common alloy
aluminum sheet products with some 20 other aluminum rolling mills in North
America and with imported products.
Aluminum Company of America ("Alcoa") and Alcan Aluminium Ltd.
("Alcan") have a significantly larger share of the total United States market
for aluminum sheet products, including packaging and aluminum foil. However, in
the market for common alloy aluminum sheet products other than can sheet and
aluminum foil, the market share leaders are Alcoa, Alcan and the Company.
During 1999, Alcoa announced that it was purchasing Reynolds Metal
Company and Alcan announced that it was merging with Pechiney of France and
Algroup of Switzerland. Both transactions are expected to be completed in 2000
and the Company believes that the effect of these transactions on competition
can not be determined at this time.
The Company competes with other rolled products suppliers on the basis
of quality, price, timeliness of delivery and customer service.
Aluminum also competes with other materials such as steel, plastic
and glass for various applications.
Alflex competes with national and regional competitors and imported
products, both in the electrical flexible conduit and prewired armored cable
industry and in the pipe and wire industry. Competition is principally on the
basis of product availability and features, price and customer service.
Research and Development
The Company conducts research and development activities at its rolling
mills as part of its ongoing operations to improve product quality and reduce
manufacturing costs. Outside consultants also are utilized.
Alflex focuses its research and development activities on the
development of new products and the improvement of its conduit and cable
manufacturing processes through the development of proprietary manufacturing
equipment and the reduction of waste.
The estimated amounts spent during 1999, 1998 and 1997 on
Company-sponsored research and development activities were $1.4 million, $0.9
million and $0.8 million, respectively.
Environmental Matters
The Company's operations are subject to increasingly stringent
environmental laws and regulations governing air emissions, wastewater
discharges, the handling, disposal and remediation of hazardous substances and
wastes and employee health and safety. These laws can impose joint and several
liability for releases or threatened releases of hazardous substances upon
statutorily defined parties, including the Company, regardless of fault or the
lawfulness of the original activity or disposal. The Company believes it is
currently in material compliance with applicable environmental laws and
regulations.
Future regulations, under the Clean Air Act and otherwise, will impose
stricter emission requirements on the aluminum industry. While the Company
believes that current pollution control measures at most of the emission sources
at its facilities will meet these anticipated future requirements, additional
measures at some of the Company's facilities, including Lewisport as discussed
above under "Aluminum Sheet Products-Casting and Rolling", may be required.
The Company has been named as a potentially responsible party at
seven federal superfund sites and has completed closure activities at two of the
sites for past waste disposal activity associated with closed recycling
facilities. A trust fund exists to fund the activity at one of the sites
undergoing closure and was established through contributions from two other
parties in exchange for indemnification from further liability. The Company is
reimbursed from the trust fund for approved closure and postclosure expenditures
incurred at the site. The balance remaining in the trust fund at December 31,
1999 was approximately $0.4 million. In determining the adequacy of the
Company's aggregate environmental contingency accrual, the assets of the trust
fund were taken into account. At the five other federal superfund sites, the
Company is a minor contributor and has satisfied its obligations at two of the
sites and expects to resolve its liability at the remaining three sites for a
nominal amount. The Company is under orders by agencies in three states for
environmental remediation at four sites, two of which are currently operating
and two of which have been closed. Based on currently available information, the
Company estimates the range of possible remaining expenditures with respect to
the above matters is between $9 million and $13 million.
The Company acquired its Lewisport rolling mill and an aluminum smelter
at Goldendale, Washington ("Goldendale"), from Lockheed Martin in 1985. In
connection with the transaction, Lockheed Martin indemnified the Company against
expenses relating to environmental matters arising during the period of Lockheed
Martin's ownership of those facilities.
Environmental sampling at Lewisport has disclosed the presence of
contaminants, including polychlorinated biphenyls (PCBs), in a closed Company
landfill. The Company has not yet determined the extent of the contamination or
the nature and extent of remedial measures that may be required. Accordingly,
the Company cannot at present estimate the cost of any remediation that may be
necessary. Management believes the contamination is covered by the Lockheed
Martin indemnification, which Lockheed Martin disputes.
The aluminum smelter at Goldendale was operated by Lockheed Martin
until 1985 and by the Company from 1985 to 1987 when it was sold to Columbia
Aluminum Corporation ("Columbia"). Past aluminum smelting activities at
Goldendale have resulted in environmental contamination and regulatory
involvement. A 1993 Settlement Agreement among the Company, Lockheed Martin and
Columbia allocated responsibility for future remediation at 11 sites at the
Goldendale smelter. If remediation is required, estimates by outside consultants
of the probable aggregate cost to the Company for these sites range from $1.3
million to $7.2 million. The apportionment of responsibility for other sites at
Goldendale is left to alternative dispute resolution procedures if and when
these locations become the subject of remedial requirements.
The Company has been named as a potentially responsible party at three
third-party disposal sites relating to Lockheed Martin operations, for which
Lockheed Martin has assumed responsibilitiy.
The Company's aggregate loss contingency accrual for environmental
matters was $9.6 million at December 31, 1999, which covers all environmental
loss contingencies that the Company has determined to be probable and reasonably
estimable. It is not possible, however, to predict the amount or timing of cost
for future environmental matters which may subsequently be determined. Although
the outcome of any such matters, to the extent they exceed any applicable
accrual, could have a material adverse effect on the Company's consolidated
results of operations or cash flows for the applicable period, the Company
believes that such outcome will not have a material adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.
The Company has incurred and will continue to incur capital and
operating expenditures for matters relating to environmental control and
monitoring. Capital expenditures of the Company for environmental control and
monitoring for 1999 and 1998 were $1.5 million and $2.1 million, respectively.
All other environmental expenditures of the Company, including remediation
expenditures, for 1999, 1998 and 1997 were $2.3 million, $1.0 million, and $3.1
million, respectively.
The Company has planned environmental capital expenditures for 2000 and
2001 of $0.4 million and $1.0 million, respectively, which includes the amounts
which may be spent to meet future clean air requirements at Lewisport as
discussed above under "Aluminum Sheet Products-Casting and Rolling".
Employees
At December 31, 1999, the Company employed 2,331 persons, of whom 1,647
were full-time non-salaried employees including 781 at Lewisport represented by
the United Steel Workers of America ("USW") and 228 at the Uhrichsville and
Bedford facilities represented by the Glass, Molders, Pottery, Plastic & Allied
Workers International, AFL-CIO, CLC union ("GMP"). Current collective bargaining
agreements with the USW and the GMP expire in July 2003 and December 2000,
respectively. The Company believes its relationships with its employees are
good.
The Company provides gain sharing plans for certain of its non-salaried
employees. Contributions to the plans are generally based upon a formula which
compares actual performance results to targets agreed upon by management and in
some cases the bargaining units. In addition, the Company provides defined
contribution 401(k) plans for certain non-salaried and salaried employees.
Item 2. Properties.
The following table sets forth certain information with respect to the
Company's principal operating properties. Substantially all of these properties
collateralize borrowings under the Company's senior secured bank credit
facility.
Location Nature Square Feet Status
-------- ------ ----------- ------
Louisville, Kentucky Administrative offices 30,000 Leased
Lewisport, Kentucky Rolling mill and coating 1,700,000 Owned
facility
Uhrichsville, Ohio Rolling mill 285,000 Owned
Carson, California Rolling mill and tube mill 103,000 Owned
Bedford, Ohio Coating facility and tube mill 164,000 Leased
Torrance, California Coating facility 60,000 Leased
Long Beach, California Alflex administrative offices 154,000 Leased
and manufacturing facility
Rancho Dominquez, Alflex distribution center 111,000 Leased
California
Rocky Mount, North Alflex manufacturing facility 105,000 Owned
Carolina and distribution center
Item 3. Legal Proceedings.
The Company is a party to non-environmental legal proceedings and
administrative actions all of which are of an ordinary routine nature incidental
to the business. In the opinion of management such proceedings and actions
should not, individually or in the aggregate, have a material adverse effect on
the Company's consolidated financial condition, results of operations or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 1999.
Item E.O. Executive Officers of the Registrant.
The executive officers of the Company as of March 19, 2000 were:
Name Age Position with the Company
---- --- -------------------------
Mark V. Kaminski 44 President, Chief Executive Officer and Director
Donald L. Marsh, Jr. 53 Executive Vice President, Chief Financial Officer
and Secretary
Robert R. Beal 48 Vice President Communications and Computing Services
Henry Del Castillo 60 Vice President Finance
Gregory P. Givan 47 Vice President and Treasurer
Katherine R. Gould 36 Vice President Organizational Development
William G. Toler 43 Vice President Materials and Corporate Development
John F. Barron 48 Controller and Assistant Secretary
Lenna R. Macdonald 37 Principal Legal Counsel and Assistant Secretary
Mr. Kaminski joined the Company in 1987 as Marketing Manager. In 1989
he was promoted to Vice President of Operations and in 1991 he became President
and Chief Executive Officer. He is a director of the Indiana University
Athletics Board and Secat, Inc.
Mr. Marsh joined the Company in March 1996. Prior to that time he was
Senior Vice President of Castle Energy Corporation.
Mr. Beal has been with the Company since 1987 and was elected to his
present position in January 1998. His most recent previous position was Manager
of Process Engineering.
Mr. Del Castillo joined the Company in October 1997 as Alflex Business
Unit Controller and was elected to his present position in November 1999. From
1995 to 1997 he was Chief Financial Officer of Wherehouse Entertainment Inc., a
retail music and video chain undergoing financial restructuring. From 1981 to
1995 he served in a number of financial management positions, including Chief
Financial Officer, at Powerine Oil Company, an independent oil refiner.
Mr. Givan joined the Company in July 1997. From 1987 until 1997 he was
Second Vice President, Corporate Finance and most recently Director, Corporate
Finance and Risk Management and Assistant Treasurer of Providian Corp., a
financial services company.
Mr. Toler has been with the Company since 1980 and was elected to his
present position in November 1999. His most recent previous position was Vice
President Finance and Administration.
Ms. Gould joined the Company in July 1998. From 1996 through 1998 she
was Human Resource Manager of Gordonstone Coal Management, a joint venture
between ARCO Coal Australia and Mitsui. Prior to 1996 she held operations and
human resource management positions with Comalco Limited, an Australia-based
aluminum company.
Mr. Barron joined the Company in February 1997. From 1986 to 1996 he
held the position of Senior Vice President and Assistant Comptroller of Bank One
Kentucky, N.A.
Ms. Macdonald joined the Company in August 1999. From December 1998 to
1999 she served as Real Estate Counsel for Vencor, Inc. From 1993 to 1998 she
held in-house counsel positions with Bank One Corporation, including with its
subsidiary Banc One New Hampshire Asset Management Corporation as Assistant
General Counsel and Litigation Group Manager.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol CMIN. On March 10, 2000, there were 157 holders of record of
the Company's Common Stock. The Company estimates that there were a total of
4,300 stockholders on that date, including beneficial owners. Since becoming
publicly owned in March 1995, the Company has paid quarterly cash dividends on
its Common Stock of $0.05 per share.
The following table sets out the high and low sales prices for the
Common Stock for each quarterly period indicated, as quoted in the Nasdaq
National Market:
1999 High Low
---- ---- ---
First Quarter $12.63 $ 8.25
Second Quarter 14.75 7.38
Third Quarter 18.38 12.25
Fourth Quarter 14.63 9.63
1998
----
First Quarter $17.44 $13.75
Second Quarter 17.75 9.00
Third Quarter 10.75 5.50
Fourth Quarter 10.13 6.38
Item 6. Selected Financial Data.
The information captioned "Consolidated Selected Financial Data"
included on page 10 of the Company's annual report to stockholders for the year
ended December 31, 1999 is incorporated herein by reference. This information
sets forth selected consolidated statement of operations, operating and balance
sheet data for the years indicated. The financial information is derived from
the audited consolidated financial statements of the Company for such years.
This information should be read in conjunction with, and is qualified by
reference to, the consolidated financial statements of the Company and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" also incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included on pages 11 through 16
of the Company's annual report to stockholders for the year ended December 31,
1999 is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information under the subcaption "Risk Management" included in the
information captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included on pages 11 through 16 of the
Company's annual report to stockholders for the year ended December 31, 1999 is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the Company and
report of independent auditors included on pages 17 through 42 of the Company's
annual report to stockholders for the year ended December 31, 1999 are
incorporated herein by reference.
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 401 (other than paragraph (b) thereof)
and Item 405 of Regulation S-K may be found under the caption Election of
Directors of the Company's Proxy Statement dated March 24, 2000 for the Annual
Meeting of Stockholders to be held on April 28, 2000 (the "Proxy Statement") and
is incorporated herein by reference. The information required by Item 401(b) of
Regulation S-K may be found under Item E.O. above.
Item 11. Executive Compensation.
The information required by Item 402 of Regulation S-K may be found
under the caption Executive Compensation in the Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 403 of Regulation S-K may be found
under the caption Beneficial Ownership of Common Stock in the Proxy Statement
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 404 of Regulation S-K may be found
under the caption Election of Directors--Compensation and Other Transactions
with Directors; Management Development and Compensation Committee Interlocks and
Insider Participation in the Proxy Statement and is incorporated herein by
reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) List of Financial Statements filed
The following consolidated financial statements of the Company and
report of independent auditors included in the Company's annual report to
stockholders for the year ended December 31, 1999 were incorporated by reference
in Part II, item 8 of this report:
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a) (2) List of Financial Statement Schedules filed
The following report of independent accountants and financial statement
schedule should be read in conjunction with the Company's consolidated financial
statements.
Supplemental Schedule II - Valuation and Qualifying Accounts is filed
on page 20 of this report.
Report of Independent Accountants on the Company's financial statement
schedule filed as a part hereof for the years ended December 31, 1999, 1998 and
1997 is filed on page 19 of this report.
Financial statement schedules other than listed above have been omitted
since they are either not required or not applicable or the information is
otherwise included.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter
ended December 31, 1999.
(c) Exhibits
3.1 Restated Certificate of Incorporation, effective
April 18, 1997(incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).
3.2 By-laws, dated April 17, 1997.
3.3 Stockholder Protection Rights Agreement, dated as of
March 6, 1996, including forms of Rights Certificate,
Election to Exercise and Certificate of Designation
and Terms of Participating Preferred Stock of the
Company (incorporated by reference to Exhibits (1),
(2) and (3) to the Company's Registration Statement
No.
0-25642 on Form 8-A).
10.1 Executive Incentive Compensation Plan, as amended
December 4, 1995(incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.2 Long-term Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.3 1999 Executive Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1999).
10.4 Salaried Employees Pension Plan (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-87294 on Form S-1).
10.5 Salaried Employees Performance Sharing Plan
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.6 1995 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999).
10.7 1997 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999).
10.8 Form of Severance Agreements between the Company and
Mark V. Kaminski, Scott T. Davis, Donald L. Marsh,
Jr., James K. O'Donnell, William G. Toler and John J.
Wasz (incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.9 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
10.10 Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.10.1 Amendment No. 1, dated as of December 22, 1998, to
Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.10.2 Agreement, of Resignation, Appointment and
Acceptance, dated as of August 18, 1999 among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, National
Westminster Bank, as resigning agent, and Bank One,
Indiana, NA, as successor agent.
10.10.3 Joinder Agreement, dated as of October 29, 1999 among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One, Indiana, NA, as administrative agent.
10.10.4 Joinder Agreement, dated as of December 31, 1999
among the Company, subsidiaries of the Company, the
several lenders from time to time parties thereto,
and Bank One, Indiana, NA, as administrative agent.
10.11 Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of National Westminster Bank
PLC, as agent, dated November 29, 1996 (incorporated
by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.12 Amendment No. 1, dated as of December 19, 1997, to
the Amended and Restated Pledge and Security
Agreement entered into by the Company and its
subsidiaries, collectively, in favor of National
Westminster Bank PLC, as agent, dated November 29,
1996 (incorporated by reference to Exhibit 10.11 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.13 Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.14 Supply agreement by and among Commonwealth Aluminum
Corporation, IMCO Recycling of Ohio Inc. and IMCO
Recycling Inc., effective as of April 1, 1999
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
10.15 Indenture dated as of September 20, 1996 between the
Company, the Subsidiary Guarantors named therein and
Harris Trust and Savings Bank, Trustee (incorporated
by reference to Exhibit 4.2 to the Company's
Registration Statement No. 333-13661 on Form S-4).
10.15.1 First Supplemental Indenture, dated as of November
12, 1996, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.15.2 Second Supplemental Indenture, dated as of October
16, 1998, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.15.3 Third Supplemental Indenture, dated as of
December 31, 1999, to Indenture dated as of
September 20, 1996.
13 Portions of the annual report to stockholders for the
year ended December 31, 1999 which are expressly
incorporated by reference in this filing.
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
<PAGE>
Report of Independent Accountants
Board of Directors
Commonwealth Industries, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 20, 2000 appearing on page 42 of the 1999 Annual Report to
Stockholders of Commonwealth Industries, Inc. and subsidiaries (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the consolidated financial
statement schedule listed in Item 14 (a) (2) of this Form 10-K. In our opinion,
this consolidated financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
January 20, 2000
<PAGE>
Supplemental Schedule II
Commonwealth Industries, Inc.
Valuation and Qualifying Accounts
December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions of Period
----------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible accounts
December 31,1999 $2,484 $ 591 $ - $1,125 $1,950
December 31,1998 2,348 1,131 - 995 2,484
December 31,1997 2,235 242 - 129 2,348
Allowance for obsolete stores inventory
December 31,1999 $1,100 $ 121 $ - $ - $1,221
December 31,1998 1,100 - - - 1,100
December 31,1997 1,000 100 - - 1,100
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on March 24, 2000.
COMMONWEALTH INDUSTRIES, INC.
By /s/ Mark V. Kaminski
-----------------------
Mark V. Kaminski, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul E. Lego
- -------------------------
Paul E. Lego Chairman of the Board March 24, 2000
/s/ Mark V. Kaminski
- -------------------------
Mark V. Kaminski President, Chief Executive Officer and Director March 24, 2000
(Principal Executive Officer)
/s/ Catherine G. Burke
- -------------------------
Catherine G. Burke Director March 24, 2000
/s/ C. Frederick Fetterolf
- --------------------------
C. Frederick Fetterolf Director March 24, 2000
/s/ John E. Merow
- --------------------------
John E. Merow Director March 24, 2000
/s/ Victor Torasso
- --------------------------
Victor Torasso Director March 24, 2000
/s/ Donald L. Marsh, Jr.
- --------------------------
Donald L. Marsh, Jr. Executive Vice President, Chief Financial March 24, 2000
Officer and Secretary (Principal Financial
Officer)
/s/Henry Del Castillo
- -------------------------- Vice President Finance March 24, 2000
Henry Del Castillo (Principal Accounting Officer)
/s/ John F. Barron
- --------------------------
John F. Barron Controller and Assistant Secretary March 24, 2000
</TABLE>
<PAGE>
Exhibit Index
-------------
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation, effective
April 18, 1997(incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).
3.2 By-laws, dated April 17, 1997.
3.3 Stockholder Protection Rights Agreement, dated as of
March 6, 1996, including forms of Rights Certificate,
Election to Exercise and Certificate of Designation
and Terms of Participating Preferred Stock of the
Company (incorporated by reference to Exhibits (1),
(2) and (3) to the Company's Registration Statement
No.
0-25642 on Form 8-A).
10.1 Executive Incentive Compensation Plan, as amended
December 4, 1995(incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.2 Long-term Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.3 1999 Executive Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1999).
10.4 Salaried Employees Pension Plan (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-87294 on Form S-1).
10.5 Salaried Employees Performance Sharing Plan
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement No. 33-87294 on
Form S-1).
10.6 1995 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999).
10.7 1997 Stock Incentive Plan, as amended and restated
April 23, 1999 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999).
10.8 Form of Severance Agreements between the Company and
Mark V. Kaminski, Scott T. Davis, Donald L. Marsh,
Jr., James K. O'Donnell, William G. Toler and John J.
Wasz (incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.9 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
10.10 Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.10.1 Amendment No. 1, dated as of December 22, 1998, to
Second Amended and Restated Credit Agreement among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and
National Westminster Bank PLC, as agent, dated as of
December 19, 1997 (incorporated by reference to
Exhibit 10.9.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.10.2 Agreement, of Resignation, Appointment and
Acceptance, dated as of August 18, 1999 among the
Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, National
Westminster Bank, as resigning agent, and Bank One,
Indiana, NA, as successor agent.
10.10.3 Joinder Agreement, dated as of October 29, 1999 among
the Company, subsidiaries of the Company, the several
lenders from time to time parties thereto, and Bank
One, Indiana, NA, as administrative agent.
10.10.4 Joinder Agreement, dated as of December 31, 1999
among the Company, subsidiaries of the Company, the
several lenders from time to time parties thereto,
and Bank One, Indiana, NA, as administrative agent.
10.11 Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of National Westminster Bank
PLC, as agent, dated November 29, 1996 (incorporated
by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.12 Amendment No.1, dated as of December 19, 1997, to the
Amended and Restated Pledge and Security Agreement
entered into by the Company and its subsidiaries,
collectively, in favor of National Westminster Bank
PLC, as agent, dated November 29, 1996 (incorporated
by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997).
10.13 Receivables Purchase Agreement among Commonwealth
Financing Corp., the Company, Market Street Funding
Corporation and PNC Bank, National Association, dated
as of September 29, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.14 Supply agreement by and among Commonwealth Aluminum
Corporation, IMCO Recycling of Ohio Inc. and IMCO
Recycling Inc., effective as of April 1, 1999
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
10.15 Indenture dated as of September 20, 1996 between the
Company, the Subsidiary Guarantors named therein and
Harris Trust and Savings Bank, Trustee (incorporated
by reference to Exhibit 4.2 to the Company's
Registration Statement No. 333-13661 on Form S-4).
10.15.1 First Supplemental Indenture, dated as of November
12, 1996, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.15.2 Second Supplemental Indenture, dated as of October
16, 1998, to Indenture dated as of September 20, 1996
(incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.15.3 Third Supplemental Indenture, dated as of
December 31, 1999, to Indenture dated as of
September 20, 1996.
13 Portions of the annual report to stockholders for
the year ended December 31, 1999 which are expressly
incorporated by reference in this filing.
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
NY12524:\44619.1
BY-LAWS
OF
COMMONWEALTH INDUSTRIES, INC.
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of stockholders shall be held
for the election of directors at such date, time and place either within or
without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may be called at
any time by the Chairman of the Board, if any, the Vice Chairman of the Board,
if any, the President or the Board of Directors, to be held at such date, time
and place either within or without the State of Delaware as may be stated in the
notice of the meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the stockholder at such stockholder's address as it appears on the
records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or special, may
be adjourned from time to time, to reconvene at the same or some other place,
and notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except where otherwise
provided by law or the certificate of incorporation or these by-laws, the
holders of a majority of the outstanding shares of stock entitled to vote on a
matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of stock shall be considered a single
class if the holders thereof are entitled to vote together as a single class at
the meeting.
In the absence of a quorum of the holders of any class of
stock entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner provided by Section 1.4 of these by-laws until a quorum of
such class shall be so present or represented.
Shares of its own capital stock belonging on the record date
for the meeting to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided over by
the Chairman of the Board, if any, or in the absence of the Chairman of the
Board by the Vice Chairman of the Board, if any, or in the absence of the Vice
Chairman of the Board by the President, or in the absence of the President by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
The order of business at each such meeting shall be as
determined by the chairman of the meeting. The chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts and things as are necessary or desirable for the proper
conduct of the meeting, including, without limitation, the establishment of
procedures for the maintenance of order and safety, limitations on the time
allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof and the opening and closing of the voting polls.
Section 1.7. Inspectors. Prior to any meeting of stockholders, the Board of
Directors or the President shall appoint one or more inspectors to act at such
meeting and make a written report thereof and may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at the meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting.
Each inspector, before entering upon the discharge of his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability.
The inspectors shall ascertain the number of shares
outstanding and the voting power of each, determine the shares represented at
the meeting and the validity of proxies and ballots, count all votes and
ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
certify their determination of the number of shares represented at the meeting
and their count of all votes and ballots. The inspectors may appoint or retain
other persons to assist them in the performance of their duties.
The date and time of the opening and closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxy or vote, nor any revocation thereof
or change thereto, shall be accepted by the inspectors after the closing of the
polls.
In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted therewith, any information provided by a stockholder who
submits a proxy by telegram, cablegram or other electronic transmission from
which it can be determined that the proxy was authorized by the stockholder,
ballots and the regular books and records of the corporation, and they may also
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for such
purpose, they shall, at the time they make their certification, specify the
precise information considered by them, including the person or persons from
whom they obtained the information, when the information was obtained, the means
by which the information was obtained and the basis for the inspectors' belief
that such information is accurate and reliable.
Section 1.8. Voting; Proxies. Unless otherwise provided in the certificate of
incorporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by such stockholder
which has voting power upon the matter in question.
Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such stockholder by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power, regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation.
Voting at meetings of stockholders need not be by written
ballot unless the holders of a majority of the outstanding shares of all classes
of stock entitled to vote thereon present in person or represented by proxy at
such meeting shall so determine.
Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. In all other matters, unless otherwise
provided by law or by the certificate of incorporation or these by-laws, the
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders. Where a separate vote by class or classes
is required, the affirmative vote of the holders of a majority of the shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class or classes, except as otherwise provided by law
or by the certificate of incorporation or these by-laws.
Section 1.9. Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 1.10. List of Stockholders Entitled to Vote. The Secretary shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 1.11. Advance Notice of Stockholder Proposals. At any annual or special
meeting of stockholders, proposals by stockholders and persons nominated for
election as directors by stockholders shall be considered only if advance notice
thereof has been timely given as provided herein and such proposals or
nominations are otherwise proper for consideration under applicable law and the
certificate of incorporation and by-laws of the Corporation.
Notice of any proposal to be presented by any stockholder or
of the name of any person to be nominated by any stockholder for election as a
director of the Corporation at any meeting of stockholders shall be delivered to
the Secretary of the Corporation at its principal executive office not less than
60 nor more than 90 days prior to the date of the meeting; provided, however,
that if the date of the meeting is first publicly announced or disclosed (in a
public filing or otherwise) less than 70 days prior to the date of the meeting,
such advance notice shall be given not more than ten days after such date is
first so announced or disclosed. Public notice shall be deemed to have been
given more than 70 days in advance of the annual meeting if the Corporation
shall have previously disclosed, in these by-laws or otherwise, that the annual
meeting in each year is to be held on a determinable date, unless and until the
Board determines to hold the meeting on a different date.
Any stockholder who gives notice of any such proposal shall
deliver therewith the text of the proposal to be presented and a brief written
statement of the reasons why such stockholder favors the proposal and setting
forth such stockholder's name and address, the number and class of all shares of
each class of stock of the Corporation beneficially owned by such stockholder
and any material interest of such stockholder in the proposal (other than as a
stockholder).
Any stockholder desiring to nominate any person for election
as a director of the Corporation shall deliver with such notice a statement in
writing setting forth the name of the person to be nominated, the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such person, the information regarding such person required by paragraphs
(a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and
Exchange Commission (or the corresponding provisions of any regulation
subsequently adopted by the Securities and Exchange Commission applicable to the
Corporation), such person's signed consent to serve as a director of the
Corporation if elected, such stockholder's name and address and the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such stockholder.
As used herein, shares "beneficially owned" shall mean all
shares as to which such person, together with such person's affiliates and
associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934),
may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as well as all shares as to which such person,
together with such person's affiliates and associates, has the right to become
the beneficial owner pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions).
The person presiding at the meeting, in addition to making any
other determinations that may be appropriate to the conduct of the meeting,
shall determine whether such notice has been duly given and shall direct that
proposals and nominees not be considered if such notice has not been given.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of one or more members, the
number thereof to be determined from time to time by the Board.
Directors need not be stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies. Each
director shall hold office until the next election of the class for which such
director shall have been chosen, and until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Any director may resign at any time upon written notice to the
Board of Directors or to the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective.
Any director or the entire Board of Directors may be removed,
with cause, by the holders of a majority of the shares then entitled to vote at
an election of directors.
Unless otherwise provided in the certificate of incorporation
or these by-laws, vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class or from any other cause
may be filled by a majority of the directors then in office, although less than
a quorum, or by the sole remaining director.
Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by the sole remaining
director so elected.
Any director elected or appointed to fill a vacancy shall hold
office until the next election of the class of directors of the director which
such director replaced, and until and his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be
held at such places within or without the State of Delaware and at such times as
the Board may from time to time determine, and if so determined notice thereof
need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of Directors may be
held at any time or place within or without the State of Delaware whenever
called by the Chairman of the Board, if any, by the Vice Chairman of the Board,
if any, by the President or by any two directors. Reasonable notice thereof
shall be given by the person or persons calling the meeting.
Section 2.5. Participation in Meetings by Conference Telephone Permitted. Unless
otherwise restricted by the certificate of incorporation or these by-laws,
members of the Board of Directors, or any committee designated by the Board, may
participate in a meeting of the Board or of such committee, as the case may be,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this by-law shall constitute presence in
person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board of
Directors one-third of the entire Board shall constitute a quorum for the
transaction of business. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall be present.
Section 2.7. Organization. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman of the Board by the President, or in their absence by a chairman
chosen at the meeting. The Secretary, or in the absence of the Secretary an
Assistant Secretary, shall act as secretary of the meeting, but in the absence
of the Secretary and any Assistant Secretary the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted
by the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 2.9. Compensation of Directors. Unless otherwise restricted by the
certificate of incorporation or these by-laws, the Board of Directors shall have
the authority to fix the compensation of directors.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors or in these by-laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution or amending these by-laws; and, unless the
resolution, these by-laws or the certificate of incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, to adopt a certificate of
ownership and merger or to remove or indemnify directors.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides,
each committee designated by the Board may adopt, amend and repeal rules for the
conduct of its business. In the absence of a provision by the Board or a
provision in the rules of such committee to the contrary, a majority of the
entire authorized number of members of such committee shall constitute a quorum
for the transaction of business, the vote of a majority of the members present
at a meeting at the time of such vote if a quorum is then present shall be the
act of such committee, and in other respects each committee shall conduct its
business in the same manner as the Board conducts its business pursuant to
Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Officers; Election. As soon as practicable after the annual meeting
of stockholders in each year, the Board of Directors shall elect a President and
a Secretary, and it may, if it so determines, elect from among its members a
Chairman of the Board and a Vice Chairman of the Board. The Board may also elect
one or more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such
other officers as the Board may deem desirable or appropriate and may give any
of them such further designations or alternate titles as it considers desirable.
Any number of offices may be held by the same person unless the certificate of
incorporation or these by-laws otherwise provide.
Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless otherwise
provided in the resolution of the Board of Directors electing any officer, each
officer shall hold office until the first meeting of the Board after the annual
meeting of stockholders next succeeding his or her election and until his or her
successor is elected and qualified or until his or her earlier resignation or
removal.
Any officer may resign at any time upon written notice to the
Board or to the President or the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein, and unless otherwise specified
therein no acceptance of such resignation shall be necessary to make it
effective.
The Board may remove any officer with or without cause at any
time. Any such removal shall be without prejudice to the contractual rights of
such officer, if any, with the Corporation, but the election of an officer shall
not of itself create contractual rights.
Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. Powers and Duties. The officers of the Corporation shall have such
powers and duties in the management of the Corporation as shall be stated in
these by-laws or in a resolution of the Board of Directors which is not
inconsistent with these by-laws and, to the extent not so stated, as generally
pertain to their respective offices, subject to the control of the Board. The
Secretary shall have the duty to record the proceedings of the meetings of the
stockholders, the Board of Directors and any committees in a book to be kept for
that purpose. The Board may require any officer, agent or employee to give
security for the faithful performance of his or her duties.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, of the Corporation, representing the
number of shares of stock in the Corporation owned by such holder. If such
certificate is manually signed by one officer or manually countersigned by a
transfer agent or by a registrar, any other signature on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
If the Corporation is authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications or restrictions of
such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, provided that, except as otherwise provided by
law, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors. -----------
Section 6.2. Seal. The Corporation may have a corporate seal which shall have
the name of the Corporation inscribed thereon and shall be in such form as may
be approved from time to time by the Board of Directors. The corporate seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
Section 6.4. Indemnification of Directors, Officers and Others. The Corporation
shall indemnify to the full extent permitted by law any person made or
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a director or officer of
the Corporation or serves or served at the request of the Corporation any other
enterprise as a director, officer or employee.
Expenses, including attorneys' fees, incurred by any such
person in defending any such action, suit or proceeding shall be paid or
reimbursed by the Corporation promptly upon receipt by it of an undertaking of
such person to repay such expenses if it shall ultimately be determined that
such person is not entitled to be indemnified by the Corporation.
The rights provided to any person by this by-law shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon it in serving or continuing to serve as a director, officer or
employee as provided above. No amendment of this by-law shall impair the rights
of any person arising at any time with respect to events occurring prior to such
amendment.
For purposes of this by-law, the term "Corporation" shall
include any predecessor of the Corporation and any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include any
corporation, partnership, joint venture, trust or employee benefit plan; service
"at the request of the Corporation" shall include service as a director, officer
or employee of the Corporation which imposes duties on, or involves services by,
such director, officer or employee with respect to an employee benefit plan, its
participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to an employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation.
The Corporation, by a resolution of its Board of Directors or
by an agreement approved by its Board of Directors, may, to the full extent
permitted by law, indemnify and pay or reimburse expenses to any person,
including any person entitled to indemnification and the payment and
reimbursement of expenses under this Section 6.4, but nothing herein shall limit
or affect the rights of any such person under this Section.
If a request to be indemnified or for the payment or
reimbursement of expenses pursuant to this Section 6.4 or a resolution or
agreement authorized as provided in this Section 6.4 is not paid in full by the
Corporation within 30 days after a written claim therefor has been received by
the President or Secretary of the Corporation and the claimant thereafter brings
suit against the Corporation to recover the unpaid amount of the claim which is
successful in whole or in part, the Corporation shall be obligated to pay the
claimant the expenses, including reasonable attorneys' fees, of prosecuting the
claim.
The indemnification or payment or reimbursement of expenses
provided by or granted pursuant to the provisions of this Section 6.4 shall be
in addition to and shall not be exclusive of any other rights to indemnification
and payment or reimbursement of expenses to which such person may otherwise be
entitled by law, certificate of incorporation, by-law, insurance policy,
contract or otherwise.
Section 6.5. Interested Directors; Quorum. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account and
minute books, may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, microphotographs or any other information storage device, provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or repealed, and
new by-laws adopted, by the Board of Directors, but the stockholders entitled to
vote may adopt additional by-laws and may amend or repeal any by-law whether or
not adopted by them.
April 17, 1997
AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as
of August 19, 1999, by and among COMMONWEALTH INDUSTRIES, INC., a corporation
duly organized and validly existing under the laws of the State of Delaware (the
"Parent"); COMMONWEALTH ALUMINUM CORPORATION, a corporation duly organized and
validly existing under the laws of the State of Delaware ("CAC'); ALFLEX
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of Delaware ("Alflex"); COMMONWEALTH ALUMINUM CONCAST, INC., a
corporation duly organized and validly existing under the laws of the State of
Ohio ("CACI"); each of the Subsidiaries of the Parent party thereto (each, a
"Subsidiary Guarantor" and, collectively, the Subsidiary Guarantors"); each of
the lenders that is a signatory hereto (individually, a "Lender" and,
collectively, the "Lenders"); NATIONAL WESTMINSTER BANK PLC (the "Resigning
Agent"); and Bank One, Indiana, N.A. (the "Successor Agent").
RECITALS:
Reference is made to the Second Amended and Restated Credit
Agreement dated as of December 19, 1997 (the "Credit Agreement") between the
Parent, CAC, Alflex, CACI, CI HOLDINGS, INC., the Subsidiary Guarantors, the
Lenders, and the Resigning Agent as administrative agent for the Lenders (in
such capacity, together with its successors in such capacity, the
"Administrative Agent") providing, subject to the terms and conditions thereof,
for loans to be made by said Lenders to the Borrowers in an aggregate principal
or face amount not exceeding $100,000,000.
Section 11.08 of the Credit Agreement provides that the
Administrative Agent may resign by giving notice thereof to the Lenders, the
Parent and the Borrowers.
As set forth herein, the Resigning Agent wishes to resign as
Administrative Agent and Issuing Bank under the Credit Agreement.
Section 11.08 of the Credit Agreement further provides that if
the Administrative Agent shall resign, the Majority Lenders shall have the right
to appoint a successor Administrative Agent.
By virtue of the consent of the Lenders constituting the
Majority Lenders set forth below, such Lenders have consented to the resignation
of the Resigning Agent as Administrative Agent and as Issuing Bank under the
Credit Agreement and to the appointment of the Successor Agent as Administrative
Agent and Issuing Bank thereunder.
Subject to the terms and conditions hereof, the Successor
Agent is willing to accept such appointment.
Accordingly, the Resigning Agent, the Parent, the Borrowers,
the Subsidiary Guarantors, the Lenders and the Successor Agent for and in
consideration of the premises and of other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, consent and agree as follows:
ARTICLE I
THE RESIGNING AGENT
SECTION1.01. Pursuant to Section 11.08 of the Credit Agreement, the
Resigning Agent hereby notifies the Lenders, the Parent and the Borrowers that
it resigns as Administrative Agent and as Issuing Bank under the Credit
Agreement as of the Effective Date.
SECTION 1.02. The Resigning Agent represents and warrants to the
Successor Agent that this Agreement has been duly authorized, executed and
delivered on behalf of the Resigning Agent.
SECTION 1.03. The Resigning Agent assigns, transfers, delivers and
confirms to the Successor Agent the rights, powers and duties of the
Administrative Agent and Issuing Bank under the Credit Agreement and the
Security Documents, and the Successor Agent hereby accepts such rights, powers
and duties. The Resigning Agent and by its execution hereof the Parent, the
Borrowers, the Subsidiary Guarantors and the Lenders, each agrees to execute and
deliver such further instruments and take such actions as the Successor Agent
reasonably may request so as to more fully and certainly vest and confirm in the
Successor Agent all the rights, powers and duties hereby assigned, transferred,
delivered and confirmed to the Successor Agent as the Administrative Agent and
the Issuing Bank and to execute and deliver such further instruments and
documents as the Successor Agent may reasonably request, including, without
limitation, UCC-3 assignments.
SECTION 1.04. The Successor Agent acknowledges receipt from the
Resigning Agent of a copy of the Credit Agreement. The Resigning Agent shall
promptly, and in any event within two Business Days after the Effective Date,
deliver to the Successor Agent after the Effective Date copies as requested of
all other documents delivered to the Resigning Agent in connection with all
prior fundings under the Credit Agreement and originals (as available) of the
Credit Agreement, the Security Documents, the possessory collateral security
delivered to the Resigning Agent under the Pledge and Security Agreement, the
Mortgages and all other documents, resolutions, opinions, and other instruments
delivered in connection with the Credit Agreement.
ARTICLE 2
APPOINTMENT
SECTION 2.01. As a result of the consent of the Lenders set forth
below, the Majority Lenders have consented to the appointment of the Successor
Agent as the Administrative Agent and Issuing Bank under the Credit Agreement
and the Security Documents. Accordingly, there is hereby vested in the Successor
Agent all the rights, powers, duties and obligations of the Resigning Agent
under the Credit Agreement and the Security Documents as of the Effective Date.
ARTICLE 3
THE SUCCESSOR AGENT
SECTION 3.01. The Successor Agent represents and warrants to the
Resigning Agent, the Lenders, the Parent, the Borrowers and the Subsidiary
Guarantors that this Agreement has been duly authorized, executed and delivered
on behalf of the Successor Agent.
SECTION 3.02. The Successor Agent accepts its appointment as successor
Administrative Agent and Issuing Bank under the Credit Agreement and the
Security Documents as of the Effective Date and accepts the rights, powers,
duties and obligations of the Resigning Agent as the Administrative Agent and
Issuing Bank under the Credit Agreement and the Security Documents as of the
Effective Date, upon the terms and conditions set forth therein.
<PAGE>
ARTICLE 4
OTHER PROVISIONS
SECTION 4.01. Except as otherwise expressly provided herein or unless
the context otherwise requires, all terms used herein that are defined in the
Credit Agreement shall have the meanings assigned to them in the Credit
Agreement,
SECTION 4.02. This Agreement and the resignation, appointment and
acceptance effected hereby shall be effective as of the close of business on
August 18, 1999 (the "Effective Date").
SECTION 4.03. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 4.04. This Agreement may be executed in any number of
counterparts each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
SECTION 4.05. The Resigning Agent agrees that at any time and from time
to time upon the written request of the Successor Agent, it will execute and
deliver such further documents and do such further acts and things as the
Successor Agent may reasonably request in order to effect the appointment of the
Successor Agent.
SECTION 4.06. The Successor Agent agrees to pay to the Resigning Agent
the Facility Fee, Letter of Credit fee and Swingline interest in the amounts of
$13,650.00, $17,236.00 and $676.48, respectively, as such fees shall be paid in
arrears to the Successor Agent by the Borrowers for the period ending September
1, 1999. Notwithstanding anything in this Agreement to the contrary, the
Successor Agent shall have no obligation to make any payments to the Resigning
Agent under this Section 4.06 unless the Successor Agent has received such
amounts from the Borrowers under the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Resignation, Appointment and Acceptance to be duly executed as of the day and
year first above written.
THE PARENT
COMMONWEALTH INDUSTRIES, INC.
By: _____________________________________________
Title:
THE BORROWERS
COMMONWEALTH ALUMINUM CORPORATION
By: _____________________________________________
Title:
<PAGE>
ALFLEX CORPORATION
By: _____________________________________________
Title:
COMMONWEALTH ALUMINUM CONCAST, INC.
By: _____________________________________________
Title:
SUBSIDIARY GUARANTOR
COMMONWEALTH ALUMINUM SALES CORPORATION
By: _____________________________________________
Title:
NATIONAL WESTMINSTER BANK PLC,
as Resigning Agent
By: _____________________________________________
Name:
Title:
BANK ONE, INDIANA, N.A.,
as Successor Agent
By: _____________________________________________
Name:
Title:
The Lenders under Credit Agreement, hereby consent to the foregoing
Resignation, Appointment and Acceptance.
LENDERS
NATIONAL WESTMINSTER BANK PLC
By: _____________________________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By: _____________________________________________
Title:
ABN AMRO BANK N.V.
By: _____________________________________________
Title:
<PAGE>
BANK OF MONTREAL
By: _____________________________________________
Title:
CREDIT AGRICOLE INDOSUEZ
By: _____________________________________________
Title:
By: _____________________________________________
Title:
MELLON BANK, N.A.
By: _____________________________________________
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: _____________________________________________
Title:
BANK ONE, INDIANA, N.A.
By: _____________________________________________
Title:
NB005:0NB15:70784:LOUISVILLE
090899:1
JOINDER AGREEMENT
This Joinder Agreement (the "Joinder Agreement") is made and entered
into as of October 29, 1999, by and among:
(1) Commonwealth Industries, Inc., a corporation duly organized and
validly existing under the laws of the State of Delaware (the "Parent") and the
successor by merger to CI Holdings, Inc.;
(2) Commonwealth Aluminum Lewisport, Inc., a corporation duly organized
and validly existing under the laws of the State of Delaware and formerly known
as Commonwealth Aluminum Corporation ("Lewisport");
(3) Alflex Corporation, a corporation duly organized and validly
existing under the laws of the State of Delaware ("Alflex");
(4) Commonwealth Aluminum Concast, Inc., a corporation duly organized
and validly existing under the laws of the State of Ohio ("CACI"; each of CACI,
Lewisport and Alflex is sometimes hereafter referred to as a "Borrower" and
collectively as the "Borrowers");
(5) Commonwealth Aluminum Corporation, a corporation duly organized and
validly existing under the laws of the State of Delaware (the "New Borrower");
(6) The Subsidiary of the Parent identified by the caption "Subsidiary
Guarantor" on the signature pages hereto (the "Subsidiary Guarantor" and,
together with the Parent and the Borrowers, the "Obligors");
(7) Bank One, Indiana, NA, for itself and as administrative agent for
the Lenders (as hereafter defined) (the "Administrative Agent");
(8) PNC Bank, National Association ("PNC");
(9) ABN AMRO Bank N.V. ("ABN AMRO");
(10) Bank of Montreal ("Montreal");
(11) Credit Agricole Indosuez ("Indosuez");
(12) Mellon Bank, N.A. ("Mellon Bank"); and
(13) The Industrial Bank of Japan, Limited ("IBJ" and, together with
the Administrative Agent, PNC, ABN AMRO, Montreal, Indosuez and Mellon Bank, the
"Lenders").
PRELIMINARY STATEMENTS:
A. Parent, each of the Borrowers, each of the Subsidiary Guarantors and each of
the Lenders are parties to a certain Second Amended and Restated Credit
Agreement dated as of December 19, 1997, as amended by Amendment No. 1 to Credit
Agreement dated December 22, 1997, and an Agreement of Resignation, Appointment
and Acceptance dated August 18, 1999 (as amended from time to time, the "Credit
Agreement").
B. Parent, Lewisport, Alflex, CACI, the Subsidiary Guarantors and the
Administrative Agent (as successor to National Westminster Bank PLC pursuant to
the Agreement of Resignation, Appointment and Acceptance dated August 18, 1999)
are parties to a certain Amended and Restated Pledge and Security Agreement
dated as of November 29, 1996, as amended by Amendment No. 1 dated as of
December 19, 1997 (as amended, the "Pledge Agreement").
C. Lewisport has changed its name, and the Borrowers have requested that the
Lenders consent to such change of name.
D. C.I. Holdings, Inc., has merged with and into Parent, and the Borrowers have
requested that the Lenders consent to such merger.
E. New Borrower has become affiliated with the Borrowers, and the Borrowers have
requested that the Lenders agree to allow New Borrower to join as a Borrower
under the Credit Agreement.
NOW THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1. Joinder. The New Borrower hereby executes and delivers this Agreement to the
Lenders, pursuant to which the New Borrower joins as a "Borrower" (as defined in
the Credit Agreement), and becomes liable as a Borrower under, each of the
documents to which the Borrowers are parties (including without limitation the
Credit Agreement, each of the Revolving Credit Notes, each of the Swingline
Notes and the Pledge Agreement), jointly and severally liable with all other
Borrowers under and with respect to such documents. Each of the other Borrowers
consents to the joinder of the New Borrower.
2. Consent of Lenders. Each of the Lenders hereby (i) consents to the
change of Lewisport's name from Commonwealth Aluminum Corporation to
Commonwealth Aluminum Lewisport, Inc., (ii) consents to the merger of CI
Holdings, Inc., with and into Parent, and (iii) consents to the addition of the
New Borrower as, and agrees that the New Borrower shall be, a "Borrower" under
the Credit Agreement, the Revolving Credit Notes, the Swingline Notes, the
Pledge Agreement and each of the other documents to which the Borrowers are
parties.
3. Affirmation of Representations and Warranties. Each of the Borrowers
(including the New Borrower) hereby affirms that the representations and
warranties contained in the Credit Agreement and in the Pledge Agreement are
true and accurate as of the date of the execution and delivery of this Joinder
Agreement. Each further represents and warrants that each has the power to enter
into and perform this Joinder Agreement. The making and performance by the
Borrowers (including the New Borrower) and each of the Subsidiary Guarantors of
this Joinder Agreement has been duly authorized by all necessary corporate
action and will not violate any provision of law or of any of the Borrowers'
(including the New Borrower's) certificates of incorporation or bylaws, or
result in the breach of, or constitute a default under, any agreement or
instrument to which any of the Borrowers (including the New Borrower) or any
Subsidiary Guarantor is a party or by which any of the Borrowers (including the
New Borrower) or any Subsidiary Guarantor or any of their respective property
may be bound or affected, or result in the creation of any lien, charge or
encumbrance upon any property or assets of any of the Borrowers (including the
New Borrower) or any Subsidiary Guarantor, except as provided by this Joinder
Agreement (in the case of the New Borrower). No consent, approval,
authorization, declaration, exemption or other action by, or notice to, any
court or governmental or administrative agency or tribunal is or will be
required in connection with the execution, delivery, performance, validity or
enforcement of this Joinder Agreement or any other agreement, instrument or
document to be executed and delivered pursuant hereto.
4. No Impairment and Ratification. Each Subsidiary Guarantor consents
to the entering into of this Joinder Agreement by each of the Borrowers
(including the New Borrower), each of the Subsidiary Guarantors and the Lenders
and agrees that neither this Joinder Agreement nor anything contained herein or
in any other document or instrument delivered in connection herewith shall
diminish or impair its liability in any respect under its Guaranty, which
Guaranty is, by the execution and delivery of this Joinder Agreement, ratified,
confirmed and reaffirmed in their entirety, and acknowledged to continue in full
force and effect.
5. Ratification. Except as expressly amended by this Joinder Agreement,
the Credit Agreement, the Pledge Agreement and the Guaranties are and shall be
unchanged, and all of the terms, provisions, covenants, agreements, conditions,
schedules and exhibits thereof or thereto shall remain and continue in full
force and effect and are hereby incorporated by reference, and hereby ratified,
reaffirmed and confirmed by the Borrowers (including the New Borrower), each
Subsidiary Guarantor and the Lenders in all respects on and as of the effective
date of this Amendment. Each Subsidiary Guarantor and each of the Borrowers
(including the New Borrower) acknowledges and agrees that all liens, security
interests, and pledges heretofore given to the Lenders to secure their
respective indebtedness to the Lenders shall also secure all obligations arising
hereunder.
6. Conditions. The Lenders' agreements and consents in this Joinder
Agreement are and shall be subject to the prior satisfaction of the following
conditions precedent:
(a) Execution and Delivery of this Joinder Agreement. All of
the parties to this Joinder Agreement shall have executed and delivered a
counterpart hereof.
(b) Evidence of Existence and Authorzation. The Administrative
Agent shall have received the following:
(i) for the New Borrower, a copy of charter documents, by-laws and
resolutions relating to New Borrower's execution and delivery of this Joinder
Agreement, all certified as true, correct and complete by the Secretary or an
Assistant Secretary of the New Borrower;
(ii) for Parent, a copy of the charter documents reflecting the merger of
CI Holdings, Inc., with and into the Parent, all certified as true, correct and
complete by the Secretary or an Assistant Secretary of the Parent; and
(iii) for all Obligors, copies of resolutions
relating to the execution and delivery of this Joinder
Agreement, all certified as true, correct and complete by the Secretary or an
Assistant Secretary of each Obligor.
(c) Chattel Search Results. The Administrative Agent shall
have received legal opinions, UCC-11 Reports or reports from
nationally-recognized chattel search firms and similar information reflecting
that the security interests granted to the Lenders by the New Borrower and by
Lewisport are first and prior perfected security interests.
(d) Legal Opinion. The Administrative Agent shall have
received the legal opinion of the law firm of Messrs. Sullivan & Cromwell,
substantially in the form of Exhibit A attached hereto and incorporated herein
by this reference.
(e) Proceedings Satisfactory. All proceedings taken in
connection with the transactions contemplated herein shall be satisfactory to
the Lenders and their counsel. The Lenders and their counsel shall have received
copies of such documents as they may request in connection therewith, all in
form and substance satisfactory to the Lenders and their counsel.
(f) Financing Statements. The New Borrower shall have executed
and delivered to the Administrative Agent for filing in the appropriate
governmental offices all UCC-1 financing statements and other documents as the
Administrative Agent determines to be necessary to perfect the security
interests intended to be granted by the New Borrower under the Pledge Agreement.
7. General Provisions.
(a) Entire Agreement. This Agreement, the Credit Agreement, the Pledge Agreement
and the other documents to which the Borrowers (including the New Borrower) are
parties pursuant to the Credit Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and thereof. No change,
modification, addition or termination of this Agreement shall be enforceable
unless in writing and signed by the party against whom enforcement is sought.
(b) Definitions. Terms used and not otherwise defined in this Joinder Agreement
shall have the meanings given to them in the Credit Agreement, as amended from
time to time.
(c) Benefit. This Agreement shall be binding upon the Obligors, the New Borrower
and their respective successors and assigns and shall inure to the benefit of
the Lenders and their respective successors and assigns.
(d) Waiver. No waiver of the provisions hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or a waiver in respect of any breach or default,
whether of a similar or a different nature, unless expressly so stated in
writing.
(e) Governing Law. The validity, construction, interpretation and enforcement of
this Agreement shall be construed in accordance with the laws of the State of
New York without regard to its conflict of laws.
(f) Severability. If any provision of this Agreement or its application shall be
deemed invalid, illegal or unenforceable in any respect, the validity,
construction, interpretation and enforceability of all other applications of
that provision and of all other provisions and applications hereof shall not in
any way be affected or impaired.
(g) Further Assurances. From time to time at another party's request and without
further consideration, the parties shall execute and deliver such further
instruments and documents, and take such other action as the requesting party
may reasonably request, in order to complete more effectively the transactions
contemplated in this Agreement.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement. This Agreement may be
executed by each party on separate copies, which copies, when combined so as to
include the signatures of all parties, shall constitute a single counterpart of
this Agreement.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the date set out in the
preamble of this Agreement but actually on the dates set forth below.
Commonwealth Industries, Inc.
By:
Title:
Commonwealth Aluminum Lewisport, Inc.
By:
Title:
Alflex Corporation
By:
Title:
Commonwealth Aluminum Concast, Inc.
By:
Title:
Commonwealth Aluminum Corporation
By:
Title:
"Subsidiary Guarantor" Commonwealth Aluminum Sales Corporation
By:
Title:
Bank One, Indiana, NA
By:
Title:
PNC Bank, National Association
By:
Title:
ABN AMRO Bank N.V.
By:
Title:
Bank of Montreal
By:
Title:
Credit Agricole Indosuez
By:
Title:
Mellon Bank, N.A.
By:
Title:
The Industrial Bank of Japan, Limited
By:
Title:
BA235:000BA:104073:LOUISVILLE
030900:1
JOINDER AGREEMENT
This Joinder Agreement (the "Joinder Agreement") is made and entered
into as of December 31, 1999, by and among:
(1) Commonwealth Industries, Inc., a corporation duly organized and
validly existing under the laws of the State of Delaware (the "Parent") and the
successor by merger to CI Holdings, Inc.;
(2) Commonwealth Aluminum Lewisport, Inc., a corporation duly organized
and validly existing under the laws of the State of Delaware and formerly known
as Commonwealth Aluminum Corporation ("Lewisport");
(3) Alflex Corporation, a corporation duly organized and validly
existing under the laws of the State of Delaware ("Alflex");
(4) Commonwealth Aluminum Concast, Inc., a corporation duly organized
and validly existing under the laws of the State of Ohio ("CACI");
(5) Commonwealth Aluminum Corporation, a corporation duly organized and
validly existing under the laws of the State of Delaware ("CAC"; each of CAC,
CACI, Lewisport and Alflex is sometimes hereafter referred to as a "Borrower"
and collectively as the "Borrowers");
(6) The Subsidiary of the Parent identified by the caption "Subsidiary
Guarantor" on the signature pages hereto (the "Subsidiary Guarantor");
(7) Alflex E1 LLC, a limited liability company duly formed and validly
existing under the laws of the State of Delaware (the "New Subsidiary Guarantor"
and, together with the Parent, the Subsidiary Guarantor and the Borrowers, the
"Obligors");
(8) Bank One, Indiana, NA, for itself and as administrative agent for
the Lenders (as hereafter defined) (the "Administrative Agent");
(9) PNC Bank, National Association ("PNC");
(10) ABN AMRO Bank N.V. ("ABN AMRO");
(11) Bank of Montreal ("Montreal");
(12) Credit Agricole Indosuez ("Indosuez");
(13) Mellon Bank, N.A. ("Mellon Bank");
(14) The Industrial Bank of Japan, Limited ("IBJ"); and
(15) Firstar Bank, NA ("Firstar" and, together with the Administrative
Agent, PNC, ABN AMRO, Montreal, Indosuez, Mellon Bank, and IBJ, the "Lenders").
PRELIMINARY STATEMENTS:
A. Parent, each of the Borrowers, each of the Subsidiary Guarantors and each of
the Lenders are parties to a certain Second Amended and Restated Credit
Agreement dated as of December 19, 1997, as amended by Amendment No. 1 to Credit
Agreement dated December 22, 1998, an Agreement of Resignation, Appointment and
Acceptance dated August 18, 1999, and a Joinder Agreement dated as of October
29, 1999 (as amended from time to time, the "Credit Agreement").
B. Parent, each of the Borrowers, each of the Subsidiary Guarantors and the
Administrative Agent (as successor to National Westminster Bank PLC pursuant to
the Agreement of Resignation, Appointment and Acceptance dated August 18, 1999)
are parties to a certain Amended and Restated Pledge and Security Agreement
dated as of November 29, 1996, as amended by Amendment No. 1 dated as of
December 19, 1997, and by a Joinder Agreement dated as of October 29, 1999 (as
amended, the "Pledge Agreement").
C. New Subsidiary Guarantor has ceased to be an Immaterial Subsidiary (as
defined in the Credit Agreement) and, as required by Section 9.16 of the Credit
Agreement, Parent has expressed its willingness to cause New Subsidiary
Guarantor to:
(i) become a Subsidiary Guarantor (as defined in the Credit
Agreement) and, thereby, an Obligor, and
(ii) pledge and grant a security interest in and to its
Property (as defined in the Credit Agreement) pursuant to the
Security Documents to the Administrative Agent for the benefit
of the Lenders.
NOW THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1. Joinder. The New Subsidiary Guarantor hereby executes and delivers this
Agreement to the Lenders, pursuant to which the New Subsidiary Guarantor joins
as a "Subsidiary Guarantor" (as defined in the Credit Agreement), and becomes
liable as an Obligor under, each of the documents to which the Subsidiary
Guarantors are parties (including without limitation the Credit Agreement and
the Pledge Agreement), jointly and severally liable with all other Subsidiary
Guarantors under and with respect to such documents. Each of the other Obligors
consents to the joinder of the New Subsidiary Guarantor.
2. Consent of Lenders. Each of the Lenders hereby consents to the
addition of the New Subsidiary Guarantor as, and agrees that the New Subsidiary
Guarantor shall be, a "Subsidiary Guarantor" under the Credit Agreement, the
Pledge Agreement and each of the other documents to which the Subsidiary
Guarantors are parties.
3. Affirmation of Representations and Warranties. Each of the Obligors
(including the New Subsidiary Guarantor) hereby affirms that the representations
and warranties contained in the Credit Agreement and in the Pledge Agreement are
true and accurate as of the Effective Date and as of the date of the execution
and delivery of this Joinder Agreement. Each further represents and warrants
that each has the power to enter into and perform this Joinder Agreement. The
making and performance by the Obligors (including the New Subsidiary Guarantor)
of this Joinder Agreement has been duly authorized by all necessary action and
will not:
(i) violate any provision of law or of any of the Obligors'
(including the New Subsidiary Guarantor's) certificates of
incorporation or formation, or bylaws or limited liability
company agreements,
(ii) result in the breach of, or constitute a default under,
any agreement or instrument to which any of the Obligors
(including the New Subsidiary Guarantor) is a party or by
which any of the Obligors (including the New Subsidiary
Guarantor) or any of their respective property may be bound or
affected, or
(iii) result in the creation of any lien, charge or
encumbrance upon any property or assets of any of the Obligors
(including the New Subsidiary Guarantor), except as provided
by this Joinder Agreement (in the case of the New Subsidiary
Guarantor).
No consent, approval, authorization, declaration, exemption or other action by,
or notice to, any court or governmental or administrative agency or tribunal is
or will be required in connection with the execution, delivery, performance,
validity or enforcement of this Joinder Agreement or any other agreement,
instrument or document to be executed and delivered pursuant hereto.
4. No Impairment and Ratification. Each Guarantor consents to the
entering into of this Joinder Agreement by each of the Borrowers, the other
Guarantors and the New Subsidiary Guarantor. Each of the Obligors agrees that
neither this Joinder Agreement nor anything contained herein or in any other
document or instrument delivered in connection herewith shall diminish or impair
any Guarantor's liability in any respect under its Guaranty. Each Guarantor
further agrees that its Guaranty is, by the execution and delivery of this
Joinder Agreement, ratified, confirmed and reaffirmed in its entirety, and
acknowledged to continue in full force and effect.
5. Ratification. Except as expressly amended by this Joinder Agreement,
the Credit Agreement, the Pledge Agreement and the Guaranties are and shall be
unchanged. All of the terms, provisions, covenants, agreements, conditions,
schedules and exhibits thereof or thereto shall remain and continue in full
force and effect and are hereby incorporated by reference, and hereby ratified,
reaffirmed and confirmed by the Obligors (including the New Subsidiary
Guarantor) and the Lenders in all respects on and as of the effective date of
this Joinder Agreement. Each of the Obligors (including the New Subsidiary
Guarantor) acknowledges and agrees that all liens, security interests, and
pledges heretofore given to the Lenders to secure their respective indebtedness
to the Lenders shall also secure all obligations arising hereunder.
6. Conditions. The Lenders' agreements and consents in this Joinder
Agreement are and shall be subject to the prior satisfaction of the following
conditions precedent:
(a) Execution and Delivery of this Joinder Agreement. All of
the parties to this Joinder Agreement shall have executed and delivered a
counterpart hereof.
(b) Evidence of Existence and Authorzation. The Administrative
Agent shall have received the following:
(i) for the New Subsidiary Guarantor, a copy of
charter documents, limited liability company agreement and resolutions
relating to New Subsidiary Guarantor's execution and delivery of this Joinder
Agreement, all certified as true, correct and complete by the sole member of the
New Subsidiary Guarantor; and
(ii) for all Obligors, copies of resolutions relating
to the execution and delivery of this Joinder
Agreement, all certified as true, correct and complete by the Secretary or an
Assistant Secretary of each Obligor.
(c) Proceedings Satisfactory. All proceedings taken in
connection with the transactions contemplated herein shall be satisfactory to
the Lenders and their counsel. The Lenders and their counsel shall have received
copies of such documents as they may request in connection therewith, all in
form and substance satisfactory to the Lenders and their counsel.
7. Covenants. Each of the Obligors agrees that, by May 8, 2000,
they shall cause to be delivered to the Administrative
---------
Agent:
(a) Chattel Search Results. Such legal opinions,
UCC-11 Reports or reports from nationally-recognized chattel
search firms and similar information reflecting that the
security interests granted to the Administrative Agent, for
the benefit of the Lenders, by the New Subsidiary Guarantor
are first and prior perfected security interests.
(b) Legal Opinions. The legal opinions of the
law firms of:
(i) Messrs. Sullivan & Cromwell, substantially in the
form of Exhibit A attached hereto and incorporated
herein by this reference, and
(ii) Messrs. Womble, Carlisle, Sandridge & Rice,
substantially in the form of Exhibit B attached
hereto and incorporated herein by this reference.
(c) Financing Statements. All UCC-1 financing
statements and other documents, duly executed, as the
Administrative Agent determines to be necessary to perfect the
security interests intended to be granted by the New
Subsidiary Guarantor under the Pledge Agreement.
Each of the Obligors agrees that the covenants set forth in this Section 7 shall
constitute affirmative covenants, that the failure to comply therewith shall
constitute an Event of Default under the Credit Agreement and that except as set
forth above there shall be no grace or cure period. Each of the Obligors further
agrees that the Lenders shall have the right to pursue the remedies available
under and/or pursuant to the Credit Agreement should the Obligors fail to comply
with any of such affirmative covenants.
8. General Provisions.
(a) Entire Agreement. This Agreement, the Credit Agreement, the Pledge Agreement
and the other documents to which the Obligors (including the New Subsidiary
Guarantor) are parties pursuant to the Credit Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and thereof.
No change, modification, addition or termination of this Agreement shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought.
(b) Definitions. Terms used and not otherwise defined in this Joinder Agreement
shall have the meanings given to them in the Credit Agreement, as amended from
time to time.
(c) Benefit. This Agreement shall be binding upon the Obligors, including the
New Subsidiary Guarantor, and their respective successors and assigns and shall
inure to the benefit of the Lenders and their respective successors and assigns.
(d) Waiver. No waiver of the provisions hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or a waiver in respect of any breach or default,
whether of a similar or a different nature, unless expressly so stated in
writing.
(e) Governing Law. The validity, construction, interpretation and enforcement of
this Agreement shall be construed in accordance with the laws of the State of
New York without regard to its conflict of laws.
(f) Severability. If any provision of this Agreement or its application shall be
deemed invalid, illegal or unenforceable in any respect, the validity,
construction, interpretation and enforceability of all other applications of
that provision and of all other provisions and applications hereof shall not in
any way be affected or impaired.
(g) Further Assurances. From time to time at another party's request and without
further consideration, the parties shall execute and deliver such further
instruments and documents, and take such other action as the requesting party
may reasonably request, in order to complete more effectively the transactions
contemplated in this Agreement.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement. This Agreement may be
executed by each party on separate copies, which copies, when combined so as to
include the signatures of all parties, shall constitute a single counterpart of
this Agreement.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement, effective as of the date set out
in the preamble of this Agreement.
Commonwealth Industries, Inc.
By:
Title:
Commonwealth Aluminum Lewisport, Inc.
By:
Title:
Alflex Corporation
By:
Title:
Commonwealth Aluminum Concast, Inc.
By:
Title:
Commonwealth Aluminum Corporation
By:
Title:
"Subsidiary Guarantor" Commonwealth Aluminum Sales Corporation
By:
Title:
"New Subsidiary Guarantor" Alflex E1 LLC, by its sole member,
Alflex Corporation
By:
Title:
Bank One, Indiana, NA
By:
Title:
PNC Bank, National Association
By:
Title:
ABN AMRO Bank N.V.
By:
Title:
Bank of Montreal
By:
Title:
Credit Agricole Indosuez
By:
Title:
Mellon Bank, N.A.
By:
Title:
The Industrial Bank of Japan, Limited
By:
Title:
Firstar Bank, NA
By:
Title:
10121015.1
THIRD SUPPLEMENTAL INDENTURE, effective as of December 31,
1999, to the Indenture, dated as of September 20, 1996, as heretofore amended
and supplemented (the "Indenture"), between Commonwealth Industries, Inc.
(formerly Commonwealth Aluminum Corporation), a Delaware corporation (the
"Company"), each of the Subsidiary Guarantors (as defined therein) and Harris
Trust and Savings Bank, as Trustee (the "Trustee").
RECITALS:
The Indenture has heretofore been amended and supplemented by
a First Supplemental Indenture, dated as of November 12, 1996, and a Second
Supplemental Indenture, dated as of October 16, 1998. Subsequent to the date of
the Second Supplemental Indenture and prior to the date hereof, the Company has
duly organized Alflex E1 LLC, a Delaware limited liability company, as a
Restricted Subsidiary, and it is proposed that this limited liability company
(the "new subsidiary") become an additional Subsidiary Guarantor, as permitted
by Section 901(7) of the Indenture.
The Company, each of the Subsidiary Guarantors and the new
subsidiary have been authorized by Board Resolutions to enter into this
supplemental indenture.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE
WITNESSETH:
For and in consideration of the premises, it is mutually
agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE ONE
Definitions
For all purposes of this supplemental indenture, unless the
context otherwise requires, the terms used herein shall have the same meanings
as in the Indenture.
ARTICLE TWO
Subsidiary Guarantors
The new subsidiary is hereby subjected to the provisions
(including the representations and warranties) of the Indenture as a Subsidiary
Guarantor, all as contemplated by Section 1303 of the Indenture.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
supplemental indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
COMMONWEALTH INDUSTRIES, INC.
COMMONWEALTH ALUMINUM CORPORATION
COMMONWEALTH ALUMINUM CONCAST, INC.
COMMONWEALTH ALUMINUM LEWISPORT, INC.
COMMONWEALTH ALUMINUM SALES CORPORATION
ALFLEX CORPORATION
By: ______________________________
Mark V. Kaminski
President and Chief Executive Officer
ALFLEX E1 LLC
By: Alflex Corporation,
as Managing Member
By: ______________________________
Mark V. Kaminski
President and Chief Executive Officer
Attest:
By: ______________________________
Secretary
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: ______________________________
Name:
Title:
Attest:
By: ______________________________
Secretary
COMMONWEALTH OF KENTUCKY )
) ss.:
COUNTY OF JEFFERSON )
On the _____ day of ____________________, 1999, before me
personally came Mark V. Kaminski, to me known, who, being by me duly sworn, did
depose and say that he is President and Chief Executive Officer of each of
Commonwealth Industries, Inc., Commonwealth Aluminum Corporation, Commonwealth
Aluminum Concast, Inc., Commonwealth Aluminum Lewisport, Inc., Commonwealth
Aluminum Sales Corporation and Alflex Corporation, corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporations; that the seals affixed to said instrument are such corporate
seals; that they were so affixed by authority of the Boards of Directors of said
corporations, and that he signed his name thereto by like authority.
------------------------------
<PAGE>
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
On the _____ day of ____________________, 1999, before me
personally came ______________________________, to me known, who, being by me
duly sworn, did depose and say that she is a ______________________________ of
Harris Trust and Savings Bank, one of the corporations described in and which
executed the foregoing instrument; that she knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that she
signed her name thereto by like authority.
------------------------------
Exhibit 13
----------
Portions of the annual report to stockholders for the year ended December 31,
1999 which are expressly incorporated by reference in this filing follow. Such
items are proceeded by an index which shows the location in this Annual Report
on Form 10-K where such items are incorporated by reference and the location of
the item in the annual report to stockholders for the year ended December 31,
1999.
INDEX
Reference Incorporation Page number
letter in location in in annual
this this report to
Exhibit Form 10-K Description of Item stockholders
- ------- -------------- ------------------------------ ------------
(A) Part II, item 6 Consolidated Selected page 10
Financial Data
(B) Part II, item 7 Management's Discussion and pages 11
Analysis of Financial Condition thru 16
and Results of Operations
Part II, item 7A Quantitative and Qualitative pages 14
Disclosures About Market Risk thru 15
(C) Part II, item 8 Consolidated Balance Sheet page 17
Part II, item 8 Consolidated Statement of Income page 18
Part II, item 8 Consolidated Statement of page 18
Comprehensive Income
Part II, item 8 Consolidated Statement of page 19
Changes in Stockholders'
Equity
Part II, item 8 Consolidated Statement of page 20
Cash Flows
Part II, item 8 Notes to Consolidated pages 21
Financial Statements thru 41
Part II, item 8 Report of Independent Auditors page 42
The items follow:
<PAGE>
Exhibit 13 item (A)
-------------------
COMMONWEALTH INDUSTRIES, INC.
Consolidated Selected Financial Data
(in thousands except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $ 1,045,916 $ 967,949 $1,090,777 $ 739,218 $ 671,501
Gross profit 86,865 69,455 88,043 49,312 64,750
Operating income 28,440 21,421 41,593 19,262 42,240
Income before extraordinary loss 11,011 143 9,122 14,756 33,787
Net income (1) 11,011 143 7,941 13,401 33,787
Net income per share data (1):
Basic
Income before extraordinary loss $ 0.68 $ 0.01 $ 0.78 $ 1.45 $ 3.32
Extraordinary loss - - (0.10) (0.13) -
-------------- -------------- -------------- ------------- -------------
Net income $ 0.68 $ 0.01 $ 0.68 $ 1.32 $ 3.32
============== ============== ============== ============= =============
Diluted
Income before extraordinary loss $ 0.68 $ 0.01 $ 0.78 $ 1.45 $ 3.31
Extraordinary loss - - (0.10) (0.13) -
-------------- -------------- -------------- ------------- -------------
Net income $ 0.68 $ 0.01 $ 0.68 $ 1.32 $ 3.31
============== ============== ============== ============= =============
Cash dividends paid per share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.15
Operating Data:
Depreciation and amortization $ 36,513 $ 34,728 $ 34,710 $ 22,452 $ 18,600
Capital expenditures $ 36,715 $ 33,650 $ 21,736 $ 14,841 $ 15,153
Commonwealth Aluminum business unit:
Net sales $ 922,298 $ 846,696 $ 964,012 $ 704,400 $ 671,501
Shipments (pounds) 1,022,680 884,169 990,207 712,480 587,932
Alflex business unit:
Net sales $ 123,618 $ 121,253 $ 126,765 $ 34,818
Shipments (feet) 576,205 517,380 521,711 136,936
Balance Sheet Data:
Working capital $ 123,067 $ 115,192 $ 112,924 $ 207,061 $ 153,292
Total assets 706,322 648,399 667,421 794,582 420,684
Total debt 125,000 125,000 125,650 342,250 48,375
Total stockholders' equity 336,676 326,529 330,473 227,223 213,063
(1) 1999 net income and net income per share were decreased by $12.1 million
and $0.74 per share, respectively, due to the Company's change in its
inventory accounting method from first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method.
</TABLE>
<PAGE>
Exhibit 13 item (B)
-------------------
COMMONWEALTH INDUSTRIES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is a discussion of the consolidated financial condition
and results of operations of the Company for each of the years in the three-year
period ended December 31, 1999, and certain factors that may affect the
Company's prospective financial condition. This section should be read in
conjunction with the consolidated financial statements of the Company for the
year ended December 31, 1999 and the notes thereto. The following discussion
contains statements which are forward-looking rather than historical fact. These
forward-looking statements are made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act, as amended and involve risks and uncertainties that
could render them materially different, including, but not limited to, the
effect of global economic conditions, the impact of competitive products and
pricing, product development and commercialization, availability and cost of
critical raw materials, the rate of technological change, product demand and
market acceptance risks, capacity and supply constraints or difficulties, the
success of the Company in implementing its business strategy, and other risks as
detailed in the Company's various Securities and Exchange Commission filings.
Overview
The Company manufactures non-heat treat coiled aluminum sheet for
distributors and the transportation, construction and consumer durables end use
markets and electrical flexible conduit and prewired armored cable for the
non-residential construction and renovation markets. The Company's principal raw
materials are aluminum scrap, primary aluminum, copper and steel. Trends in the
demand for aluminum sheet products in the United States and in the prices of
aluminum primary metal, aluminum scrap and copper commodities affect the
business of the Company. The Company's operating results also are affected by
factors specific to the Company, such as the margins between selling prices for
its products and its cost of raw material ("material margins") and its unit cost
of converting raw material into its products ("conversion cost"). While changes
in aluminum and copper prices can cause the Company's net sales to change
significantly from period to period, net income is more directly impacted by
fluctuations in material margins.
Although the demand for aluminum sheet products is cyclical, over the
longer term demand has continued to increase, reflecting general population and
economic growth and the advantages of aluminum's light weight, high degree of
formability, resistance to corrosion and recyclability.
The price of aluminum metal affects the price of the Company's products
and in the longer term can have an effect on the competitive position of
aluminum in relation to alternative materials. The price of primary metal is
determined largely by worldwide supply and demand conditions and is highly
cyclical. The price of primary aluminum in world markets greatly influences the
price of aluminum scrap, the Company's principal raw material. Significant
movements in the price of primary aluminum can affect the Company's margins
because aluminum sheet prices do not always move simultaneously nor necessarily
to the same degree as the primary markets. The Company seeks to manage its
material margins by focusing on higher margin products and by sourcing the scrap
and primary metal markets in the most cost-effective manner, including the use
of futures contracts and options to hedge anticipated raw material requirements
based on firm-priced sales and purchase orders.
During 1999, net sales of the Company's aluminum sheet products
increased by 9% from the year 1998 and shipment volume increased 16% over 1998.
The increased shipments were made possible by capital projects at the Company's
Uhrichsville, Ohio rolling mill and productivity gains at the Company's
Lewisport, Kentucky rolling mill. While overall demand for aluminum sheet
products remained strong, material margins during 1999 declined from the fourth
quarter of 1998 levels due to higher acquisition costs for scrap aluminum. The
Company increased its maintenance spending in its aluminum operations during
1999, especially in the hot mill department, to support higher volumes, increase
machine reliability, and increase the probability of excellent quality and
service to the Company's customers.
Demand for the Company's electrical conduit and cable products
continued to be strong in 1999; however, the supply of these products has
increased as a result of expansions of existing production by competitors, and
the entry of new participants into the market. As a result, material margins for
the Company's electrical conduit and cable products have come under pressure
during 1999 and are below the levels achieved in 1998. Demand for the Company's
armored cable products, in particular, continues to be strong. Value added
products such as MC cable represented a higher ratio of Alflex's 1999 sales
compared to 1998. Other factors which contributed to the lower material margins
were the normal operational challenges associated with opening a new plant (the
Company opened a new plant in Rocky Mount, North Carolina during the second
quarter of 1999) and the disruptions caused by Hurricane Floyd. The new plant
increased production capacity of electrical conduit and cable products by 50%
and enhanced the Company's competitive position by placing that capacity closer
to attractive markets along the eastern United States.
Effective January 1, 1999, the Company changed its inventory accounting
method for certain inventories from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method and modified the LIFO calculation for the
inventories historically recorded under the LIFO method. The Company believes
the adoption of the LIFO method for all aluminum sheet inventories is preferable
as LIFO is the inventory method most prevalent in the industry, provides a
consistent inventory accounting method for aluminum sheet inventories, and
results in more appropriate matching of cost of goods sold with related sales
revenues.
The effect of this change in accounting principle was to decrease net
income reported for the twelve months ended December 31, 1999 by $12.1 million,
or $0.74 per share. See note 3 to the consolidated financial statements for
additional information.
Results of Operations for 1999, 1998 and 1997
Net Sales. Net sales for 1999 increased 8% to $1.05 billion (including
$123.6 million from the Company's Alflex electrical products subsidiary) from
$967.9 million (including $121.3 million from Alflex) in 1998. The increase is
due to higher shipments which was partially offset by lower aluminum and copper
prices. Unit sales volume of aluminum products increased 16% to 1.02 billion
pounds in 1999 from 884.2 million pounds in 1998. Alflex unit sales volume was
576.2 million feet for 1999 compared to 517.4 million feet for 1998.
In 1998 net sales decreased 11% to $967.9 million (including $121.3
million from Alflex) from $1.09 billion (including $126.8 million from Alflex)
in 1997. The decrease is due to reduced sales volume at the Lewisport mill which
was partially offset by volume increases at the Company's other facilities. Unit
sales volume of aluminum products decreased 11% to 884.2 million pounds in 1998
from 990.2 million pounds in 1997. Lower sales and shipment volume were caused
by production problems primarily relating to higher internal rejection rates and
lower production levels in anticipation of a possible work stoppage in
connection with the expiration of the Company's collective bargaining agreement
in July 1998 at the Company's Lewisport mill. Additionally 1998 sales volumes at
the Company's continuous cast aluminum sheet operations were only slightly above
1997's level due to tighter inventory management by customers and unusually wet
weather that reduced construction activity in various parts of the United States
in the first half of 1998. Alflex unit sales volume was 517.4 million feet for
1998 compared to 521.7 million feet for 1997.
Gross Profit. Gross profit increased 25% (to 8.3% of net sales) in 1999
after a 21% decrease (to 7.2% of net sales) in 1998. The 1999 increase was
attributable to increased sales volume which more than offset the effect of
lower unit sales prices and slightly lower material margins. The 1998 decrease
was attributable to decreased sales volume due to the reasons outlined in the
"net sales" section. The Company's unit manufacturing costs decreased compared
to the same period in 1998 as a result of the higher volumes. For 1998 unit
manufacturing costs increased compared to 1997 as a result of the lower volumes
which more than offset any efficiencies due to mill optimization practices.
Material margins which were higher in 1998 than in 1997 partially offset the
impact of lower volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 23.9% in 1999. Contributing to the increase
were increases at Alflex associated with the infrastructure required to support
the growth of this business segment, increased costs related to Year 2000
compliance, a new variable compensation plan, a new executive compensation plan
related to the Company's executive stock purchase incentive program and
additional office expenses due to renovation and expansion of office facilities.
Selling, general and administrative expenses increased 3.8% in 1998.
Contributing to the increase were increases at Alflex associated with the
infrastructure required to support the growth of this business segment, costs
incurred in acquisitions which did not materialize, expenses incurred at the
Lewiport mill in anticipation of a possible strike and certain expenses relating
to the Company's Year 2000 remediation effort. The realization of various
operating synergies envisioned at the time of the CasTech acquisition continued
to contribute to holding the 1998 increase down.
Amortization of Goodwill. Amortization of goodwill, which relates to
a previous acquisition, was $4.5 million in 1999, 1998 and 1997.
Operating Income. Operating income increased by 33% in 1999 to $28.4
million, compared with a 1998 decrease of 48% to $21.4 million, in each case
reflecting the factors mentioned above.
Other Income (Expense), Net. Other income (expense), net in 1999
includes $1.9 million of income related to insurance claims filed for a fire
that destroyed an inactive production facility. The Company had received $1.0
million of the total insurance proceeds as of December 31, 1999 with the
remainder expected to be received during the first quarter of 2000.
Interest Expense, Net. Interest expense in 1999 decreased 13% to $19.3
million from $22.2 million in 1998. The decrease in the Company's interest
expense is primarily due to the reduction in amounts outstanding under the
Company's accounts receivable securitization facility. Interest expense in 1998
decreased 27% to $22.2 million from $30.5 million in 1997. The 1998 decrease in
the Company's interest expense was due to the reduction in borrowing resulting
from the Company's September 1997 equity offering coupled with reduced interest
rates due to the accounts receivable securitization facility also implemented in
September 1997. Both transactions are described in the "Liquidity and Capital
Resources" section which follows.
Income Tax Expense (Benefit). Income tax expense (benefit) in 1999,
1998 and 1997 reflect the use of the Company's net operating loss ("NOL")
carryforwards to offset taxable income for federal income tax purposes. At
December 31, 1999, the Company had remaining available NOL carryforwards of
approximately $71 million. These NOL carryforwards will expire in various
amounts through 2008. The amount of taxable income that can be offset by NOL
carryforwards arising prior to the initial public offering of the Company in
March 1995 is subject to an annual limitation of approximately $9.6 million plus
certain gains included in taxable income which are attributable to the Company
prior to the initial public offering.
The Company recognized an income tax expense of $1.0 million in 1999
compared to an income tax benefit of $0.6 million in 1998. The change is due to
the increase in the Company's taxable income and a $1.5 million favorable
adjustment recorded in the first quarter of 1998 to the prior year's tax
expense. The adjustment resulted from the filing of amended federal income tax
returns for prior years.
Extraordinary Loss on Early Extinguishment of Debt. The Company
recorded an extraordinary loss on the early extinguishment of debt in 1997 of
$1.5 million ($1.2 million net of income tax benefit).
Net Income. Net income for 1999 increased to $11.0 million from $0.1
million in 1998, after 1998 net income had decreased from $7.9 million reported
in 1997, in each case reflecting the factors described above for each year.
Liquidity and Capital Resources
The Company's sources of liquidity are cash flows from operations, the
Company's accounts receivable securitization facility described below and
borrowings under its $100 million revolving credit facility. The Company
believes these sources will be sufficient to fund its working capital
requirements, capital expenditures, debt service and dividend payments for at
least through 2000.
On September 29, 1997, the Company completed a common stock offering of
5.75 million shares at a public offering price of $18 per share. The net
proceeds from the offering of approximately $97.7 million were used to repay the
entire amount outstanding under the Company's term loan agreement, totaling
$95.0 million, as well as $2.7 million outstanding under the Company's revolving
credit facility.
On September 26, 1997, the Company sold all of its trade accounts
receivables to a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC").
Simultaneously, CFC entered into a three-year accounts receivable securitization
facility with a financial institution and its affiliate, whereby CFC sells, on a
revolving basis, an undivided interest in certain of its receivables and
receives up to $150.0 million from an unrelated third party purchaser at a cost
of funds linked to commercial paper rates plus a charge for administrative and
credit support services. At December 31, 1999, the Company had outstanding
$106.0 million under the agreement and had $39.9 million of net residual
interest in the securitized receivables. The net residual interest in the
securitized receivables is included in other current assets in the Company's
consolidated financial statements.
The Company's cash flows from operations in 1999, 1998 and 1997 were
$38.8 million, $46.6 million and $134.7 million, respectively. The increase in
cash flow from operations in 1997 was due primarily to the accounts receivable
securitization. Working capital increased to $123.1 million at December 31, 1999
from $115.2 million at December 31, 1998. Working capital increased to $115.2
million at December 31, 1998 from $112.9 million at December 31, 1997.
The Company's revolving credit facility permits borrowings and letters
of credit up to $100.0 million outstanding at any time. Availability is subject
to satisfaction of certain covenants and other requirements. At December 31,
1999, $99.2 million was available. The facility expires on September 1, 2002.
Capital expenditures were $36.7 million, $33.7 million and $21.7
million in 1999, 1998 and 1997, respectively, and are estimated to be $39
million in 2000, all generally related to upgrading and expanding the Company's
manufacturing and other facilities and meeting environmental requirements.
The indicated annual rate of dividends being paid on the Company's
Common Stock is $0.20 per share, or an annual total of about $3.3 million.
Risk Management
Commodity Price Risk. The price of aluminum is subject to fluctuations
due to unpredictable factors on the worldwide market. To reduce this market
risk, the Company follows the policy of hedging its anticipated raw material
requirements based on firm-priced sales and purchase orders. The Company
purchases and sells futures contracts and options on the London Metal Exchange
("LME") based on its net metal position. The Company's metal position consists
of inventories, purchase commitments, committed and anticipated sales, which is
hedged using LME futures contracts and options. At December 31, 1999, the
Company held purchase and sales commitments through 2000 totaling $69 million
and $276 million, respectively.
The change in market value of such LME contracts has a high correlation
to the price changes of the hedged commodity (aluminum scrap and ingot). To
obtain a matching of revenues and expenses realized gains or losses arising from
LME contracts are included in inventories as a cost of raw materials and
reflected in the consolidated statement of income when the product is sold. The
Company had deferred realized losses of $0.7 million and $2.2 million as of
December 31, 1999 and 1998, respectively on closed futures contracts and
options. Deferred realized losses are recorded as an increase in the carrying
value of inventory and deferred realized gains are recorded as a reduction in
the carrying value of inventory.
The Company also uses futures contracts to manage risks associated with
its natural gas requirements. At December 31, 1999 and 1998, the Company
had open aluminum futures contracts and options and natural gas futures with a
fair value of $88.0 million and $100.4 million, respectively. The Company had
net unrealized gains of $7.9 million and net unrealized losses of $5.6 million
as of December 31, 1999 and 1998, respectively, on these open futures contracts
and options.
Net unrealized gains and losses on open futures and option contracts
are recorded in the consolidated balance sheet as accrued liabilities and
prepayments and other current assets, respectively. The net unrealized gain of
$7.9 million and net unrealized loss of $5.6 million at December 31, 1999 and
1998, respectively, consists of unrealized gains due from brokers of $10.9
million and $4.1 million, respectively, and unrealized losses due to brokers of
$3.0 million and $9.7 million, respectively. Futures contracts and options are
valued at the closing price on the last business day of the year.
A sensitivity analysis has been prepared to estimate the Company's
exposure to market risk related to its LME position. Market risk is estimated as
the potential loss in fair value resulting from a hypothetical 10% adverse
change in the price of the futures contract. On December 31, 1999 the Company
had approximately 47,325 metric tonnes of LME futures contracts. A hypothetical
10 % change from the 1999 year-end three-month high grade aluminum price of
$1,655 per metric tonne would result in a change in fair value of $7.8 million
in these contracts. However it should be noted that any change in the fair value
of these contracts would be significantly offset with an inverse change in the
cost of purchased metal.
Also, a sensitivity analysis has been prepared to estimate the
Company's exposure to market risk related to its NYMEX Henry Hub natural gas
futures. Market risk is estimated as the potential loss in fair value resulting
from a hypothetical 10% adverse change in the price of the futures contract. On
December 31, 1999 the Company had approximately 960,000 thousand cubic feet
(MCF) of NYMEX futures contracts. A hypothetical 10 % change from the 1999
year-end three-month natural gas price of $2.3285 per MCF would result in a
change in fair value of $0.2 million in these contracts. However it should be
noted that any change in the fair value of these contracts would be
significantly offset with an inverse change in the cost of purchased gas.
Credit Risk. As discussed previously, the Company utilizes futures
contracts and options to protect against exposures to commodity price risk in
the aluminum and natural gas markets. The Company is exposed to losses in the
event of non-performance by the counterparties to these agreements; however, the
Company does not anticipate non-performance by the counterparties. Prior to
conducting business with a potential customer, credit checks are performed on
the customer to determine creditworthiness and assess credit risk. In addition,
an indirect credit exposure review is performed on all customers. Trading
partners (brokers) are evaluated for creditworthiness and risk assessment prior
to initiating trading activities with the brokers. However, the Company does not
require collateral to support broker transactions. In addition, all brokers
trading on the LME with U.S. clients are regulated by the Commodities Trading
and Futures Commission, which requires the brokers to be fully insured against
unrealized losses owed to clients. At December 31, 1999, credit lines totaling
$62 million were available at various brokerages used by the Company.
Interest Rate Risk. The Company manages its ratio of fixed to floating
rate debt with the objective of achieving a mix that management believes is
appropriate. To manage this mix in a cost-effective manner, the Company, from
time to time, enters into interest rate swap agreements. At December 31, 1999
the Company had an interest rate swap contract with a notional amount of $5
million. With respect to this agreement, the Company pays a fixed rate of
interest and receives a LIBOR-based floating rate. The counterparty to the
interest rate contract is a major commercial bank and management believes that
losses related to credit risk are remote. The fair value of this interest rate
swap agreement at December 31, 1999 was a liability of $0.09 million.
A sensitivity analysis has been prepared to estimate the Company's
exposure to market risk related to its interest rate position. Market risk is
estimated as the potential loss in fair value resulting from a hypothetical 100
basis point change in interest rates relating to the interest rate swap
agreement. A hypothetical 100 basis point change in interest rates would result
in a change in fair value of $0.05 million in the interest rate swap agreement.
Year 2000 Readiness Disclosure
During 1999, the Company completed a company-wide program to make its
computer systems Year 2000 compliant. The year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a major system failure or miscalculations.
As of December 31, 1999, 100 percent of the Company's computer systems,
which includes mainframe, server, desktop and portable computers, embedded
systems, in addition to the core business applications, were Year 2000
compliant. The total cost of the program was $8.0 million and was funded through
operating cash flows. Maintenance or modification costs were expensed as
incurred, while the cost of systems being replaced were capitalized and
amortized over the new system's useful life. Due to these modifications and
replacements, the year 2000 issues did not pose significant operational problems
for the Company.
The Company has notified recipients of previously made Year 2000
statements that these statements, and any other Year 2000 statements released by
the Company, are retroactively identified and labeled in their entirety as Year
2000 Readiness Disclosures pursuant to Section 7(b) of the Year 2000 Information
and Readiness Disclosure Act of 1998. By doing so, these prior statements are
relieved from tort liability.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded on the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in net income unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company
currently expects to adopt SFAS No. 133 in the Company's first quarter 2001
reporting, as required by the Financial Accounting Standards Board's Statement
of Financial Accounting Standard No. 137, issued in June 1999, which defers SFAS
No. 133's effective date by one year. Management is currently evaluating the
impact of SFAS No. 133 on the Company's future financial reporting.
<PAGE>
Exhibit 13 item (C)
-------------------
COMMONWEALTH INDUSTRIES, INC.
Consolidated Balance Sheet
(in thousands except share data)
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 6
Accounts receivable, net 118 228
Inventories 207,413 174,968
Prepayments and other current assets 53,821 25,367
------------- -------------
Total current assets 261,352 200,569
Property, plant and equipment, net 275,531 269,837
Goodwill, net 164,610 169,086
Other noncurrent assets 4,829 8,907
------------- -------------
Total assets $ 706,322 $ 648,399
============= =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ 1,188 $ -
Accounts payable 97,937 54,244
Accrued liabilities 39,160 31,133
------------- -------------
Total current liabilities 138,285 85,377
Long-term debt 125,000 125,000
Other long-term liabilities 8,412 8,859
Accrued pension benefits 12,482 15,930
Accrued postretirement benefits 85,467 86,704
------------- -------------
Total liabilities 369,646 321,870
------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
16,606,000 and 15,944,000 shares outstanding at
December 31, 1999 and 1998, respectively 166 159
Additional paid-in capital 409,062 398,794
Accumulated deficit (61,866) (69,621)
Unearned compensation (175) (672)
Notes receivable from sale of common stock (10,511) -
Accumulated other comprehensive income:
Minimum pension liability adjustment - (2,131)
------------- -------------
Total stockholders' equity 336,676 326,529
------------- -------------
Total liabilities and stockholders' equity $ 706,322 $ 648,399
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Income
(in thousands except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1999 1998 1997
------------- --------------- --------------
<S> <C> <C> <C>
Net sales $1,045,916 $ 967,949 $1,090,777
Cost of goods sold 959,051 898,494 1,002,734
------------- --------------- --------------
Gross profit 86,865 69,455 88,043
Selling, general and administrative expenses 53,949 43,558 41,972
Amortization of goodwill 4,476 4,476 4,478
------------- --------------- --------------
Operating income 28,440 21,421 41,593
Other income (expense), net 2,861 365 487
Interest expense, net (19,333) (22,221) (30,536)
------------- --------------- --------------
Income (loss) before income taxes and extraordinary loss 11,968 (435) 11,544
Income tax expense (benefit) 957 (578) 2,422
------------- --------------- --------------
Income before extraordinary loss 11,011 143 9,122
Extraordinary loss on early extinguishment of debt,
net of income tax benefit - - (1,181)
------------- --------------- --------------
Net income $ 11,011 $ 143 $ 7,941
============= =============== ==============
Basic and diluted per share data:
Income before extraordinary loss $ 0.68 $ 0.01 $ 0.78
Extraordinary loss - - (0.10)
------------- --------------- --------------
Net income $ 0.68 $ 0.01 $ 0.68
============= =============== ==============
Weighted average shares outstanding
Basic 16,224 15,944 11,687
Diluted 16,281 15,947 11,723
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Comprehensive Income
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1999 1998 1997
-------------- --------------- ------------
<S> <C> <C> <C>
Net income $ 11,011 $ 143 $ 7,941
Other comprehensive income, net of tax:
Minimum pension liability adjustment 2,131 (1,435) (696)
-------------- --------------- ------------
Comprehensive income (loss) $ 13,142 $ (1,292) $ 7,245
============== =============== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Changes in Stockholders' Equity
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Notes Income:
Common Stock Receivable Minimum
-------------------- Additional from Sale Pension Total
Number of Paid-in Accumulated Unearned of Common Liability Stockholders'
Shares Amount Capital Deficit Compensation Stock Adjustment Equity
------------- -------- ----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 10,197,500 $ 102 $ 301,289 $ (72,188) $(1,980) $ - $ - $ 227,223
Net income - - - 7,941 - - - 7,941
Cash dividends, $0.20 per share - - - (2,328) - - - (2,328)
Minimum pension liability adjustment - - - - - - (696) (696)
Stock offering 5,750,000 57 97,585 - - - - 97,642
Issuance of restricted stock 2,500 - 47 - (47) - - -
Forfeiture of restricted stock (22,500 - (399) - 399 - - -
Amortization of unearned compensation - - - - 456 - - 456
Exercise of stock options 9,000 - 151 - - - - 151
Stock awards 5,000 - 84 - - - - 84
------------ -------- --------- --------- --------- ---------- --------- ---------
Balance December 31, 1997 15,941,500 159 398,757 (66,575) (1,172) - (696) 330,473
Net income - - - 143 - - - 143
Cash dividends, $0.20 per share - - - (3,189) - - - (3,189)
Minimum pension liability adjustment - - - - - - (1,435) (1,435)
Forfeiture of restricted stock (2,500) - (35) - 35 - - -
Amortization of unearned compensation - - - - 465 - - 465
Stock awards 5,000 - 72 - - - - 72
------------ -------- -------- -------- -------- ---------- -------- ---------
Balance December 31, 1998 15,944,000 159 398,794 (69,621) (672) - (2,131) 326,529
Net income - - - 11,011 - - - 11,011
Cash dividends, $0.20 per share - - - (3,256) - - - (3,256)
Minimum pension liability adjustment - - - - - - 2,131 2,131
Forfeiture of restricted stock (20,000) - (280) - 280 - - -
Amortization of unearned compensation - - - - 217 - - 217
Stock awards 5,000 - 44 - - - - 44
Common stock issued 677,000 7 10,504 - - (10,511) - -
----------- -------- -------- -------- -------- ---------- -------- ---------
Balance December 31, 1999 16,606,000 $ 166 $ 409,062 $(61,866) $ (175) $(10,511) $ - $ 336,676
=========== ======== ========= ======== ======== ========== ======== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $11,011 $ 143 $ 7,941
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 36,513 34,728 34,710
Extraordinary loss on early extinguishment of debt - - 1,495
Loss on disposal of property, plant and equipment 389 1,453 1,271
Issuance of common stock in connection with stock awards 44 72 84
Proceeds from the initial sale of accounts receivable - - 150,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net 110 127 (46,650)
(Increase) decrease in inventories (32,445) (3,335) 2,278
(Increase) decrease in prepayments and other current assets (28,454) 19,740 6,970
Decrease in other noncurrent assets 2,878 398 201
Increase (decrease) in accounts payable 43,693 (13,637) (14,459)
Increase (decrease) in accrued liabilities 8,027 3,965 (9,183)
(Decrease) increase in other liabilities (3,001) 2,931 13
------------ ------------- ------------
Net cash provided by operating activities 38,765 46,585 134,671
------------ ------------- ------------
Cash flows from investing activities:
Net cash and cash equivalents (outflow) from acquisition - - (2,894)
Purchases of property, plant and equipment (36,715) (33,650) (21,736)
Proceeds from sale of property, plant and equipment 12 32 28
------------ ------------- ------------
Net cash (used in) investing activities (36,703) (33,618) (24,602)
------------ ------------- ------------
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits 1,188 (9,122) 9,122
Proceeds from long-term debt 46,770 45,150 294,950
Repayments of long-term debt (46,770) (45,800) (511,550)
Proceeds from issuance of common stock - - 97,793
Cash dividends paid (3,256) (3,189) (2,328)
------------ ------------- ------------
Net cash (used in) financing activities (2,068) (12,961) (112,013)
------------ ------------- ------------
Net (decrease) increase in cash and cash equivalents (6) 6 (1,944)
Cash and cash equivalents at beginning of period 6 - 1,944
------------ ------------- ------------
Cash and cash equivalents at end of period $ - $ 6 $ -
============ ============= ============
Supplemental disclosures:
Interest paid $ 19,672 $ 22,385 $ 27,046
Income taxes paid (refund received) 2,412 (10) (1,407)
Non-cash activities:
Issuance of common stock for notes receivable $ 10,511 $ - $ -
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Commonwealth Industries, Inc. (the "Company") operates principally in the United
States in two business segments. The aluminum segment manufactures aluminum
sheet for distributors and the transportation, construction, and consumer
durables end-use markets. The electrical conduit segment manufactures flexible
electrical wiring products for the commercial and do-it-yourself markets.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits with banks and highly liquid
investments with original maturities of three months or less. The carrying
amount of cash and cash equivalents approximates their fair value.
Concentrations of Credit Risk
Futures contracts, options, cash investments and accounts receivable potentially
subject the Company to concentrations of credit risk. The Company places its
cash investments with high credit quality institutions. At times, such cash
investments may be in excess of the Federal Deposit Insurance Corporation
insurance limit. Credit risk with respect to accounts receivable exists related
to concentrations of sales to aluminum distributors, who in turn resell the
Company's aluminum products to end-use markets, including the consumer durables,
building and construction and transportation markets. Concentrations of credit
risk with respect to accounts receivable from the sale of electrical products
are limited due to the large customer base, and their dispersion across many
different geographical areas. The Company performs ongoing credit evaluations of
its customers' financial condition but does not require collateral to support
customer receivables.
Inventories
Inventories are stated at the lower of cost or market. The methods of accounting
for inventories are described in Note 3.
Long-Lived Assets
Property, plant and equipment are carried at cost and are being depreciated on a
straight-line basis over the estimated useful lives of the assets which
generally range from 15 to 33 years for buildings and improvements and from 5 to
20 years for machinery and equipment. Repair and maintenance costs are charged
against income while renewals and betterments are capitalized. Retirements,
sales and disposals of assets are recorded by removing the cost and accumulated
depreciation from the accounts with any resulting gain or loss reflected in
income.
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over forty years. Accumulated
amortization was $14.7 million and $10.2 million at December 31, 1999 and 1998,
respectively.
The Company periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill and other intangible assets. In the event that
facts and circumstances indicate that the carrying amount of an asset or group
of assets may be impaired, an evaluation of recoverability would be performed in
accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". In performing the evaluation, the estimated future
undiscounted cash flows associated with the asset are compared to the assets'
carrying amount to determine if a write-down to fair value or discounted cash
flow value is required.
Financial Instruments
The Company enters into futures contracts and options to manage price exposure
from committed and certain anticipated sales. Gains, losses and premiums on
these instruments which effectively hedge exposures are deferred and included in
income as a component of the underlying sales transaction.
The Company also uses futures contracts to manage risks associated with its
natural gas requirements and interest rate swaps to manage interest rate risk.
Income Taxes
The Company accounts for income taxes using the liability method, whereby
deferred income taxes reflect the tax effect of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. In valuing deferred tax assets,
the Company uses judgment in determining if it is more likely than not that some
portion or all of a deferred tax asset will not be realized and the amount of
the required valuation allowance.
Revenue Recognition
The Company recognizes revenue upon passage of title to the customer, which in
most cases coincides with shipment. In very rare instances, title could pass
prior to shipment. The Company's policy states that title passing prior to
shipment is only acceptable if a written request on the customer's letterhead is
received and the customer must have a substantial business purpose for ordering
on a bill and hold basis. The customer's written request has to specifically
state that the customer accepts full legal ownership, including risk of loss, of
the product on the date of billing. As further evidence of the bill and hold
basis, payment is expected within terms of the pre-bill and not the actual ship
dates.
Computation of Net Income Per Common Share
Basic net income per common share has been computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per share has been computed by dividing net income by the
weighted average number of common and common equivalent shares (stock options)
outstanding during the period.
Stock-Based Compensation
Compensation cost is measured under the intrinsic value based method. Pro forma
disclosures of net income and net income per share are presented, as if the fair
value based method had been applied.
Self Insurance
The Company is substantially self-insured for losses related to workers'
compensation and health claims. Losses are accrued based upon the Company's
estimates of the aggregate liability for claims incurred based on Company
experience and certain actuarial assumptions.
Environmental Compliance and Remediation
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to existing conditions caused
by past operations, which do not contribute to current or future revenues, are
expensed. Liabilities for remediation costs and post-remediation monitoring are
recorded when they are probable and reasonably estimable. The liability may
include costs such as environmental site evaluations, consultant fees,
feasibility studies, outside contractor and monitoring expenses. The assessment
of this liability is calculated based on existing technology, considers funds
available in the settlement trust discussed in Note 11, does not reflect any
offset for possible recoveries from insurance companies and is not discounted.
2. Accounts Receivable Securitization
On September 26, 1997, the Company sold all of its trade accounts receivables to
a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously,
CFC entered into a three-year accounts receivable securitization facility with a
financial institution and its affiliate whereby CFC can sell, on a revolving
basis, an undivided interest in certain of its receivables and receive up to
$150.0 million from an unrelated third party purchaser at a cost of funds linked
to commercial paper rates plus a charge for administrative and credit support
services. At December 31, 1999 and 1998, the Company had outstanding under the
agreement $106.0 million and $120.2 million, respectively, and had $39.9 million
and $15.9 million, respectively, of net residual interest in the securitized
receivables which is included in other current assets in the Company's
consolidated financial statements.
The Company maintains an allowance for uncollectible accounts based upon the
expected collectibility of all consolidated trade accounts receivable, including
receivables sold by CFC. The allowance was $1.9 million and $2.5 million at
December 31, 1999 and 1998, respectively, and is netted against the net residual
interest in the securitized receivables which is included in other current
assets in the Company's consolidated financial statements.
3. Inventories
Effective January 1, 1999, the Company changed its inventory accounting method
for certain inventories from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method and modified the LIFO calculation for the
inventories historically recorded under the LIFO method. The Company believes
the adoption of the LIFO method for all aluminum sheet inventories is preferable
as LIFO is the inventory method most prevalent in the industry, provides a
consistent inventory accounting method for aluminum sheet inventories, and
results in more appropriate matching of cost of goods sold with related sales
revenues.
The effect of this change in accounting principle was to decrease net income
reported for the three months and twelve months ended December 31, 1999 by $3.5
million and $12.1 million, or $0.21 and $0.74 per share, respectively. The
Company has omitted the disclosure of the cumulative effect of this change on
retained earnings as of the date of the change and the pro forma effects of
retroactive application due to such amounts not being determinable. Inventories
at December 31 consist of the following (in thousands):
1999 1998
---- ----
Raw materials $63,510 $34,908
Work in process 80,210 74,960
Finished goods 62,278 49,079
Expendable parts and supplies 15,895 14,910
------- --------
221,893 173,857
LIFO reserve (14,480) 3,659
------- --------
207,413 177,516
Lower of cost or market reserve - (2,548)
------- --------
$207,413 $174,968
======= ========
Inventories of approximately $183.3 million and $33.6 million, included in the
above totals (before the LIFO and lower of cost or market reserve) at December
31, 1999 and 1998, respectively, are accounted for under the LIFO method of
accounting.
During 1997, LIFO inventory quantities were reduced, resulting in a partial
liquidation of the LIFO bases, the effect of which increased net income by
approximately $0.7 million.
4. Property, Plant and Equipment
Property, plant and equipment and the related accumulated depreciation at
December 31 consist of the following (in thousands):
1999 1998
---- ----
Land and improvements $21,216 $20,704
Buildings and improvements 77,958 67,100
Machinery and equipment 455,036 419,313
Construction in progress 21,359 33,273
-------- --------
575,569 540,390
Less accumulated depreciation 300,038 270,553
-------- --------
Net property, plant and equipment $275,531 $269,837
======== ========
Depreciation expense was $30.6 million, $28.6 million and $28.2 million for the
years ended 1999, 1998 and 1997, respectively.
5. Financial Instruments
Market and credit risk is managed by the Company through an active risk
management program. This program focuses on inventory, purchase commitments and
committed and anticipated sales in addition to risks associated with the
Company's natural gas requirements. The Company utilizes futures contracts and
options to protect against exposures to price risk in the aluminum and natural
gas markets. The Company is exposed to losses in the event of non-performance by
the counterparties to these agreements; however, the Company does not anticipate
non-performance by the counterparties. Prior to conducting business with a
potential customer, credit checks are performed on the customer to determine
creditworthiness and assess credit risk. In addition, an indirect credit
exposure review is performed on all customers. Trading partners (brokers) are
evaluated for creditworthiness and risk assessment prior to initiating trading
activities with the brokers, however, the Company does not require collateral to
support broker transactions. All brokers trading on the London Metal Exchange
with U.S. clients are regulated by the Commodities Trading and Futures
Commission, which requires the brokers to be fully insured against unrealized
losses owed to clients. At December 31, 1999, credit lines totaling $62 million
were available at various brokerages used by the Company.
Gains, losses and premiums on futures contracts and options which effectively
hedge exposures are included in income as a component of the underlying
transaction. The Company had deferred realized losses of $0.7 million and $2.2
million as of December 31, 1999 and 1998, respectively, which were recorded as
an increase in the carrying value of inventory.
At December 31, 1999, the Company held purchase and sales commitments through
2000 totaling $69 million and $276 million, respectively. At December 31, 1999
and 1998, the Company had open aluminum futures contracts and options and
natural gas futures with a fair value of $88.0 million and $100.4 million,
respectively. The Company had net unrealized gains of $7.9 million and net
unrealized losses of $5.6 million as of December 31, 1999 and 1998,
respectively, on these open futures contracts and options. Net unrealized gains
and losses on open futures and option contracts are recorded in the consolidated
balance sheet as accrued liabilities and prepayments and other current assets,
respectively. The net unrealized gain of $7.9 million and net unrealized loss of
$5.6 million at December 31, 1999 and 1998, respectively, consists of unrealized
gains due from brokers of $10.9 million and $4.1 million, respectively, and
unrealized losses due to brokers of $3.0 million and $9.7 million, respectively.
Futures contracts and options are valued at the closing price on the last
business day of the year.
6. Long-term Debt
Long-term debt of the Company at December 31 consisted of the following (in
thousands):
1999 1998
---- ----
Senior subordinated notes $125,000 $125,000
Revolving credit facility - -
-------- --------
125,000 125,000
Less current maturities - -
-------- --------
$125,000 $125,000
======== ========
During 1996, in connection with an acquisition, the Company refinanced its
outstanding borrowings and entered into a credit agreement with a syndicate of
banks led by National Westminster Bank (Bank One Corporation replaced National
Westminster Bank in August 1999 as Administrative Agent). The credit agreement
included a $100 million term loan and a $225 million revolving credit facility.
In addition, the Company issued $125 million of 10.75% senior subordinated notes
due 2006.
During September 1997, the Company repaid the remaining amount of the term loan
under the credit agreement with the net proceeds of approximately $97.7 million
received from the September 1997 equity offering of the Company. In connection
with the repayment of the term loan, the Company incurred an extraordinary loss
on early extinguishment of debt of $1.5 million (or $1.2 million after tax). In
addition, in December 1997, the Company amended the credit agreement to reduce
the revolving credit facility from $225 million to $100 million.
The credit agreement is collateralized by a pledge of all of the outstanding
stock of the Company's subsidiaries and substantially all of the Company's
assets.
Up to $30 million of the revolving credit facility is available for standby and
commercial letters of credit. The revolving credit facility commitment
terminates on September 1, 2002.
Borrowings under the credit agreement bear interest at a variable base rate per
annum plus up to an additional 1.75% depending on the results of a quarterly
financial test as defined in the agreement. In addition, the Company must pay to
the lenders under the credit agreement, a quarterly commitment fee ranging from
0.425% to 0.500%.
The Company must pay a fee ranging from 1.325% to 1.750% per annum on the
carrying amount of each outstanding letter of credit. At December 31, 1999 and
1998, letters of credit totaling $0.8 million and $0.7 million, respectively,
were outstanding under the revolving credit facility.
The credit agreement includes covenants which, among others, relate to leverage,
interest coverage, fixed charges, capital expenditures and the payment of
dividends.
The Company uses interest rate swaps to effectively convert a portion of its
variable interest rates relating to the Company's revolving credit facility and
accounts receivable securitization facility to fixed interest rates. At December
31, 1999, the Company had an interest rate swap agreement in place covering
approximately $5 million of the Company's exposure to variable interest rates.
The fair value of this interest rate swap agreement at December 31, 1999 was a
liability of $0.1 million. The fixed interest rate is 6.87%. The counterparty to
the interest rate swap agreement is a major commercial bank and management
believes that losses related to credit risk are remote.
Based on estimated market values at December 31, 1999 and 1998, the fair value
of the senior subordinated notes was approximately $124 million and $123
million, respectively.
Future aggregate maturities of long-term debt at December 31, 1999 are as
follows (in thousands):
1999 $ -
2000 -
2001 -
2002 -
2003 -
Thereafter 125,000
--------
Total $125,000
========
7. Stockholders' Equity
On September 29, 1997, the Company completed a common stock offering of 5.75
million shares at a public offering price of $18 per share. The net proceeds
from the offering of approximately $97.7 million were used to repay the entire
amount outstanding under the Company's term loan agreement, totaling $95.0
million, as well as $2.7 million outstanding under the Company's revolving
credit facility.
In July 1999, the Company adopted an Executive Stock Purchase Incentive Program
(the "Program") which had been authorized by the Company's stockholders at the
Company's annual meeting of stockholders held in April 1999. Under the Program,
the Company extended credit to certain key executives to purchase the Company's
common stock at fair market value. The loans are collateralized by the shares
acquired and are repayable with full-recourse to the executives. The Program
provides for the key executives to earn repayment of the notes including
interest, based on achieving annual and cumulative performance objectives as set
forth by the Management Development and Compensation Committee of the Board of
Directors. The notes bear interest at 5.96 % per annum. The principal amount of
each loan is payable in four equal installments on December 31 in each of the
years 2003, 2004, 2005 and 2006, in each case together with accrued and unpaid
interest. A total of 677,000 shares were issued during August 1999 which
represents approximately 4% of the common shares outstanding at December 31,
1999. The outstanding principal balance of the notes at December 31, 1999 was
$10,511,000 and is classified as a reduction of stockholders' equity.
8. Pension Plans
The Company has two defined benefit pension plans covering certain salaried and
non-salaried employees. The plan benefits are based primarily on years of
service and employees' compensation during employment for all employees not
covered under a collective bargaining agreement and; on stated amounts based on
job grade and years of service prior to retirement for non-salaried employees
covered under a collective bargaining agreement. The plans' assets consist
primarily of equity securities, guaranteed investment contracts and fixed income
pooled accounts.
The financial status of the plans at December 31 is as follows (in thousands):
1999 1998
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $85,121 $77,814
Service cost 2,716 2,508
Interest cost 5,964 5,629
Actuarial (gain) loss (4,921) 4,892
Benefits paid (5,890) (5,722)
------- -------
Benefit obligation at end of year 82,990 85,121
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 72,379 70,530
Actual return on plan assets 13,821 7,571
Employer contribution 1,482 -
Benefits paid (5,890) (5,722)
------- -------
Fair value of plan assets at end of year 81,792 72,379
------- -------
Funded status (1,198) (12,742)
Unrecognized net actuarial (gain) loss (7,098) 6,018
Unrecognized prior service cost (3,879) (3,907)
Unrecognized net transition (asset) (307) (538)
------- -------
Net amount recognized $(12,482) $(11,169)
======== ========
Amounts recognized in the consolidated balance sheet consist of:
Prepaid (accrued) pension cost $(12,482) $(15,930)
Intangible asset - 2,630
Accumulated other comprehensive income - 2,131
------- -------
Net amount recognized $(12,482) $(11,169)
======== ========
The liabilities as of December 31, 1999 and 1998 disclosed above reflect the
change in the defined benefit plan covering the salaried employees to a cash
balance formula effective January 1, 1998. In addition, reflected at December
31, 1998 in the Company's consolidated balance sheet is an additional minimum
liability relative to its plan which was underfunded in the amount of $4.8
million at December 31, 1998. A corresponding amount is recorded at December 31,
1998 as an intangible asset to the extent it did not exceed unrecognized prior
service cost, while the excess was charged to stockholders' equity. None of the
plans required an additional minimum liability at December 31, 1999.
The weighted average assumptions and components of net pension expense for the
years ended December 31 are as follows (in thousands):
1999 1998 1997
---- ---- ----
Weighted average assumptions:
Discount rate 7.75% 7.00% 7.25%
Expected return on plan assets 8.00 9.25 9.25
Rate of compensation increase 4.50 4.50 4.50
Components of net pension expense:
Service cost $2,716 $2,508 $2,221
Interest cost 5,964 5,629 5,719
Expected return on plan assets (5,637) (6,369) (5,764)
Net amortization and deferral (207) (258) 89
------- ------- -------
Net pension expense $2,836 $1,510 $2,265
======= ======= =======
The Company's policy for these plans is to make contributions equal to or
greater than the requirements prescribed by the Employee Retirement Income
Security Act of 1974.
The Company also contributes to a union sponsored defined benefit multi-employer
pension plan for certain of its non-salaried employees. The Employee Retirement
Income Security Act of 1974, as amended by the Multi-Employers Pension Plan
Amendment Act of 1980, imposes certain liabilities upon employers who are
contributors to multi-employer plans in the event of the employers' withdrawal
from such a plan or upon a termination of such a plan. Management does not
intend to take any action that would subject the Company to any such
liabilities. The Company's contributions to the multi-employer pension plan were
approximately $0.2 million in 1999, 1998 and 1997.
In addition to the defined benefit pension plans described above, the Company
also sponsors defined contribution plans covering certain employees. In one of
the plans, the Company matches 25% to 50% of a participant's voluntary
contributions (depending on the respective plant's annual earnings performance)
up to a maximum of 6% of a participant's compensation. In the other plan, the
Company matches 100% of the first 3% of a participant's voluntary contributions
to the plan. The Company's contributions to the plans were approximately $1.5
million, $1.4 million and $1.9 million for 1999, 1998 and 1997, respectively.
9. Postretirement Benefits Other Than Pensions
The Company provides postretirement health care and life insurance benefits to
certain employees hired on or before September 1, 1998. The Company accrues the
cost of postretirement benefits within the employees' active service periods.
Effective January 1, 1994, the Company limited the extent of its liability for
future increases in medical costs. When the average annual per retiree claim
cost exceeds two times the 1993 per retiree claim cost, the employer
contribution will be increased each year only for general inflation, regardless
of the actual increase in the cost of providing medical benefits. Per retiree
medical claims reached two times the 1993 level in 1999. Certain changes were
made to the plan in 1998 as a result of a new labor agreement completed in
September 1998 relating to the Company's Lewisport, Kentucky rolling mill. The
changes require employees who retire to pay a portion of medical premiums under
the plan based on length of service and also discontinues medical coverage upon
the employees being eligible for Medicare benefits. In addition, in 1999 changes
were made to the plan for salaried employees to eliminate coverage for employees
eligible for Medicare and to require employee contributions based on length of
service. The 1999 and 1998 plan changes reduced the accumulated postretirement
benefit obligation by $6.5 million and $14.1 million, respectively, which is
being amortized over the average remaining service lives of the Company's active
employees and has the effect of reducing net periodic postretirement benefits
cost.
The financial status of the plan at December 31, 1999 and 1998 is as follows (in
thousands):
1999 1998
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $56,454 $69,030
Service cost 867 1,827
Interest cost 3,657 4,439
Amendments (6,464) (14,073)
Actuarial (gain) loss (731) (2,854)
Benefits paid (2,359) (1,915)
------- -------
Benefit obligation at end of year 51,424 56,454
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year - -
Actual return on plan assets - -
Employer contribution 2,359 1,915
Benefits paid (2,359) (1,915)
------- -------
Fair value of plan assets at end of year - -
------- -------
Funded status (51,424) (56,454)
Unrecognized net actuarial gain (12,470) (11,931)
Unrecognized prior service cost (21,573) (18,319)
-------- --------
Prepaid (accrued) postretirement benefit cost $(85,467) $(86,704)
======== ========
The weighted average assumptions and components of net postretirement benefit
expense for the years ended December 31 are as follows (in thousands):
1999 1998 1997
---- ---- ----
Weighted average assumptions:
Discount rate 7.75% 7.00% 7.25%
Components of net postretirement benefit expense:
Service cost $ 867 $1,827 $1,934
Interest cost 3,657 4,439 4,529
Amortization of prior service cost (3,209) (1,318) (927)
Recognized net actuarial loss (193) (413) (658)
------ ------ ------
Net postretirement benefit expense $1,122 $4,535 $4,878
====== ====== ======
For measurement purposes, the employer cap on the amount paid for retiree
medical benefits is assumed to increase with general inflation at 3% per year.
If the general inflation rate assumption is increased by 1%, the postretirement
benefit obligation as of December 31, 1999 and the combined service and interest
cost components of postretirement benefit expense for the year then ended would
be increased by approximately $5.1 million and $0.5 million, respectively, and
if the general inflation rate assumption is decreased by 1%, the postretirement
benefit obligation as of December 31, 1999 and the combined service and interest
cost components of postretirement benefit expense for the year then ended would
be decreased by approximately $4.5 million and $0.4 million, respectively.
10. Income Taxes
The components of income tax expense (benefit) for the years ended December 31
are as follows (in thousands):
1999 1998 1997
---- ---- ----
Current:
Federal $ 419 $(1,093) $ 606
State and Local 538 515 1,816
----- ------ -----
957 (578) 2,422
Deferred:
Federal - - -
State and Local - - -
----- ------ ------
$957 $(578) $2,422
===== ====== ======
Deferred tax assets and liabilities at December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Inventory $ - $ 1,373 $ 2,460 $ -
Property, plant and equipment - 53,787 - 55,171
Accrued and other liabilities 7,407 - 8,217 -
Accrued pension costs 6,672 - 6,029 -
Accrued postretirement costs 34,187 - 34,682 -
Net operating loss carryforwards 28,378 - 32,576 -
AMT credit carryforwards 6,699 - 5,847 -
Research and development
credit carryforwards 1,115 - - -
Other 693 - 425 -
------- ------ ------- ------
Totals $ 85,151 $55,160 $ 90,236 $55,171
------- ------ ------- ------
Net deferred tax asset 29,991 - 35,065 -
Valuation allowance (29,991) - (35,065) -
------- ------ ------- ------
Net deferred taxes $ - $ - $ - $ -
======= ====== ======= ======
</TABLE>
The Company has determined that at December 31, 1999 and 1998, its ability to
realize future benefits of net deferred tax assets does not meet the "more
likely than not" criteria in Statement of Financial Accounting Standards No.109,
"Accounting for Income Taxes".
At December 31, 1999, the Company had net operating loss ("NOL") carryforwards
for federal tax purposes of approximately $71 million, which expire in various
amounts through 2008 and approximately $6.7 million in alternative minimum tax
("AMT") credit carryforwards which do not expire. As a result of the Company's
initial public offering during 1995, the Company experienced an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code.
Consequently, the Company is subject to an annual limitation on the amount of
net operating loss carryforwards that can be used to offset taxable income. The
annual limitation is $9.6 million plus certain gains included in taxable income
which are attributable to the Company prior to the ownership change.
Reconciliation of the federal statutory rate and the effective income tax rate
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Utilization of NOL and AMT credit carryforwards (43.9) 225.8 (40.0)
Nondeductible goodwill and other permanent differences
14.0 (413.5) 15.2
Adjustment of prior year accrual (3.1) - -
State income taxes, net of federal income tax benefit 2.1 (77.0) 9.9
Alternative minimum tax 5.9 - 5.2
Foreign sales corporation benefits (3.4) 21.8 -
Activity relating to income taxes attributed to
previously accrued securities valuation reserves 1.4 340.7 (2.3)
Other items - - (2.0)
------ ----- -----
Effective income tax rate 8.0% 132.8% 21.0%
====== ===== =====
</TABLE>
11. Contingencies
The Company's operations are subject to increasingly stringent environmental
laws and regulations governing air emissions, wastewater discharges, the
handling, disposal and remediation of hazardous substances and wastes and
employee health and safety. These laws can impose joint and several liability
for releases or threatened releases of hazardous substances upon statutorily
defined parties, including the Company, regardless of fault or the lawfulness of
the original activity or disposal. The Company believes it is currently in
material compliance with applicable environmental laws and regulations.
Future regulations, under the Clean Air Act and otherwise, will impose stricter
emission requirements on the aluminum industry. While the Company believes that
current pollution control measures at most of the emission sources at its
facilities will meet these anticipated future requirements, additional measures
at some of the Company's facilities may be required.
The Company has been named as a potentially responsible party at seven federal
superfund sites and has completed closure activities at two of the sites for
past waste disposal activity associated with closed recycling facilities. A
trust fund exists to fund the activity at one of the sites that was undergoing
closure and was established through contributions from two other parties in
exchange for indemnification from further liability. The Company is reimbursed
from the trust fund for approved closure and postclosure expenditures incurred
at the site. The balance remaining in the trust fund at December 31, 1999 was
$0.4 million. In determining the adequacy of the Company's aggregate
environmental contingency accrual, the assets of the trust fund were taken into
account. At the five other federal superfund sites, the Company is a minor
contributor and has satisfied its obligations at two of the sites and expects to
resolve its liability at the remaining three sites for a nominal amount. The
Company is also under orders by agencies in three states for environmental
remediation at four sites, two of which are currently operating and two of which
have been closed. Based upon currently available information, the Company
estimates the range of possible remaining expenditures with respect to the above
matters is between $9 million and $13 million.
The Company acquired its Lewisport, Kentucky ("Lewisport") rolling mill and an
aluminum smelter at Goldendale, Washington ("Goldendale"), from Lockheed Martin
in 1985. In connection with the transaction, Lockheed Martin indemnified the
Company against expenses relating to environmental matters arising during the
period of Lockheed Martin's ownership of those facilities.
Environmental sampling at Lewisport has disclosed the presence of contaminants,
including polychlorinated biphenyls (PCBs), in a closed Company landfill. The
Company has not yet determined the extent of the contamination or the nature and
extent of remedial measures that may be required. Accordingly, the Company
cannot at present estimate the cost of any remediation that may be necessary.
Management believes the contamination is covered by the Lockheed Martin
indemnification, which Lockheed Martin disputes.
The aluminum smelter at Goldendale was operated by Lockheed Martin until 1985
and by the Company from 1985 to 1987 when it was sold to Columbia Aluminum
Corporation ("Columbia"). Past aluminum smelting activities at Goldendale have
resulted in environmental contamination and regulatory involvement. A 1993
Settlement Agreement among the Company, Lockheed Martin and Columbia allocates
responsibility for future remediation at 11 sites at the Goldendale smelter. If
remediation is required, estimates by outside consultants of the probable
aggregate cost to the Company for these sites range from $1.3 million to $7.2
million. The apportionment of responsibility for other sites at Goldendale is
left to alternative dispute resolution procedures if and when these locations
become the subject of remedial requirements.
The Company has been named as a potentially responsible party at three
third-party disposal sites relating to Lockheed Martin operations, for which
Lockheed Martin has assumed responsibility.
The Company's aggregate loss contingency accrual for environmental matters was
$9.6 million and $9.9 million at December 31, 1999 and 1998, respectively. Of
the total reserve, $2.0 million is included in "accrued liabilities" in the
Company's consolidated balance sheets at both December 31, 1999 and 1998,
respectively, and $7.6 million and $7.9 million is included in "other long-term
liabilities" at December 31, 1999 and 1998, respectively.
While the Company believes the overall accrual is adequate to cover all
environmental loss contingencies the Company has determined to be probable and
reasonably estimable, it is not possible to predict the amount or timing of cost
for future environmental matters which may subsequently be determined. Although
the outcome of any such matters, to the extent they exceed any applicable
accrual, could have a material adverse effect on the Company's consolidated
results of operations or cash flows for the applicable period, the Company
believes that such outcome will not have a material adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.
The Company has incurred and will continue to incur capital and operating
expenditures for matters relating to environmental control and monitoring.
Capital expenditures of the Company for environmental control and monitoring for
1999 and 1998 were $1.5 million and $2.1 million, respectively. All other
environmental expenditures of the Company, including remediation expenditures,
for 1999, 1998 and 1997 were $2.3 million, $1.0 million and $3.1 million,
respectively.
The Company is also a party to various non-environmental legal proceedings and
administrative actions, all arising from the ordinary course of business.
Although it is impossible to predict the outcome of any legal proceeding, the
Company believes any liability that may finally be determined with respect to
such legal proceedings should not have a material effect on the Company's
consolidated financial position, results of operations or cash flows, although
resolution in any year or quarter could be material to the consolidated results
of operations for that period.
12. Stock Incentives
The Company has stock incentive plans covering certain officers, key employees
and directors. The plans provide for the grant of options to purchase common
stock, the award of shares of restricted common stock and in the case of
non-employee directors, the award of shares of common stock. The total number of
shares available under the plans is 1,950,000.
The following summarizes activity under the plans for the years 1997, 1998 and
1999:
<TABLE>
<CAPTION>
Options Restricted Stock
-------------------------------------------------------- -----------------
Range of Weighted Average
Shares Exercise Prices Exercise Price Shares
---------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1996 196,000 $14.00 to $16.88 $15.80 197,500
Granted 203,500 $15.38 to $20.00 $15.55 2,500
Exercised (9,000) $14.00 to $16.75 $15.60 -
Forfeited (45,500) $14.00 to $16.75 $15.60 (22,500)
Stock no longer restricted - - - (7,500)
------- -------
Outstanding December 31, 1997 345,000 $14.00 to $20.00 $15.68 170,000
Granted 231,500 $8.25 to $16.00 $14.40 -
Exercised - - - -
Forfeited (8,500) $14.00 to $16.75 $14.99 (2,500)
------- -------
Outstanding December 31, 1998 568,000 $8.25 to $20.00 $15.17 167,500
Granted 343,000 $8.81 $8.81 -
Exercised - - - -
Forfeited (127,000) $8.81 to $16.75 $12.46 (20,000)
------- -------
Outstanding December 31, 1999 784,000 $8.25 to $20.00 $12.83 147,500
======= =======
(Weighted average contractual
life of 7.7 years)
Exercisable Options:
December 31, 1997 11,000 $14.00 to $15.50 $14.75
December 31, 1998 71,500 $14.00 to $15.50 $14.24
December 31, 1999 172,000 $14.00 to $16.88 $15.72
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
-------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- -------------------- ---------------- ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$8.25 to $14.00 349,500 8.4 years $ 9.60 53,500 $14.00
$14.01 to $20.00 434,500 7.2 years $15.42 118,500 $16.50
------- -------
$8.25 to $20.00 784,000 7.7 years $12.83 172,000 $15.72
======= =======
</TABLE>
The options are issued at the fair value of the underlying stock on the date of
grant and become exercisable three years from the grant date for employees and
one year from the grant date for non-employee directors. The options expire ten
years after the date of grant. The restricted stock, principally issued in
connection with the Company's initial public offering in 1995, vests five years
from the date of award. The weighted-average fair value of options granted in
1999, 1998 and 1997 was $3.61, $6.23 and $6.11 per share, respectively. Fair
value estimates were determined using the Black-Scholes option pricing model
with the following weighted average asumptions for 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Risk-free interest rate 4.70% 5.67% 6.22%
Dividend yield 2.27% 1.40% 1.29%
Volatility factor 50% 47% 39%
Expected term of options (in years) 5 5 5
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company follows the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for its stock
option plans, and accordingly, no compensation expense has been recognized for
options and stock issued under the plans. Had compensation expense been
determined based on the fair value of the stock options at the grant date
consistent with the provisions of SFAS No. 123, the Company's net income and
basic and diluted net income per share would have been reduced for 1999, 1998
and 1997 to the pro forma amounts which follow:
1999 1998 1997
---- ---- ----
Net income (loss)
As reported $11,011 $143 $7,941
Pro forma $10,515 $(442) $7,592
Basic and diluted net income (loss) per share
As reported $0.68 $0.01 $0.68
Pro forma $0.65 $(0.03) $0.65
13. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income (numerator) amounts used for basic and diluted per share computations:
Income before extraordinary loss $11,011 $ 143 $9,122
Extraordinary loss, net of income tax benefit - - (1,181)
------- ------ ------
Net income $11,011 $ 143 $7,941
======= ====== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 16,224 15,944 11,687
====== ====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 16,224 15,944 11,687
Plus: dilutive effect of stock options 57 3 36
------ ------ ------
Adjusted weighted average shares 16,281 15,947 11,723
====== ====== ======
Basic and diluted per share data:
Income before extraordinary loss $0.68 $0.01 $0.78
Extraordinary loss - - (0.10)
------ ----- -----
Net income $0.68 $0.01 $0.68
===== ===== =====
</TABLE>
Options to purchase 488,000, 563,000 and 8,000 common shares for the years ended
December 31, 1999, 1998 and 1997, respectively, were excluded from the
calculations above because the exercise prices on the options were greater than
the average market price for the periods.
14. Lease Commitments
Certain property, plant and equipment are leased under noncancelable leases
which provide for minimum rental payments as follows (in thousands):
2000 $2,864
2001 2,340
2002 1,941
2003 1,869
2004 1,083
2005-2006 30
Rental expense under cancelable and noncancelable leases for 1999, 1998 and
1997 was $4.0 million, $3.2 million and $3.0 million, respectively.
15. Selected Quarterly Financial Data (unaudited) All amounts are in thousands
except net income per share.
<TABLE>
<CAPTION>
Quarter
---------------------------------------------
1st 2nd 3rd 4th
-------- -------- -------- ---------
1999
- ----
<S> <C> <C> <C> <C>
Net sales $238,750 $271,525 $275,083 $260,558
Gross profit 20,882 27,187 18,354 20,442
Net income 2,166 6,571 882 1,392
Basic and diluted net income per share 0.14 0.41 0.05 0.08
1998
- ----
Net sales $248,927 $258,346 $231,348 $229,328
Gross profit 18,441 13,786 15,958 21,270
Net income (loss) 2,794 (2,643) (2,139) 2,131
Basic and diluted net income (loss) per share 0.18 (0.17) (0.13) 0.13
</TABLE>
16. Information Concerning Business Segments
The Company has adopted Statement of Financial Accounting Standards No.131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). Under SFAS No. 131, the Company has determined it has two reportable
segments: aluminum and electrical conduit. The aluminum segment manufactures
aluminum sheet for distributors and the transportation, construction, and
consumer durables end-use markets. The electrical conduit segment manufactures
flexible electrical wiring products for the commercial and do-it-yourself
markets.
The accounting policies of the reportable segments are the same as those
described in Note 1, "Basis of Presentation and Summary of Significant
Accounting Policies". All intersegment sales prices are market based. The
Company evaluates the performance of its operating segments based upon operating
income.
The Company's reportable segments are strategic business units that offer
different products to different customer groups. They are managed separately
because each business requires different technology and marketing strategies.
Summarized financial information concerning the Company's reportable segments is
shown in the following table for the years 1999, 1998 and 1997. The "Other"
column includes corporate related items, including elimination of intersegment
transactions, and as it relates to segment operating income, income and expense
not allocated to reportable segments.
<TABLE>
<CAPTION>
Electrical
Aluminum Conduit Other Total
---------- ---------- ---------- -----------
1999
- ----
<S> <C> <C> <C> <C>
Net sales to external customers $922,298 $123,618 $ - $1,045,916
Intersegment net sales 29,090 - (29,090) -
Operating income 32,213 8,451 (12,224) 28,440
Depreciation and amortization 32,699 3,597 217 36,513
Total assets 603,362 102,768 192 706,322
Capital expenditures 26,445 10,270 - 36,715
1998
- ----
Net sales to external customers $846,696 $121,253 $ - $967,949
Intersegment net sales 26,267 - (26,267) -
Operating income 16,853 12,885 (8,317) 21,421
Depreciation and amortization 31,151 3,113 464 34,728
Total assets 546,891 101,356 152 648,399
Capital expenditures 27,985 5,665 - 33,650
1997
- ----
Net sales to external customers $964,012 $126,765 $ - $1,090,777
Intersegment net sales 26,230 - (26,230) -
Operating income 29,293 19,081 (6,781) 41,593
Depreciation and amortization 31,228 3,026 456 34,710
Total assets 576,677 94,214 (3,470) 667,421
Capital expenditures 19,936 1,800 - 21,736
</TABLE>
17. Stockholder Protection Rights Plan
During 1996, the Company's Board of Directors adopted a stockholder protection
rights plan (the "Plan"). Under the Plan, preferred share purchase rights
("Rights") are issued at the rate of one Right for each share of the Company's
common stock. Each Right entitles its holder to purchase one one-hundredth of a
share of Preferred Stock at an exercise price of $65, subject to adjustment.
Until it is announced that a person or group has acquired 15% or more of the
Company's common stock (an "Acquiring Person"), or the tenth business day after
a person or group commences a tender offer that, if completed, would result in
such person or group owning 15% or more of the Company's common stock, the
Rights will be evidenced by the Company's common stock certificates, will
automatically trade with the common stock and will not be exercisable.
Thereafter, separate Rights certificates will be distributed and each Right will
entitle its holder to purchase Participating Preferred Stock having economic and
voting terms similar to those of one share of Common Stock for an exercise price
of $65.
Upon announcement that any person or group has become an Acquiring Person (the
"Flip-in Date"), each Right (other than Rights beneficially owned by any
Acquiring Person or transferees thereof, which Rights become void) will entitle
its holder to purchase, for the exercise price, a number of shares of the
Company's common stock having a market value of twice the exercise price. Also,
if after an Acquiring Person controls the Company's Board of Directors, the
Company is involved in a merger or sells more than 50% of its assets or earning
power (or has entered into an agreement to do any of the foregoing), and, in the
case of a merger, the Acquiring Person will receive different treatment than all
other stockholders, each Right will entitle its holder to purchase, for the
exercise price, a number of shares of common stock of the Acquiring Person
having a market value of twice the exercise price. If any person or group
acquires between 15% and 50% of the Company's common stock, the Company's Board
of Directors may, at its option, exchange one share of the Company's common
stock for each Right. Until the Rights become exercisable, they may be redeemed
by the Company at a price of $0.01 per Right. The Rights expire on March 16,
2006.
18. Guarantor Financial Statements
The $125 million of 10.75% senior subordinated notes due 2006 issued by the
Company, and the $100 million revolving credit facility are guaranteed by the
Company's wholly-owned subsidiaries (collectively the "Subsidiary Guarantors"),
other than Commonwealth Financing Corp. ("CFC"), a Securitization Subsidiary (as
defined in the Indenture with respect to such debt) and certain subsidiaries of
the Company without substantial assets or operations. Such guarantees are full,
unconditional and joint and several. Separate financial statements of the
Subsidiary Guarantors are not presented because management has determined that
they would not be material to investors. The following supplemental financial
information sets forth on a condensed combined basis, combining balance sheet,
statement of income and statement of cash flows for the Parent Company Only,
Subsidiary Guarantors, Non-guarantor Subsidiaries and for the Company as of
December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and
1997.
Combining Balance Sheet at December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ - $ - $ - $ -
Accounts receivable, net 95,339 84,254 - (179,475) 118
Inventories - 207,413 - - 207,413
Prepayments and other current assets 192 13,649 39,980 - 53,821
------- -------- ------ --------- --------
Total current assets 95,531 305,316 39,980 (179,475) 261,352
Property, plant and equipment, net - 275,531 - - 275,531
Goodwill, net - 164,610 - - 164,610
Other noncurrent assets 241,558 4,809 - (241,538) 4,829
------- -------- ------ --------- --------
Total assets $ 337,089 $ 750,266 $ 39,980 $(421,013) $706,322
======= ======== ====== ========= ========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ 1,188 $ - $ - $ 1,188
Accounts payable - 193,276 84,136 (179,475) 97,937
Accrued liabilities 413 38,928 (181) - 39,160
------- -------- ------ --------- --------
Total current liabilities 413 233,392 83,955 (179,475) 138,285
Long-term debt - 125,000 - - 125,000
Other long-term liabilities - 8,412 - - 8,412
Accrued pension benefits - 12,482 - - 12,482
Accrued postretirement benefits - 85,467 - - 85,467
------- -------- ------ --------- --------
Total liabilities 413 464,753 83,955 (179,475) 369,646
------- -------- ------ --------- --------
Commitments and contingencies - - - - -
Stockholders' Equity
Common stock 166 1 - (1) 166
Additional paid-in capital 409,062 273,774 5,000 (278,774) 409,062
Accumulated deficit (61,866) 11,738 (48,975) 37,237 (61,866)
Unearned compensation (175) - - - (175)
Notes receivable from sale of common stock (10,511) - - - (10,511)
------- -------- ------ --------- --------
Total stockholders' equity 336,676 285,513 (43,975) (241,538) 336,676
------- -------- ------ --------- --------
Total liabilities and stockholders' equity $337,089 $ 750,266 $ 39,980 $(421,013) $706,322
======= ======== ====== ========= ========
</TABLE>
Combining Balance Sheet at December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 6 $ - $ - $ 6
Accounts receivable, net 89,091 41,115 - (129,978) 228
Inventories 0 174,968 0 0 174,968
Prepayments and other current assets 2 9,342 16,023 0 25,367
------- -------- ------ --------- --------
Total current assets 89,093 225,431 16,023 (129,978) 200,569
Property, plant and equipment, net 0 269,837 0 0 269,837
Goodwill, net 0 169,086 0 0 169,086
Other noncurrent assets 230,504 8,887 0 (230,484) 8,907
------- -------- ------ --------- --------
Total assets $ 319,597 $673,241 $16,023 $(360,462) $648,399
======= ======== ====== ========= ========
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ - $ - $ - $ -
Accounts payable 0 143,185 41,037 (129,978) 54,244
Accrued liabilities (9,063) 40,487 (291) 0 31,133
------- -------- ------ --------- --------
Total current liabilities (9,063) 183,672 40,746 (129,978) 85,377
Long-term debt 0 125,000 0 0 125,000
Other long-term liabilities 0 8,859 0 0 8,859
Accrued pension benefits 0 15,930 0 0 15,930
Accrued postretirement benefits 0 86,704 0 0 86,704
------- -------- ------ --------- --------
Total liabilities (9,063) 420,165 40,746 (129,978) 321,870
------- -------- ------ --------- --------
Commitments and contingencies - - - - 0
Stockholders' Equity
Common stock 159 1 0 (1) 159
Additional paid-in capital 398,794 273,774 5,000 (278,774) 398,794
Accumulated deficit (69,621) (18,568) (29,723) 48,291 (69,621)
Unearned compensation (672) 0 0 0 (672)
Accumulated other comprehensive income:
Minimum pension liability adjustment - (2,131) 0 0 (2,131)
------- -------- ------ --------- --------
Total stockholders' equity 328,660 253,076 (24,723) (230,484) 326,529
------- -------- ------ --------- --------
Total liabilities and stockholders' equity $319,597 $673,241 $ 16,023 $(360,462) $648,399
======= ======== ====== ========= ========
</TABLE>
Combining Statement of Income for the year ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ - $1,045,916 $ - $ - $1,045,916
Cost of goods sold - 959,051 - - 959,051
------- -------- ------ --------- --------
Gross profit - 86,865 - - 86,865
Selling, general and administrative expenses 514 53,427 8 - 53,949
Amortization of goodwill - 4,476 - - 4,476
------- -------- ------ --------- --------
Operating income (loss) (514) 28,962 (8) - 28,440
Other income (expense), net 11,030 2,861 - (11,030) 2,861
Interest income (expense), net 318 (407) (19,244) - (19,333)
------- -------- ------ --------- --------
Income (loss) before income taxes 10,834 31,416 (19,252) (11,030) 11,968
Income tax expense (benefit) (177) 1,134 - - 957
------- -------- ------ --------- --------
Net income (loss) $ 11,011 $ 30,282 $ (19,252) $ (11,030) $ 11,011
======= ======== ====== ========= ========
</TABLE>
Combining Statement of Income for the year ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 967,949 $ - $ - $ 967,949
Cost of goods sold - 898,494 - - 898,494
------- -------- ------ --------- --------
Gross profit - 69,455 - - 69,455
Selling, general and administrative expenses 1,252 42,295 11 - 43,558
Amortization of goodwill - 4,476 - - 4,476
------- -------- ------ --------- --------
Operating income (loss) (1,252) 22,684 (11) - 21,421
Other income (expense), net 115 356 - (106) 365
Interest income (expense), net 173 891 (23,285) - (22,221)
------- -------- ------ --------- --------
Income (loss) before income taxes (964) 23,931 (23,296) (106) (435)
Income tax expense (benefit) (1,107) 529 - - (578)
------- -------- ------ --------- --------
Net income (loss) $ 143 $ 23,402 $(23,296) $ (106) $ 143
======= ======== ====== ========= ========
</TABLE>
Combining Statement of Income for the year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ - $1,090,777 $ - $ - $1,090,777
Cost of goods sold - 1,002,734 - - 1,002,734
------- -------- ------ --------- --------
Gross profit - 88,043 - - 88,043
Selling, general and administrative expenses 691 41,281 - - 41,972
Amortization of goodwill - 4,478 - - 4,478
------- -------- ------ --------- --------
Operating income (loss) (691) 42,284 - - 41,593
Other income (expense), net 8,632 508 - (8,653) 487
Interest income (expense), net - (24,109) (6,427) - (30,536)
------- -------- ------ --------- --------
Income (loss) before income taxes
and extraordinary loss 7,941 18,683 (6,427) (8,653) 11,544
Income tax expense (benefit) - 2,422 - - 2,422
------- -------- ------ --------- --------
Income (loss) before extraordinary loss 7,941 16,261 (6,427) (8,653) 9,122
Extraordinary loss on early extinguishment of debt,
net of income tax benefit - (1,181) - - (1,181)
------- -------- ------ --------- --------
Net income (loss) $ 7,941 $ 15,080 $(6,427) $ (8,653) $ 7,941
======= ======== ====== ========= ========
</TABLE>
Combining Statement of Cash Flows for the year ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ---------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $11,011 $ 30,282 $ (19,252) $ (11,030) $11,011
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 217 36,296 0 0 36,513
Loss on disposal of property, plant and equipment - 389 - - 389
Issuance of common stock in connection with stock awards 44 - - - 44
Equity in undistributed net income of subsidiaries - (11,030) - 11,030 0
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net (6,248) (43,139) 0 49,497 110
(Increase) in inventories 0 (32,445) 0 0 (32,445)
(Increase) in prepayments and other current assets (190) (4,307) (23,957) 0 (28,454)
(Increase) decrease in other noncurrent assets (11,054) 13,932 0 0 2,878
(Decrease) increase in accounts payable 0 50,091 43,099 (49,497) 43,693
Increase (decrease) in accrued liabilities 9,476 (1,559) 110 0 8,027
(Decrease) in other liabilities 0 (3,001) 0 0 (3,001)
------- ------- -------- -------- -------
Net cash provided by operating activities 3,256 35,509 0 0 38,765
------- ------- -------- -------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment 0 (36,715) 0 0 (36,715)
Proceeds from sale of property, plant and equipment 0 12 0 0 12
------- ------- -------- -------- -------
Net cash (used in) investing activities 0 (36,703) 0 0 (36,703)
------- ------- -------- -------- -------
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits 0 1,188 0 0 1,188
Proceeds from long-term debt - 46,770 - - 46,770
Repayments of long-term debt - (46,770) - - (46,770)
Cash dividends paid (3,256) - - - (3,256)
------- ------- -------- -------- -------
Net cash (used in) provided by financing activities (3,256) 1,188 0 0 (2,068)
------- ------- -------- -------- -------
Net (decrease) in cash and cash equivalents 0 (6) 0 0 (6)
Cash and cash equivalents at beginning of period - 6 - - 6
------- ------- -------- -------- -------
Cash and cash equivalents at end of period $ - $ - $ - $ - $ -
======= ======= ======== ======== =======
</TABLE>
Combining Statement of Cash Flows for the year ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ---------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 143 $ 23,402 $(23,296) $ (106) $ 143
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 465 34,263 - - 34,728
Loss on disposal of property, plant and equipment - 1,453 - - 1,453
Issuance of common stock in connection with stock awards 72 - - - 72
Equity in undistributed net income of subsidiaries - (106) - 106 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net - (255) - 382 127
(Increase) in inventories - (3,335) - - (3,335)
(Increase) decrease in prepayments and other current assets (2) (4,006) 23,748 - 19,740
Decrease (increase) in other noncurrent assets 11,675 (11,277) - - 398
Increase (decrease) in accounts payable - (13,652) 397 (382) (13,637)
(Decrease) increase in accrued liabilities (9,164) 13,978 (849) - 3,965
Increase in other liabilities - 2,931 - - 2,931
------- ------- -------- -------- -------
Net cash provided by operating activities 3,189 43,396 - - 46,585
------- ------- -------- -------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment - (33,650) - - (33,650)
Proceeds from sale of property, plant and equipment - 32 - - 32
------- ------- -------- -------- -------
Net cash (used in) investing activities - (33,618) - - (33,618)
------- ------- -------- -------- -------
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits - (9,122) - - (9,122)
Proceeds from long-term debt - 45,150 - - 45,150
Repayments of long-term debt - (45,800) - - (45,800)
Cash dividends paid (3,189) - - - (3,189)
------- ------- -------- -------- -------
Net cash (used in) financing activities (3,189) (9,772) - - (12,961)
------- ------- -------- -------- -------
Net increase in cash and cash equivalents - 6 - - 6
Cash and cash equivalents at beginning of period - - - - -
------- ------- -------- -------- -------
Cash and cash equivalents at end of period $ - $ 6 $ - $ - $ 6
======= ======= ======== ======== =======
</TABLE>
Combining Statement of Cash Flows for the year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Parent
Company Subsidiary Non-guarantor Combined
Only Guarantors Subsidiaries Eliminations Totals
-------- ---------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,941 $ 15,080 $ (6,427) $(8,653) $ 7,941
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 456 34,254 0 0 34,710
Extraordinary loss on early extinguishment of debt - 1,495 - - 1,495
Loss on disposal of property, plant and equipment - 1,271 - - 1,271
Issuance of common stock in connection with stock awards 84 - - - 84
Proceeds from the initial sale of accounts receivable - 150,000 - - 150,000
Equity in undistributed net income of subsidiaries - (8,653) - 8,653 0
Changes in assets and liabilities:
(Increase) in accounts receivable, net (89,091) (91,297) 0 133,738 (46,650)
Decrease in inventories 0 2,278 0 0 2,278
Decrease (increase) in prepayments and other current assets 0 46,741 (39,771) 0 6,970
(Increase) decrease in other noncurrent assets (5,814) 6,015 0 0 201
(Decrease) increase in accounts payable (4,142) 82,781 40,640 (133,738) (14,459)
Increase (decrease) in accrued liabilities 101 (9,842) 558 0 (9,183)
Increase in other liabilities 0 13 0 0 13
------- ------- -------- -------- -------
Net cash (used in) provided by operating activities (90,465) 230,136 (5,000) 0 134,671
------- ------- -------- -------- -------
Cash flows from investing activities:
Initial investment in subsidiary (5,000) - - 5,000 0
Net cash and cash equivalents (outflow) from acquisition - (2,894) - - (2,894)
Purchases of property, plant and equipment 0 (21,736) 0 0 (21,736)
Proceeds from sale of property, plant and equipment 0 28 0 0 28
------- ------- -------- -------- -------
Net cash (used in) provided by investing activities (5,000) (24,602) 0 5,000 (24,602)
------- ------- -------- -------- -------
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits 0 9,122 0 0 9,122
Proceeds from long-term debt - 294,950 - - 294,950
Repayments of long-term debt - (511,550) - - (511,550)
Proceeds from issuance of common stock 97,793 - 5,000 (5,000) 97,793
Cash dividends paid (2,328) - - - (2,328)
------- ------- -------- -------- -------
Net cash provided by (used in) financing activities 95,465 (207,478) 5,000 (5,000) (112,013)
------- ------- -------- -------- -------
Net (decrease) in cash and cash equivalents 0 (1,944) 0 0 (1,944)
Cash and cash equivalents at beginning of period - 1,944 - - 1,944
------- ------- -------- -------- -------
Cash and cash equivalents at end of period $ - $ - $ - $ - $ -
======= ======= ======== ======== =======
</TABLE>
<PAGE>
Commonwealth Industries, Inc.
Report of Independent Auditors
Board of Directors and Stockholders
Commonwealth Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the consolidated financial position of Commonwealth Industries, Inc. and
subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for inventories from the first-in,
first-out (FIFO) method to the last-in, first-out (LIFO) method effective
January 1, 1999.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
January 20, 2000
Exhibit 21
----------
Direct and Indirect Subsidiaries of Commonwealth Industries, Inc.
Name Jurisdiction of Incorporation
----- -----------------------------
Commonwealth Financing Corp. (1) Delaware
Commonwealth Aluminum Lewisport, Inc. (1) Delaware
Commonwealth Aluminum Sales Corporation (2) Delaware
Commonal Corporation (2) Barbados
Alflex Corporation (1) Delaware
Alflex E1 LLC (5) Delaware
Commonwealth Aluminum Concast, Inc. (3) Ohio
Commonwealth Aluminum Corporation (4) Delaware
--------------------------------------------------------------------------
(1) Subsidiary of Commonwealth Industries, Inc.
(2) Subsidiary of Commonwealth Aluminum Lewisport, Inc.
(3) Subsidiary of Alflex Corporation.
(4) Subsidiary of Commonwealth Aluminum Concast, Inc.
(5) Limited Liability Company 100% owned by Alflex Corporation.
Exhibit 23
----------
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (File No's. 333-81055, 333-29363, 333-19383, 33-91364
and 33-90292) of Commonwealth Industries, Inc. and subsidiaries of our report
dated January 20, 2000 relating to the consolidated financial statements, which
appears in the Annual Report to Stockholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated January 20, 2000 relating to the financial statement schedule,
which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 118
<ALLOWANCES> 0
<INVENTORY> 207,413
<CURRENT-ASSETS> 261,352
<PP&E> 575,569
<DEPRECIATION> 300,038
<TOTAL-ASSETS> 706,322
<CURRENT-LIABILITIES> 138,285
<BONDS> 125,000
0
0
<COMMON> 166
<OTHER-SE> 336,510
<TOTAL-LIABILITY-AND-EQUITY> 706,322
<SALES> 1,045,916
<TOTAL-REVENUES> 1,045,916
<CGS> 959,051
<TOTAL-COSTS> 959,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 591
<INTEREST-EXPENSE> 19,333
<INCOME-PRETAX> 11,968
<INCOME-TAX> 957
<INCOME-CONTINUING> 11,011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,011
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.68
</TABLE>
