UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 8-K/A
AMENDMENT TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 1, 2004
Allegheny Technologies Incorporated
---------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-12001 25-1792394
---------------------------- ------------ ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (412) 394-2800
On June 15, 2004, Allegheny Technologies Incorporated ("ATI") filed an
initial Current Report on Form 8-K with the Securities and Exchange Commission,
reporting that a subsidiary of ATI acquired substantially all of the assets of
J&L Specialty Steel, LLC ("J&L"), a producer of stainless steel, on June 1,
2004. This report amends Item 7, Financial Statements and Exhibits, to report
the historical financial statements of J&L and the pro forma financial
information, as required by Item 7.
(a) Item 7. Financial Statements and Exhibits PAGE
(b) Financial Statements of Businesses Acquired
(i) Report of Independent Auditors F-1
(ii) Consolidated Balance Sheet as of
December 31, 2003 (audited) F-2
(iii) Consolidated Statement of Operations for the
year ended December 31, 2003 (audited) F-3
(iv) Consolidated Statement of Shareholder Equity (Deficit)
for the year ended December 31, 2003 (audited) F-4
(v) Consolidated Statement of Cash Flows for the year
ended December 31, 2003 (audited) F-5
(c) Pro forma financial information (unaudited) P-1
(i) Pro forma Balance Sheet for ATI and J&L as of March
31, 2004 P-2
(ii) Pro forma Statement of Operations for ATI and J&L
for the Three Months Ended March 31, 2004 P-4
(iii) Pro forma Statement of Operations for ATI and J&L
for the Year Ended December 31, 2003 P-5
(d) Exhibits
23.1 Consent of KPMG LLP, independent public accountants for J&L
Specialty Steel, LLC, filed herewith.
ITEM 7 (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
J&L SPECIALTY STEEL, LLC
Consolidated Financial Statements
December 31, 2003
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
J&L Specialty Steel, LLC:
We have audited the accompanying consolidated balance sheet of J&L Specialty
Steel, LLC and subsidiaries as of December 31, 2003 and the related consolidated
statements of operations, shareholder equity (deficit), and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J&L Specialty Steel,
LLC and subsidiaries as of December 31, 2003 and the results of their operations
and their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As further discussed in note 2 to
the consolidated financial statements, the Company has negative working capital
and a shareholder deficit as of December 31, 2003 and has incurred a net loss
for the year ended December 31, 2003. In addition, substantially all of the
Company's assets are held for sale as of December 31, 2003. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG LLP
Pittsburgh, Pennsylvania
April 30, 2004, except as to note 12,
which is as of June 1, 2004
F-1
J&L SPECIALTY STEEL, LLC
Consolidated Balance Sheet
December 31, 2003
(Dollars in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 11,246
Trade receivables, net of allowances of $2,395 36,383
Trade receivables from affiliates 1,372
Inventories 118,073
Prepaid expenses and other current assets 4,872
---------
Total current assets 171,946
Property, plant, and equipment 550
Other noncurrent assets 3,120
---------
Total assets $ 175,616
=========
LIABILITIES AND SHAREHOLDER EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable $ 70,400
Accrued employee compensation and benefits 8,962
Other accrued liabilities 13,082
Current portion of long-term debt obligations 482
Borrowings from affiliates 269,174
---------
Total current liabilities 362,100
---------
Long-term debt obligations 3,235
Postretirement benefits liability 158,107
Other noncurrent liabilities 3,459
---------
Total liabilities 526,901
Shareholder equity (deficit):
Preferred stock, $0.01 per share par value. Authorized 2,000,000 shares; --
no issued and outstanding shares)
Common stock, $0.01 per share par value. Authorized 100,000,000 shares; 388
issued and outstanding 38,763,000 shares)
Additional paid-in capital 463,135
Accumulated other comprehensive loss (62,800)
Retained deficit (752,008)
---------
Total shareholder equity (deficit) (351,285)
---------
Total liabilities and shareholder equity (deficit) $ 175,616
=========
See accompanying notes to consolidated financial statements
F-2
J&L SPECIALTY STEEL, LLC
Consolidated Statement of Operations
Year ended December 31, 2003
(Dollars in thousands)
Trade sales, net $ 417,849
Sales to affiliates, net 13,722
---------
Total sales, net 431,571
---------
Cost of products sold 415,504
Depreciation and amortization expenses 23,318
Selling, general, and administrative expenses 46,545
Asset impairment charge 242,094
Benefit plan curtailment charge 27,536
---------
Total operating expenses 754,997
---------
Operating loss (323,426)
Interest expense, net (4,228)
Other expense, net (3,193)
---------
Loss before income taxes (330,847)
Income tax benefit (2,367)
---------
Net loss $(328,480)
=========
See accompanying notes to consolidated financial statements.
F-3
J&L SPECIALTY STEEL, LLC
Consolidated Statement of Shareholder Equity (Deficit)
Year ended December 31, 2003
(Dollars in thousands, except share data)
COMMON ACCUMULATED
SHARES ADDITIONAL OTHER RETAINED
ISSUED AND COMMON PAID-IN COMPREHENSIVE EARNINGS/
OUTSTANDING STOCK CAPITAL LOSS (DEFICIT) TOTAL
----------- ------ ---------- ------------- ----------- ---------
Balance, December 31, 2002 38,763,000 $ 388 440,835 (35,418) (423,528) (17,723)
Net loss -- -- -- -- (328,480) (328,480)
Other comprehensive loss -- -- -- (27,382) -- (27,382)
--------
Comprehensive loss -- -- -- -- -- (373,585)
Capital contribution -- -- 22,300 -- -- 22,300
---------- ------ ------- ------- -------- --------
Balance, December 31, 2003 38,763,000 $ 388 463,135 (62,800) (752,008) (351,285)
========== ====== ======= ======= ======== ========
See accompanying notes to consolidated financial statements.
F-4
J&L SPECIALTY STEEL, LLC
Consolidated Statement of Cash Flows
Year ended December 31, 2003
(Dollars in thousands)
Cash flows from operating activities:
Net loss $(328,480)
Adjustments to reconcile net loss to net cash used by
operating activities:
Amortization of intangibles and depreciation 23,318
Asset impairment charge 242,094
Benefit plan curtailment charge 27,536
Changes in certain assets and liabilities:
Trade receivables 8,558
Trade receivables - affiliates 452
Inventories (8,412)
Prepaid expenses and other current assets (4,202)
Other noncurrent assets 204
Trade accounts payable 3,582
Accrued employee compensation and benefits (1,699)
Other accrued liabilities 353
Postretirement benefits liability 17,400
Other noncurrent liabilities 24
---------
Net cash used by operating activities (19,272)
---------
Cash flows from investing activities:
Capital expenditures (14,932)
---------
Net cash used by investing activities (14,932)
---------
Cash flows from financing activities:
Capital lease payments (124)
Borrowing from affiliate, net 56,110
Repayments of long-term debt obligations (35,228)
Repayments on industrial development notes (1,508)
Capital contribution from parent 22,300
---------
Net cash provided by financing activities 41,550
---------
Net increase in cash and cash equivalents 7,346
Cash and cash equivalents, beginning of year 3,900
---------
Cash and cash equivalents, end of year $ 11,246
=========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 194
Cash paid for income taxes --
Noncash investing and financing activities:
During 2003, postretirement benefit liability increased by $27,382
with a corresponding increase in accumulated other comprehensive
loss of $27,382 related to the recording of an additional
minimum pension liability
See accompanying notes to consolidated financial statements.
F-5
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
(1) ORGANIZATION AND NATURE OF OPERATIONS
J&L Specialty Steel, LLC (J&L or the Company) is a manufacturer of flat
rolled stainless steel. The Company's ultimate parent is Arcelor S.A.
(Arcelor), a Luxembourg corporation. The Company manufactures various
grades of stainless steel in the form of cold rolled stainless steel
sheet and strip, hot rolled stainless steel sheet and strip, and
continuous mill plate, as well as stainless steel slabs. The Company
operates within a single business segment, stainless steel, and
predominantly within a single geographic area, the continental United
States. The Company's stainless steel is used in a wide variety of
industrial, commercial, and consumer products including: pressure
vessels, chemical and refinery equipment, environmental control
equipment, cargo containers, sinks, transportation equipment, beer kegs,
fast food equipment, automated bank teller machines, automobile trim,
exhaust systems, kitchen appliances, and utensils. Approximately 50% of
the Company's products are sold to steel service centers. The remainder
of the Company's products is sold to stainless steel converters,
manufacturers of finished industrial and consumer products, and
exporters.
At present, an integral part of the Company's stainless steel production
process involves the use of a hot strip mill. The Company does not
operate a hot strip mill and maintains tolling arrangements with other
companies for the use of their hot strip mills. The Company's dependence
on these arrangements could subject it to interruption in service due to
strikes and other production disruptions at the providers' facilities,
which are not within the Company's control. Should this interruption
occur, it could have a material adverse effect on the Company's financial
condition and results of operations.
Virtually all of the Company's hourly labor force is represented by the
United Steelworkers of America, AFL-CIO (USWA). The USWA workers located
at the Company's two manufacturing facilities are covered by separate
collective bargaining agreements. Both agreements expire on July 1, 2008.
On March 31, 2003, J&L Specialty Steel, Inc., a Pennsylvania corporation,
was merged into its newly created subsidiary, J&L Specialty Steel, LLC, a
Delaware limited liability company. J&L Specialty Steel, LLC was the sole
surviving entity after the merger. Pursuant to the Plan of Merger, all of
the rights and obligations of J&L Specialty Steel, Inc. were assigned to
and assumed by J&L Specialty Steel, LLC. This merger was undertaken for
various business reasons including tax planning as the Company desired to
transform its business organization from a corporation into a limited
liability company, and a merger was required under state law in order to
effect such a transformation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF CONSOLIDATION AND PRESENTATION
As of December 31, 2003, substantially all of the Company's assets
are held for sale by Arcelor. On February 16, 2004, Arcelor and
the Company entered into an asset purchase agreement with a third
party. Substantially all of the Company's assets and certain
working capital liabilities are covered by the agreement. Since
that date, the parties to the agreement have successfully
completed integration trials, due diligence, antitrust approval,
and agreements in principle for restructured union contracts. The
closing date for the Agreement is scheduled for June 1, 2004.
F-6 (Continued)
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
On December 1, 2003, the Company sold certain of its subsidiaries
to an affiliate. These subsidiaries were not engaged in
steelmaking operations and are not part of the asset purchase
agreement noted above. The change in the specific subsidiaries
comprising the Company's consolidated group is considered a change
in the reporting entity. The results of operations of the sold
subsidiaries have not been included in the Company's consolidated
financial statements.
Except for the subsidiaries noted above, the consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company has
negative working capital and a shareholder's deficit of $(190,154)
and $(351,285), respectively, as of December 31, 2003. The Company
incurred a net loss of $(328,480), including an asset impairment
charge of $242,094, for the year ended December 31, 2003. In
addition, as noted above, substantially all of the Company's
assets are held for sale as of December 31, 2003. These matters
raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.
(B) CASH EQUIVALENTS
Cash equivalents, consisting primarily of commercial paper and
money market funds, are stated at cost, which approximates fair
market value. For purposes of the statement of cash flows, the
Company considers all highly liquid investments with maturity of
three months or less at acquisition to be cash equivalents.
(C) CREDIT CONCENTRATION AND RISK
Customers for the Company's products are principally in the United
States (see note 1). Credit is extended based on an evaluation of
the customer's financial condition and, in general, collateral is
not required.
(D) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
(E) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are initially recorded at cost.
Expenditures for additions and betterments are capitalized, while
those for maintenance and repairs are expensed as incurred.
F-7 (Continued)
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
Depreciation is recorded on the straight-line method over the
estimated useful lives of the assets. All property, plant, and
equipment is held for sale as of December 31, 2003 and is no
longer being depreciated.
(F) LONG-LIVED ASSET IMPAIRMENT
As described in note 2(a), substantially all of the Company's
assets are held for sale as of December 31, 2003. An impairment
charge for all long-lived assets was recorded in December 2003.
The amount of the impairment charge was based on consideration of
the results of a bidding process conducted for the sale of the
Company's assets and the terms of the asset purchase agreement
described in note 2(a). The amount of the impairment charge was
$242,094.
(G) REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product to
customers. A reserve for product claims is recorded based on an
analysis of historical claim activity. All amounts billed to a
customer related to shipping and handling are included in sales
with the corresponding cost included in cost of products sold.
(H) INCOME TAXES
On March 31, 2003, the Company changed from a C-Corporation to an
LLC. As an LLC, there is no tax provision recorded for the period
subsequent to the change to LLC status. The change to LLC status
did not have a significant effect on the Company's financial
statements given the Company's recent losses and since all net
deferred tax assets in existence at the date of change had been
previously reserved through a valuation allowance.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's significant financial instruments consist primarily
of variable rate debt obligations. As a result, the carrying
values of these instruments are not significantly different from
their fair values.
(3) INVENTORIES
Inventory balances as of December 31, 2003 consist of the following:
Raw materials $ 9,744
Work-in-process 95,489
Finished goods 12,840
--------
Total $118,073
========
(4) PROPERTY, PLANT, AND EQUIPMENT
The balance of property, plant, and equipment as of December 31, 2003 of
$550 relates to a plant facility in Detroit. The facility is held for
sale. Substantially all of the Company's remaining property, plant, and
equipment are included in the asset purchase agreement described in note
2 and have been reduced to a
F-8 (Continued)
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
zero value. Depreciation expense for the year ended December 31, 2003 was
$22,710. There was no interest capitalized during 2003. As of December
31, 2003, purchase commitments for capital expenditures were
approximately $1,735.
(5) SHORT-TERM BORROWING FACILITIES
The Company has no credit facilities with any third-party bank as of
December 31, 2003. Short term debt consisted of the following related
party amounts:
Arcelor Treasury SNC $ 262,167
Arcelor Finance SCA 7,007
---------
Total $ 269,174
=========
On July 22, 2002, the Company entered into a Bilateral Cash Management
and Financial Transaction agreement with Arcelor Treasury SNC to provide
virtually all financing for the Company. The lending agreement between
Arcelor and the Company provides for a borrowing interest rate based on
the London Interbank Offering Rate (LIBOR), plus a fixed margin. The
weighted daily average interest rate was 1.61% in 2003 and interest
payable as of December 31, 2003 was $291.
The Company agreed with Arcelor Treasury SNC to amend the Bilateral Cash
Management and Financial Transaction agreement, to not make any
additional loans, and to pay monthly in arrears interest that accrues.
The Company has not repaid any of the principal or made any interest
payments under this agreement as of December 31, 2003. The agreement has
no stated maturity date.
On December 10, 2003, the Company entered into a $15.0 million Revolving
Credit arrangement with Arcelor Finance SCA secured by the Company's
inventory and accounts receivable. The lending agreement between Arcelor
and the Company provides for a borrowing interest rate based on the
LIBOR, plus a fixed margin. The weighted average interest rate was 1.88%
for December. The company has not repaid any of the principal or made any
interest payments under this agreement. Per the agreement, unpaid
interest is added to the outstanding principal amount. The agreement
expires on June 10, 2004.
(6) LONG-TERM DEBT OBLIGATIONS
Long-term debt as of December 31, 2003 consisted of the following:
2% - 4% industrial development notes $3,717
Less: current portion 482
------
Total $3,235
======
On January 6, 2003, the Company repaid its $9,975 7.0% Pollution Control
Refunding Revenue Bonds due June 1, 2002 through June 1, 2008.
F-9 (Continued)
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
On September 22, 2003, the Company repaid its borrowings from a lender
related to accounts receivable related financing. The balance outstanding
as of December 31, 2002 was $26,219.
Maturities of long-term debt in each of the next five years are as
follows: 2004 - $482; 2005 - $483; 2006 - $548; 2007 - $437; 2008 - $450;
and 2009 and thereafter - $1,317.
(7) PENSION AND OTHER POSTRETIREMENT BENEFITS
Information as of December 31, 2003 is as follows:
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
--------- --------------
Accumulated benefit obligation $ 165,764 109,874
Fair value of plan assets 73,464 7,134
--------- ---------
Funded status $ (92,300) (102,740)
========= =========
Accrued benefit cost recognized in the balance sheet $ (92,300) (65,807)
========= =========
Weighted average assumptions:
Discount rate 6.00% 6.00%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 3.00 - 4.00% N/A
For measurement purposes, a 10.0% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2003. The
rate was assumed to decrease gradually to 4.50% for 2010 and remain at
that level thereafter.
During 2003, the Medicare Reform Act (the Act) was passed. The above
measures of benefit obligations and benefit costs do not reflect the
estimated effects of the Act. Specific authoritative guidance on the
accounting for provisions of the Act has been issued and is generally
applicable for reporting periods beginning after June 15, 2004.
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
--------- --------------
Benefit cost $13,671 9,422
Employer contributions 1,718 3,995
Benefits paid 9,156 3,995
The assumptions used at the beginning of 2003 to determine 2003 benefit
cost were a discount rate of 6.75%, expected return on plan assets of
9.0%, and rate of compensation increase of 3.0%.
As of December 31, 2003, postretirement benefits liability includes
$62,800 of additional minimum liability. A corresponding amount has been
recorded as accumulated comprehensive loss.
F-10 (Continued)
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
During 2003, the Company recorded an estimated curtailment loss of
$27,536 since it is probable a curtailment will occur related to the
Company's benefit plans for substantially all employees.
The Company also sponsors defined contribution plans for its employees.
The Company recognized $1,209 of expense related to these plans during
2003.
(8) INCOME TAXES
Subsequent to March 31, 2003, the Company operated as a LLC. As a result,
there is no provision for income tax expense (benefit) for this period
related to the Company's operations.
No provision for income tax expense (benefit) has been recorded for the
first 3 months of 2003 since the Company incurred a loss in this period
and the increase in the deferred tax asset valuation allowance offset any
potential tax benefit.
The $2,367 income tax benefit recorded for 2003 relates to the settlement
with taxing authorities of outstanding issues related to prior years.
(9) RELATED-PARTY TRANSACTIONS
Effective January 1, 2001, the Company entered into three agreements with
an affiliate. The fees for services provided under these agreements
totaled $1,503 for 2003, and are recorded in selling, general, and
administrative expenses in the statement of operations.
The Management Service Agreement encompasses services and assistance
provided by an affiliate, including but not limited to advisory services,
general or specific research, and coordination of business operations.
The contract is automatically renewed each year.
The Research Agreement allows the Company to participate in a group R&D
program. This annual agreement specifies a list of projects to be
developed. The fees paid by the Company are based on the actual level of
spending incurred by affiliates during the year. The Company will be
granted a royalty free user's license with respect to the results of
these endeavors.
The Technical Assistance Agreement provides for all specific individual
agreements, organizing the technical services requested by the Company.
Effective March 1, 2002, the Company entered into a Services Agreement
with Arcelor. This agreement does not cancel or replace any of the
previous agreements and defines the provision of various administrative
services by Arcelor to the Company. The fee for services provided under
this agreement totaled $1,500 for 2003, and are recorded in selling,
general, and administrative expenses in the statement of operations.
In addition to the above mentioned agreements, the Company has purchased
various steel products and other services from Arcelor or its affiliates.
Purchases of steel from Arcelor or its affiliates during 2003 totaled
$11,263. There were no outstanding payables at the end of the year.
Interest expense related to borrowings from affiliates was $4,085 during
2003.
F-11 (Continued)
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
(10) STOCK COMPENSATION PLANS
On February 26, 1999, the Company's board of directors authorized the
adoption of the 1999 Performance Unit Plan (Plan), under which 3,876,300
participant units may be granted to key employees of the Company. A
participant unit entitles the holder to the right to receive an amount
equal to a calculated increase in the fair market value of each unit the
employee holds. The fair market value is derived from a formula using the
Company's earnings multiplied times a share price/earnings ratio selected
by the board of directors of the Company, less the Company's debt.
The table below presents the activity under the Plan:
UNITS UNITS UNITS
DATE OF GRANT PRICE GRANTED FORFEITED OUTSTANDING
------------------------- ------- ------- --------- -----------
February 25, 1999 $ 6.375 319,200 146,400 172,800
June 25, 1999 6.375 22,100 -- 22,100
December 7, 1999 9.300 379,700 137,900 241,800
September 13, 2000 9.300 17,200 -- 17,200
------- ------- -------
738,200 284,300 453,900
======= ======= =======
During 2003, 23,700 units associated with certain management personnel
were forfeited.
No units were exercised in 2003. Participation units vest in one-third
increments on the first three anniversary dates after the date of grant
and have a maximum term of six years.
No compensation expense was recorded in 2003 under the Plan.
(11) COMMITMENTS
The Company has, as of December 31, 2003, $7,006 in standby letters of
credit outstanding with several banks in support of certain Company
obligations.
On June 1, 2002, the Company entered into a 5-year exclusive sole source
contract with a vendor to purchase certain manufacturing support services
for the Company's DRAP Line. The five-year contract contains no minimum
purchase provisions and includes a lien on certain machinery and
equipment.
The Company has $1,179 of cash as of December 31, 2003, which is
restricted for specific use under an escrow agreement and supply contract
with an external party.
The Company leases certain property, plant, and equipment under various
operating lease agreements. The total rent expense for the year ended
December 31, 2003 was $2,364.
Future minimum lease payments required under noncancelable operating
leases that have initial or remaining lease terms in excess of one year
as of December 31, 2003 are: 2004 - $987; 2005 - $834; 2006 - $800; 2007
- $783; 2008 - $759; and thereafter - $2,561.
F-12 (Continued)
J&L SPECIALTY STEEL, LLC
Notes to Consolidated Financial Statements
December 31, 2003
(Dollars in thousands)
Other noncurrent assets and other noncurrent liabilities each include
$1,560 and $1,777 related to capital lease arrangements, respectively.
The underlying interest rates range from 3.81% to 5.7%. Future lease
payments are approximately: 2004 - $219; 2005 - $219; 2006 - $219; 2007 -
$219; 2008 - $219; and thereafter - $1,575.
(12) SUBSEQUENT EVENT
On June 1, 2004, the transaction described in note 2(a) between Arcelor,
the Company, and a third party was completed.
F-13
ITEM 7 (b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
On June 1, 2004, a subsidiary of Allegheny Technologies Incorporated ("ATI")
acquired substantially all of the assets of J&L Specialty Steel, LLC ("J&L"), a
producer of stainless steel. The consideration for the acquisition consisted of
a payment of $7.5 million at closing, the issuance to J&L of a promissory note
in the principal amount of $7.5 million that matures on June 1, 2005, the
issuance to J&L of a promissory note in the principal amount of $52.2 million,
which is subject to adjustment on the terms set forth in the asset purchase
agreement and has a final maturity of July 1, 2011, and the assumption of
certain current liabilities. The transaction was accounted for as a purchase
business combination.
The following unaudited pro forma condensed combined balance sheet gives effect
to the acquisition of certain assets of J&L Specialty Steel, LLC (J&L),
including certain effects of the new labor agreement with United Steel Workers
of America (USWA), as it relates to J&L's employees (as described in the notes
to these unaudited pro-forma condensed combined financial statements), as if
this transaction had occurred on March 31, 2004. The following unaudited
condensed combined statement of operations for the three months ended March 31,
2004 and year ended December 31, 2003 give effect to the transaction as if it
had been consummated at January 1, 2003.
The unaudited pro forma condensed combined financial statements have been
developed from (a) the unaudited consolidated financial statements of Allegheny
Technologies for the three months ended March 31, 2004, and the audited
consolidated financial statements of Allegheny Technologies for the year ended
December 31, 2003, and (b) the unaudited financial statements of J&L for the
three month period ended March 31, 2004 and the audited consolidated statement
of operations of J&L for the year ended December 31, 2003.
The pro forma financial information herein is based on available information and
certain assumptions that management believes are reasonable and which are
described in the accompanying notes. In the opinion of management, all
adjustments have been made to these financial statements to fairly present the
unaudited pro forma condensed combined statements of operations and balance
sheet. The unaudited pro forma condensed combined financial statements are
provided for illustrative purposes only and do not purport to represent what the
actual consolidated results of operations or the consolidated financial position
of Allegheny Technologies would have been had these transactions occurred on the
dates assumed, nor is it necessarily indicative of future consolidated results
of operations or financial position. The pro forma financial information herein
does not give affect to additional cost savings and synergies that the Company
anticipates achieving following the acquisition. A number of factors may affect
ATI's results. The unaudited pro forma condensed combined financial statements
should be read in conjunction with the separate historical consolidated
financial statements and accompanying notes of Allegheny Technologies.
P-1
ALLEGHENY TECHNOLOGIES INCORPORATED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2004
(dollars in millions)
ATI J&L Adjustments Adjusted Pro Forma Pro Forma
Historical Historical to J&L (1) J&L Adjustments ATI
---------- -------- -------- -------- ----------- ----------
ASSETS
Cash and cash equivalents ............... $ 67.3 $ 17.1 $ (17.1) $ - $ (7.5) (2) $ 59.8
Accounts receivable, net ................ 311.0 34.0 - 34.0 - 345.0
Inventories, net ........................ 366.9 88.5 (3.1) 85.4 (1.8) (3)
(1.4) (4) 449.1
Income tax refunds ...................... 0.3 - - - - 0.3
Prepaid expenses and other
current assets ........................ 37.3 2.5 (2.5) - - 37.3
---------- -------- -------- -------- -------- ----------
Total current assets ................ 782.8 142.1 (22.7) 119.4 (10.7) 891.5
Property, plant &
equipment, net ........................ 711.2 0.6 (0.6) - 31.1 (3) 742.3
Cost in excess of net
assets acquired ....................... 206.3 - - - - 206.3
Deferred pension asset .................. 144.0 - - - - 144.0
Deferred income taxes ................... 34.3 - - - - 34.3
Other assets ............................ 62.7 3.3 (2.6) 0.7 1.4 (4) 64.8
---------- -------- -------- -------- -------- ----------
Total assets ............................ $ 1,941.3 $ 146.0 $ (25.9) $ 120.1 $ 21.8 $ 2,083.2
========== ======== ======== ======== ======== ==========
LIABILITIES AND EQUITY
Accounts payable ........................ $ 219.4 $ 33.3 $ - $ 33.3 $ - $ 252.7
Accrued liabilities ..................... 207.5 19.0 (6.5) 12.5 7.4 (3) 227.4
Short term debt and current
portion of long-term debt ............. 21.8 274.7 (274.2) 0.5 7.5 (2)
2.4 (5) 32.2
---------- -------- -------- -------- -------- ----------
Total current liabilities ........... 448.7 327.0 (280.7) 46.3 17.3 512.3
Long-term debt .......................... 512.4 3.1 - 3.1 52.2 (2)
(1.3) (5) 566.4
Accrued postretirement
benefits .............................. 518.0 176.2 (176.2) - 21.9 (3) 539.9
Pension liabilities ..................... 238.6 - - - 238.6
Other long-term liabilities ............. 87.3 3.5 - 3.5 (1.1) (5) 89.7
---------- -------- -------- -------- -------- ----------
Total liabilities ................... 1,805.0 509.8 (456.9) 52.9 89.0 1,946.9
Total equity (deficit) .................. 136.3 (363.8) 431.0 67.2 (67.2) (2) 136.3
---------- -------- -------- -------- -------- ----------
Total liabilities and equity (deficit) .. $ 1,941.3 $ 146.0 $ (25.9) $ 120.1 $ 21.8 $ 2,083.2
========== ======== ======== ======== ======== ==========
P-2
Notes to Unaudited Pro forma Condensed Combined Balance Sheet
(In millions)
(1) Column reflects elimination of assets and liabilities not purchased or
assumed from J&L. The net difference between the assets and
liabilities not purchased or assumed is reflected in stockholders'
equity. ATI purchased the accounts receivable, inventory, and certain
property, plant and equipment. In addition, the Company assumed
certain liabilities consisting primarily of current trade payables and
specific employee liabilities.
(2) Purchase price of J&L, was comprised of:
Cash paid at closing $ 7.5
Note payable on June 1, 2005 7.5
Promissory Note payable through 2011 52.2
-----------------
$ 67.2
=================
The Note payable due June 1, 2005 is non-interest bearing. The source
of funds paid at closing was operating cash flow.
(3) Reflects preliminary purchase price allocations, as follows:
Book value of net assets acquired $ 67.2
Inventory fair value adjustments, net of reclasses (1.8)
Employee and acquisition cost liabilities recorded (a) (7.4)
Other post-employment benefit obligations recorded (a) (21.9)
Fixed asset fair value adjustments 31.1
--------------
Purchase price $ 67.2
==============
(a) Employee liabilities, including other post-retirement benefit
obligations, recorded as conditions precedent to closing.
In accordance with the J&L asset purchase agreement, the purchase
price is subject to adjustment based upon an audit of the working
capital balances. The audit is on-going, and per the terms of purchase
agreement, is required to be completed 60 days post closing.
(4) Balance sheet reclass to conform to ATI presentation.
(5) Reclass of long-term debt and capital lease obligations to short-term
debt based on planned repayments.
P-3
ALLEGHENY TECHNOLOGIES INCORPORATED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(dollars in millions, except per share data)
ATI J&L Pro Forma Pro Forma
Historical Historical Adjustments ATI
---------- ---------- ----------- --------
Sales ................................. $ 577.8 $ 128.3 $ - $ 706.1
Costs and expenses:
Cost of sales ....................... 567.4 117.5 (19.7)(1)
0.7 (2)
0.4 (3) 666.3
Selling and administrative
expenses .......................... 53.7 22.5 - 76.2
--------- --------- ------- --------
Loss before interest, other
income and income taxes ............. (43.3) (11.7) 18.6 (36.4)
Interest expense, net ................. 8.2 0.9 (0.9)(4)
0.4 (5) 8.6
Other income (expense), net ........... 1.1 (0.1) - 1.0
--------- --------- ------- --------
Loss before income tax
provision (benefit) ................. (50.4) (12.7) 19.1 (44.0)
Income tax provision (benefit) ....... - - - -
--------- --------- ------- --------
Net loss .............................. $ (50.4) $ (12.7) $ 19.1 $ (44.0)
========= ========= ======= ========
Basic and diluted net loss per
common share ........................ $ (0.63) $ (0.55)
========= ========
Notes to Unaudited Pro forma Condensed Combined Statement of Operations - Three
Months Ended March 31, 2004
(In millions)
(1) Elimination of historical pension and Other Post-Employment Benefits
("OPEB") expenses for benefit plans not assumed by ATI.
(2) Pension and OPEB expenses under the terms of the new ATI collective
bargaining agreement for hired employees.
(3) Depreciation expense on fair value of property, plant and equipment
acquired.
(4) Elimination of intercompany interest between J&L and its parent
company.
(5) Interest on $52.2M Promissory Note payable related to J&L acquisition.
P-4
ALLEGHENY TECHNOLOGIES INCORPORATED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
(dollars in millions, except per share data)
ATI J&L Pro Forma Pro Forma
Historical Historical Adjustments ATI
----------------- ---------------- --------------- ----------------
Sales .............................. $ 1,937.4 $ 431.6 $ - $ 2,369.0
Costs and expenses:
Cost of sales ...................... 1,873.6 438.8 (23.1) (1)
2.6 (2)
(23.3) (3)
1.7 (4) 2,270.3
Selling and administrative
expenses ......................... 248.8 46.6 (3.0) (5) 292.4
Restructuring costs ................ 62.4 269.6 (242.1) (6)
(27.5) (7) 62.4
----------- ---------- ----------- -----------
Loss before interest, other
income and income taxes ............ (247.4) (323.4) 314.7 (256.1)
Interest expense, net ................ 27.7 4.2 (4.1) (8)
1.5 (9) 29.3
Other income (expense), net .......... (5.1) (3.2) - (8.3)
----------- ---------- ----------- -----------
Loss before income tax
provision (benefit) and
cumulative effect of change
in accounting principle ............ (280.2) (330.8) 317.3 (293.7)
Income tax provision (benefit) ...... 33.1 (2.4) 2.4 (10) 33.1
----------- ---------- ----------- -----------
Net loss before cumulative
effect of change in
accounting principle ............... (313.3) (328.4) 314.9 (326.8)
Cumulative effect of change
in accounting principle ............ (1.3) - - (1.3)
----------- ---------- ----------- -----------
Net loss ............................. $ (314.6) $ (328.4) $ 314.9 $ (328.1)
=========== ========== =========== ===========
Basic and diluted net loss per
common share before
cumulative effect of change
in accounting principle ............ $ (3.87) $ (4.04)
Cumulative effect of change
in accounting principle ............ (0.02) (0.02)
----------- -----------
Basic and diluted net loss per
common share ....................... $ (3.89) $ (4.06)
=========== ===========
P-5
Notes to Unaudited Pro forma Condensed Combined Statement of Operations - Year
Ended December 31, 2003
(In millions)
(1) Elimination of historical Pension and OPEB expenses for benefit plans
not assumed by ATI.
(2) Pension and OPEB expenses under the terms of the new ATI collective
bargaining agreement for hired employees.
(3) Elimination of depreciation & amortization expense recognized by J&L
for 2003 prior to asset impairment charge.
(4) Depreciation expense on fair value of property, plant & equipment
acquired.
(5) Elimination of intercompany management fees paid by J&L to its parent
company.
(6) Pro forma results exclude the 2003 asset impairment charge, as the J&L
Asset Purchase Agreement did not assign any value to the fixed assets
acquired.
(7) Elimination of benefit plan curtailment charge for J&L employee
benefit plans not assumed by ATI.
(8) Elimination of intercompany interest between J&L and its parent
company.
(9) Interest on $52.2 million Promissory Note payable related to J&L
acquisition.
(10) Reversal of J&L income tax benefit.
P-6
SIGNATURES
Pursuant to the requirements 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.
ALLEGHENY TECHNOLOGIES INCORPORATED
By: /s/ Jon D. Walton
--------------------------------------------
Jon D. Walton
Executive Vice President - Human Resources,
Chief Legal and Compliance Officer
Date: July 12, 2004
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
23.1 Consent of KPMG LLP, independent public accountants for J&L
Specialty Steel, LLC, filed herewith.