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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 0-27918
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CENTURY ALUMINUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3070826
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2511 GARDEN ROAD, BUILDING A, SUITE 200,
MONTEREY, CALIFORNIA 93940
(ADDRESS OF REGISTRANT'S PRINCIPAL OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (831) 642-9300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $0.01 PAR VALUE PER SHARE
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 the registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 14, 2001, 20,359,370 shares of common stock of the
registrant were issued and outstanding. Based upon the NASDAQ closing price on
February 14, 2001, the aggregate market value of the common stock held by
non-affiliates of the registrant was $182,986,183.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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PART I.
FORWARD-LOOKING STATEMENTS -- CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995.
This annual report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Words such as "expects," "anticipates,"
"forecasts," "intends," "plans," "believes," "projects," and "estimates" and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements include, but are not limited to,
statements regarding new business and customers, contingencies, environmental
matters and liquidity under "Part I, Item 1 -- Business," "Part II, Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Part II, Item 8 -- Financial Statements and Supplementary
Data." These statements are not guarantees of future performance and involve
risks and uncertainties and are based on a number of assumptions that could
ultimately prove to be wrong. Actual results and outcomes may vary materially
from what is expressed or forecast in such statements. Among the factors that
could cause actual results to differ materially are: general economic and
business conditions; changes in demand for the Company's products and services
or the products of the Company's customers; fixed asset utilization;
competition; the risk of technological changes and the Company's competitors
developing more competitive technologies; the Company's dependence on certain
important customers; the availability and terms of needed capital; risks of loss
from environmental liabilities; and other risks detailed in this report. The
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS
Century Aluminum Company ("Century" or the "Company") is a leading North
American producer of primary aluminum. Century's principal subsidiary, Century
Aluminum of West Virginia, Inc. ("Century of West Virginia"), formerly known as
Ravenswood Aluminum Corporation, owns and operates a reduction facility,
strategically located on the Ohio River in Ravenswood, West Virginia
("Ravenswood"). Century of West Virginia, through its wholly owned subsidiary,
Berkeley Aluminum, Inc. ("Berkeley"), also owns a 49.67% undivided interest in a
reduction facility in Mt. Holly, South Carolina ("Mt. Holly"). The remaining
undivided interest in Mt. Holly is owned by a wholly-owned subsidiary of Alcoa,
Inc. The Alcoa entity also operates Mt. Holly. Century's reduction facilities
have an aggregate annual capacity of approximately 613 million pounds of primary
aluminum. In 2000, Century produced 573 million pounds of primary aluminum. The
Company operates in one business segment.
Prior to April 1996, the Company was an indirect, wholly owned subsidiary
of Glencore International AG ("Glencore" and, together with its subsidiaries,
the "Glencore Group"). In April 1996, the Company completed an initial public
offering of its common stock. At December 31, 2000, the Glencore Group owned 39%
of Century's common shares outstanding.
On August 31, 2000, the Company entered into a stock purchase agreement
with Southwire Company ("Southwire"), a privately held wire and cable
manufacturing company. Under this agreement, the Company anticipates acquiring
all of the outstanding equity securities of Metalsco Ltd., a wholly-owned
subsidiary of Southwire which owns NSA Ltd. ("NSA") an entity that operates an
aluminum reduction plant in Hawesville, Kentucky (the "Hawesville facility").
The Hawesville facility has the capacity to produce 237,000 metric tons (523
million pounds) of primary aluminum per year. The Company also anticipates
acquiring from Southwire, certain land, facilities and rights related to NSA's
aluminum reduction operations which are not held by NSA. The purchase price is
$460.0 million plus the assumption of $7.8 million in industrial revenue bonds
and is subject to certain post-closing adjustments. Following the sale of the
Hawesville facility to the Company, the Company has agreed it will sell molten
metal at a market-based price to Southwire's rod and wire mill which is adjacent
to the Hawesville facility.
The Company and Glencore have entered into a memorandum of understanding
under which Glencore will effectively purchase a 20% undivided interest in the
Hawesville facility. To support the Company's financing of the transaction,
Glencore also will purchase $25.0 million in convertible preferred stock of the
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Company. This stock will have a coupon of 8% and be convertible into the
Company's common stock at a 20% premium over the common stock's average price
during the 20 trading days immediately prior to March 23, 2001. Completion of
the purchase is contingent upon, among other matters, the Company concluding
financing for the acquisition.
Effective April 1, 2000, Century, through its wholly-owned indirect
subsidiary Berkeley, increased its 26.67% undivided interest in Mt. Holly to
49.67% by purchasing a 23% undivided interest from Xstrata AG ("Xstrata"), a
publicly traded Swiss company. As part of the purchase, Berkeley also acquired
Xstrata's 23% interest in the general partnership which operates and maintains
Mt. Holly (the "Operating Partnership", and together with Mt. Holly, the "Mt.
Holly Assets"). Prior to Berkeley's purchase of the Mt. Holly Assets, it held a
26.67% undivided interest in Mt. Holly and in the Operating Partnership.
Glencore is a major shareholder of Xstrata. The sale was completed pursuant to
an Asset Purchase Agreement dated as of March 31, 2000 (the "Mt. Holly Purchase
Agreement") by and between Berkeley and Xstrata. The aggregate purchase price
for the Mt. Holly Assets was $94.7 million. Under the terms of the Mt. Holly
Purchase Agreement, Berkeley agreed to assume certain of Xstrata's obligations
and liabilities relating to the Mt. Holly Assets. The terms of the Mt. Holly
Purchase Agreement were determined through arms'-length negotiations between the
parties. The Company used available cash to complete the purchase. Mt. Holly has
the capacity to produce up to 480 million pounds of primary aluminum per year.
Century's 49.67% ownership represents 238.4 million pounds of this capacity.
On September 21, 1999, the Company completed the sale to Pechiney Rolled
Products, LLC, a Delaware limited liability company ("Pechiney"), of certain
assets and the assumption of certain liabilities of Century of West Virginia's
rolled products unit at Ravenswood, West Virginia (the "Rolling Business") and
all of the issued and outstanding shares of common stock of Century Cast Plate,
Inc. (together the "fabricating businesses"). In connection with the sale of the
fabricating businesses, Century of West Virginia and Pechiney entered into a
Molten Aluminum Purchase Agreement dated as of September 21, 1999 (the "Metal
Agreement"). Pursuant to the Metal Agreement, Pechiney has agreed to purchase,
and Century of West Virginia has agreed to provide, approximately 320 million
pounds of molten aluminum produced at Ravenswood for a price which is variable
and determined by reference to a U.S. Midwest Market Index. In addition,
Pechiney has agreed to provide casting services to Century of West Virginia in
connection with the excess molten aluminum produced at Ravenswood which is not
purchased by Pechiney under the Metal Agreement.
Ravenswood produces primary aluminum in molten and ingot form. Molten metal
is delivered to the casting operation sold by the Company to Pechiney. Ingot
produced by Ravenswood is primarily delivered to customers other than Pechiney.
Through its interest in the Mt. Holly Facility, Century produces primary
aluminum products in the form of t-ingot, extrusion billet, rolling ingot and
foundry ingot. Extrusion billet and other shaped primary aluminum products are
considered to be premium products and, accordingly, sell at a premium to the
commodity-priced aluminum ingot. The Mt. Holly Facility, constructed in 1980, is
the most recently built reduction facility in the United States.
Since January 1, 1996, Century's requirements for alumina, the raw material
used by its reduction facilities to produce primary aluminum, have been
purchased pursuant to a long-term fixed-price supply agreement with Alcoa L.L.C.
and Alcoa Australia. This supply agreement will terminate at the end of 2001 and
be replaced by a new long-term alumina supply agreement between the Company and
Glencore. This new alumina supply agreement provides for a fixed quantity of
alumina at prices determined by a market based formula. In conjunction with the
purchase of an additional 23% ownership interest in Mt. Holly, the Company
assumed an alumina supply agreement, also with Glencore, that provides for a
fixed quantity of alumina at prices determined by a market based formula. The
Company uses significant amounts of electricity in the aluminum reduction
process. To fulfill its power requirements at Ravenswood, the Company purchases
electricity from Ohio Power under a long-term, fixed price power supply
agreement. Electrical power for Mt. Holly is provided pursuant to a contract
with the South Carolina Public Service Authority. That contract provides fixed
pricing but is subject to modification for fuel adjustments and demand sales.
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Subsequent to the purchase of an additional 23% interest in Mt. Holly from
Xstrata, the Company entered into a ten year agreement with Glencore to sell
approximately 110.0 million pounds of primary aluminum products per year.
Selling prices for 2000 and 2001 are determined by a market based formula.
Selling prices for the years 2002 through 2009 are at a fixed price as defined
in the agreement.
INDUSTRY OVERVIEW
The aluminum industry is highly cyclical, and the market prices of alumina
and primary aluminum (which is traded as a commodity) have been volatile from
time to time. The most commonly used indicator for pricing primary aluminum is
the price per metric tonne for transactions on the London Metals Exchange
("LME"). The LME price does not represent the actual price for the Company's
products; rather, it is the most commonly used benchmark for pricing primary
aluminum in the aluminum industry. Because primary aluminum is an actively
traded commodity, prices have fluctuated widely. Over the past 10 years, the
average LME cash price has ranged from a low of $0.52 per pound in 1993 to a
high of $0.82 per pound in 1995.
In 1998, selling by investment funds, consumer hesitation in anticipation
of lower prices and economic uncertainty in Asian markets depressed the LME cash
price. Prices continued to decline early in 1999 but rebounded as the year
progressed, primarily due to improving worldwide economic conditions. In 2000,
prices continued to improve during the first quarter but softened somewhat for
the rest of the year. The average LME cash price was $0.70, $0.62 and $0.62 per
pound for the years ended December 31, 2000, 1999 and 1998, respectively.
PRODUCTS AND MARKETS
The Company produces and sells primary aluminum, including premium primary
product such as rolling ingot and extrusion billet.
The Company's strategy is to maximize smelter productivity and minimize
related operating costs. The Company intends to implement this strategy through
process improvement initiatives and strategic acquisitions which reduce its
overall cost of producing molten metal. For instance, the recent acquisition of
Xstrata's interest in Mt. Holly increased the Company's capacity by
approximately 110 million pounds and reduced its overall average cash cost of
production. The Company expects the acquisition of NSA, if completed, will
further reduce its overall average cash cost of production.
COMPETITION
The market for primary aluminum is diverse and highly competitive. The
Company competes in the production and sale of primary aluminum with numerous
other producers in North America and with imported products, principally from
Europe, Venezuela and the Commonwealth of Independent States. The Company
competes on the basis of quality, price, timeliness of delivery and customer
service. Some of the Company's competitors have substantially greater
manufacturing and financial resources, and some have cost structures with
respect to alumina, electricity and labor that are more advantageous than those
of the Company. Among the Company's principal competitors are Alcoa, Alcan and
Kaiser Aluminum.
Aluminum also competes with other materials such as steel, plastic and
glass for various applications. Higher or lower aluminum prices tend to make
aluminum products less or more competitive with these alternative materials.
PRICING
Century offers a number of pricing alternatives to its customers which,
combined with the Company's metals risk management program, are designed to
lock-in a certain level of price stability on its primary aluminum production.
Pricing of the Company's products is generally offered on the following
bases: (i) a fixed-price basis, where the customer pays an agreed upon price
over an extended period of time but usually less than one year or (ii) an
indexed price, where the customer pays an agreed-upon differential that is added
to an established
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index, such as the LME. The Company's shipments to Pechiney are priced on an
indexed basis as defined in the Metal Agreement and the Company has a contract
with Glencore to ship 110 million pounds per year through 2009 priced on a
market index basis for the first two years and a fixed price for 2002 through
2009.
SALES
Century serves customers principally in the industrial sector of the
economy. There can be no assurance that any of the Company's major customers
will continue to purchase their aluminum requirements from the Company at
current volumes. Therefore, the loss of any of these customers, or a significant
reduction in the amount of business they do with us, could have a material
adverse effect on our operating results. For financial information regarding
export sales, see Note 16 to the Consolidated Financial Statements.
Sales of primary aluminum products to the Glencore Group amounted to $129.3
million, $68.8 million and $74.3 million for the years ended 2000, 1999 and
1998, respectively. Sales to the Glencore Group represented 30.2%, 12.1% and
11.4% of the net sales of the Company for the years ended 2000, 1999 and 1998,
respectively. The Glencore Group has priced and unpriced agreements with the
Company to purchase, on an arms-length basis, approximately 1.0 billion pounds
of primary aluminum products during 2001 through 2009. However, there can be no
assurance that the Company will continue to do business with the Glencore Group
beyond the existing agreements.
BACKLOG
Backlog is not a significant measure for the Company since primary aluminum
is an actively traded commodity.
ENVIRONMENTAL MATTERS
The Company spends significant amounts for compliance with environmental
laws and regulations. For the years ending December 31, 2001, 2002, and 2003 the
Company has planned environmental capital expenditures of approximately $1.8
million, $4.5 million and $3.9 million, respectively. In addition, the Company
expects to incur operating expenses relating to environmental matters of
approximately $4.9 million in each of the years ending December 31, 2001, 2002
and 2003. As part of its general capital expenditure plan, the Company also
expects to incur capital expenditures for other capital projects that may, in
addition to improving operations, reduce certain environmental impacts. See Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental Expenditures and Other Contingencies."
The 1990 amendments to the Clean Air Act impose stringent standards on
aluminum industry air emissions. These amendments will affect the operations of
the Company's facilities. Technology-based standards relating to smelters and
carbon plants have been promulgated. However, the Company cannot predict the
total expenditures the Company will incur to comply with these standards. The
Company's general capital expenditure plan includes certain projects designed to
improve the Company's compliance with respect to both known and anticipated
requirements.
Pursuant to an Environmental Protection Agency ("EPA") order issued in 1994
under Section 3008(h) (the "3008(h) order") of the Resource Conservation and
Recovery Act ("RCRA"), Century of West Virginia is performing remediation
measures at a former oil pond area and in connection with cyanide contamination
in the groundwater. Century of West Virginia also conducted and, in December
1999, submitted to the EPA a RCRA facility investigation ("RFI") evaluating
other areas that may have contamination exceeding certain levels. After the RFI
is complete, Ravenswood will have 60 days within which to submit a corrective
measures study ("CMS") to the EPA proposing means of remediating areas that may
require cleanup. If any cleanup is required, EPA would issue a subsequent order.
Ravenswood believes this process will not be completed before mid 2001. The
Company is aware of some environmental contamination at Ravenswood, and it is
likely cleanup activities will be required in two areas of the facility.
Ravenswood believes a significant portion of this contamination is attributable
to the operations of a prior owner and will be the financial responsibility of
that owner, as discussed below.
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Prior to the Company's acquisition of Ravenswood, Kaiser Aluminum &
Chemical Corporation ("Kaiser") owned and operated the facility for
approximately thirty years. Many of the conditions which Century of West
Virginia investigated under the 3008(h) order exist because of activities which
occurred during Kaiser's ownership and operation. With respect to those
conditions, Kaiser will be responsible for the costs of required cleanup under
the terms of the Kaiser Purchase Agreement. In addition, Kaiser retained title
to certain land within the Ravenswood premises and retains full responsibility
for those areas. Under current environmental laws, the Company may be required
to remediate any contamination which was discharged from areas which Kaiser owns
or previously owned or operated. However, if such remediation is required, the
Company believes Kaiser will be liable for some or all of the costs thereof
pursuant to the Kaiser Purchase Agreement.
In connection with the sale to Pechiney of the fabricating businesses, the
Company and Century of West Virginia provided Pechiney with certain
indemnifications. Those include the indemnification rights Century of West
Virginia and the Company, respectively, have under the Kaiser Purchase Agreement
(with respect to the real property transferred to Pechiney) and the Company's
Cast Plate, Inc., Stock Purchase Agreement with Alcoa. The Pechiney Purchase
Agreement provides further indemnifications which are limited, in general, to
pre-closing conditions which were not disclosed to Pechiney or to off site
migration of hazardous substances from pre-closing acts or omissions of Century
of West Virginia. Environmental indemnifications under the Pechiney Purchase
Agreement expire September 20, 2005. They are payable only to the extent they
exceed $2 million.
The Company, together with all other past and present owners of an alumina
facility at St. Croix, Virgin Islands, has entered into an Administrative Order
on Consent with the Environmental Protection Agency ("Order") pursuant to which
the signatories have agreed to carry out a Hydrocarbon Recovery Plan to remove
and manage oil floating on top of groundwater underlying the facility. Recovered
hydrocarbons and groundwater will be delivered to the adjacent petroleum
refinery where they will be received and managed. The owner of the petroleum
refinery will compensate the other signatories by paying them the fair market
value for the petroleum recovered. Lockheed Martin Corporation ("Lockheed"),
which sold the facility to one of the Company's affiliates, Virgin Islands
Alumina Corporation ("Vialco") in 1989, has tendered indemnity and defense of
this matter to Vialco pursuant to terms of the Lockheed -- Vialco Asset Purchase
Agreement. The Company also gave certain environmental indemnity rights to St.
Croix Alumina, LLC ("St. Croix"), an indirect affiliate of Alcoa, Inc., when it
sold the facility to St. Croix. Those rights extend only to environmental
conditions arising from Vialco's operation of the facility and then only after
St. Croix has spent $0.3 million on such conditions. Management does not believe
Vialco will have any indemnification obligation to St. Croix arising out of the
Order. Further, management does not believe Vialco's liability under this Order
will have a material adverse effect on the Company's financial condition,
results of operations, or liquidity.
It is the Company's policy to accrue for costs associated with
environmental assessments and remedial efforts when it becomes probable that a
liability has been incurred and the costs can be reasonably estimated. The
aggregate environmental related accrued liabilities were $0.9 million at
December 31, 2000 and 1999. All accruals have been recorded without giving
effect to any possible recoveries. With respect to ongoing environmental
compliance costs, including maintenance and monitoring, such costs are expensed
as incurred.
Because of the issues and uncertainties described above, and the Company's
inability to predict the requirements of the future environmental laws, there
can be no assurance that future capital expenditures and costs for environmental
compliance will not have a material adverse effect on the Company's future
financial condition, results of operations, or liquidity. Based upon all
available information, management does not believe that the outcome of these
environmental matters, or environmental matters concerning Mt. Holly, will have
material adverse effect on the Company's financial condition, results of
operations, or liquidity.
RESEARCH AND DEVELOPMENT
Century performs ongoing process development work primarily using in-house
engineering resources. The Company has most recently been focusing on efforts to
refine the computer control of pots and to reduce
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electricity usage by using different anode stub configurations. Expenditures for
third-party research and development totaled $0.8 million and $1.7 million in
1999 and 1998, respectively. No third-party expenditures were incurred in 2000
and none are planned for 2001.
PATENTS AND TRADEMARKS
The Company owns or has rights to use a number of patents or patent
applications relating to various aspects of its operations. The Company does not
consider its business to be materially dependent on any of these patents.
EMPLOYEES AND LABOR RELATIONS
The Company currently employs approximately 690 persons. Century of West
Virginia's present work force is comprised of approximately 556 hourly
employees, represented by the United Steelworkers of America ("USWA"), and
approximately 120 salaried personnel. The corporate office is comprised of 14
salaried personnel. Century of West Virginia's hourly employees are currently
working under a four year labor agreement with the USWA which expires on May 31,
2003. Mt. Holly is operated by a 659 person workforce employed by Alcoa. The
approximately 422 hourly employees at Mt. Holly are not represented by a labor
union.
Century maintains noncontributory defined benefit pension plans,
postretirement healthcare and life insurance benefit plans and defined
contribution 401(k) plans for its salaried and hourly employees. Management
believes that its relations with its employees are good.
ITEM 2. PROPERTIES
Century of West Virginia's facility houses the Company's principal
operations. The facility occupies 350 acres on a site totaling 2,290 acres
strategically located on the Ohio River near Ravenswood, West Virginia, 165
miles southwest of Pittsburgh, Pennsylvania and 45 miles north of Charleston,
West Virginia.
The Company's reduction facilities at Ravenswood and Mt. Holly have an
aggregate annual capacity of approximately 613 million pounds of primary
aluminum.
Century of West Virginia's reduction facility, which was built in 1955, has
an annual production capacity of approximately 375 million pounds and produces
primary aluminum. Approximately 320 million pounds of Century of West Virginia's
production is used to satisfy the primary aluminum requirements of Pechiney with
the balance sold in the form of sow to other outside parties.
Mt. Holly was constructed in 1980 and is the most recently constructed
reduction facility in the United States. Mt. Holly has a total production
capacity of approximately 480 million pounds, of which Century owns a 49.67%
undivided interest. The remaining undivided interest in Mt. Holly is owned by
Alumax of South Carolina, Inc. ("ASC"), a subsidiary of Alcoa. ASC manages and
operates the facility pursuant to an Owners Agreement, prohibiting the disposal
of the interest held by any of the owners without the consent of the other
owners and providing for certain rights of refusal. Pursuant to the Owners
Agreement, each owner furnishes its own alumina, or alumina owned by an
affiliate, for conversion to aluminum and is responsible for its pro rata share
of the operating and conversion costs.
Equipment failures at Ravenswood or at Mt. Holly could limit or shut down
the Company's production for a significant period of time. In order to minimize
the risk of equipment failure, the Company follows a comprehensive maintenance
and loss prevention program and periodically reviews its failure exposure. No
assurance can be given that a material shutdown will not occur in the future or
that such a shutdown would not have a material adverse effect on the Company. In
addition to equipment failures, the facilities are also subject to the risk of
catastrophic loss. The Company believes that it maintains adequate property
damage insurance to provide for reconstruction of damaged equipment, as well as
business interruption insurance to mitigate losses resulting from any production
shutdown caused by an insured loss.
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ITEM 3. LEGAL PROCEEDINGS
While Century of West Virginia has been a named defendant (along with many
other companies) in approximately 2,362 civil actions brought by employees of
third party contractors who allege asbestos-related diseases arising out of
exposure at facilities where they worked, including Ravenswood, all of those
actions relating to the Ravenswood facility have been settled as to the Company
and as to Kaiser. Approximately 10 of those civil actions alleged exposure
during the period the Company owned Ravenswood, and the Company has agreed to
settlements for non-material amounts. The Company is awaiting receipt of final
documentation of those settlements and entry of dismissal orders. Management
believes there are no unsettled asbestos cases pending against the Company.
The Company has pending against it or may be subject to various other
lawsuits, claims and proceedings related primarily to employment, commercial,
environmental and safety and health matters. Although it is not presently
possible to determine the outcome of these matters, management believes their
ultimate disposition will not have a material adverse effect on the Company's
financial condition, results of operations, or liquidity. For a description of
certain environmental matters involving the Company, see Item 1 "Environmental
Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the Company. Each of such persons serves at the discretion of the
Board of Directors.
BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE DURING THE PAST 5 YEARS; POSITIONS HELD WITH COMPANY
- ---- --- ------------------------------------------------------------
Craig A. Davis................. 60 Chairman and Chief Executive Officer of the Company and
Chairman and Chief Executive Officer of Century Aluminum of
West Virginia for more than five years.
Gerald A. Meyers............... 51 President and Chief Operating Officer of the Company and
President and Chief Operating Officer of Century Aluminum of
West Virginia for more than five years.
Gerald J. Kitchen.............. 60 Executive Vice President, General Counsel and Chief
Administrative Officer of the Company and General Counsel
and Chief Administrative Officer of Century Aluminum of West
Virginia for more than five years.
David W. Beckley............... 56 Executive Vice President and Chief Financial Officer of the
Company and Vice President and Chief Financial Officer of
Century Aluminum of West Virginia for more than five years.
E. Jack Gates.................. 59 Vice President of the Company and Century Aluminum of West
Virginia since December 2000; various positions with
Reynolds Metals Company from 1964 through April 1997;
President and Chief Executive Officer of F.G. Pruitt, Inc.
(a land management and construction management company) from
June 1997 until December 2000.
Daniel J. Krofcheck............ 47 Vice President and Treasurer of the Company since September
1998; Treasurer of the Company from September 1997 through
August 1998; various positions with H.J. Heinz Company from
1988 through September 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASDAQ National Market tier of the
NASDAQ Stock Market under the Symbol: CENX. The following table sets forth, on a
quarterly basis, the high and low sales prices of the Common Stock during the
two most recent fiscal years.
HIGH LOW
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2000
First Quarter............................................. $16.88 $11.94
Second Quarter............................................ $15.44 $10.19
Third Quarter............................................. $13.63 $11.69
Fourth Quarter............................................ $12.56 $ 6.94
1999
First Quarter............................................. $ 9.88 $ 4.19
Second Quarter............................................ $ 9.00 $ 5.13
Third Quarter............................................. $11.88 $ 6.25
Fourth Quarter............................................ $15.13 $ 8.75
The Company declared and paid dividends of $0.20 per share of Common Stock
during 2000 and 1999. The Company's amended loan agreement contains, among other
things, restrictions on the payment of dividends by the Company. See Note 5 to
the Consolidated Financial Statements.
At December 31, 2000, there were 25 holders of record and approximately
1000 beneficial owners of the Company's common stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the years indicated. The selected consolidated financial data for
and as of the end of each of the years in the three-year period ended December
31, 2000 are derived from the Consolidated Financial Statements of the Company
included elsewhere herein which have been audited by Deloitte & Touche LLP. The
selected consolidated financial data for and as of the years ended December 31,
1997 and 1996 is derived from the audited consolidated financial statements of
the Company which are not included herein. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto appearing in Items 7 and 8, respectively.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000(2) 1999(1) 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales -- third party customers............. $299,277 $497,475 $576,006 $615,467 $550,168
Net sales -- related parties................... 129,320 68,801 74,252 105,521 138,711
-------- -------- -------- -------- --------
Total net sales................................ 428,597 566,276 650,258 720,988 688,879
Cost of goods sold(4).......................... 396,139 572,921 611,796 691,887 636,486
-------- -------- -------- -------- --------
Gross profit (loss)............................ 32,458 (6,645) 38,462 29,101 52,393
Selling, general and administrative expenses... 13,931 18,884 19,246 17,948 18,614
-------- -------- -------- -------- --------
Operating income (loss)........................ 18,527 (25,529) 19,216 11,153 33,779
Gain on sale of fabricating businesses......... 5,156 41,130 -- -- --
Interest income (expense) -- net............... 2,267 (3,535) (2,204) (3,066) (2,058)
Other income (expense)(3)...................... 6,461 (789) 553 419 91
Net gain (loss) on forward contracts........... 4,195 (5,368) 10,574 (6,837) (6,670)
-------- -------- -------- -------- --------
Income from continuing operations before income
taxes and extraordinary item................. 36,606 5,909 28,139 1,669 25,142
Income tax expense............................. (11,301) (628) (10,202) (601) (8,902)
-------- -------- -------- -------- --------
Income from continuing operations before
extraordinary item........................... 25,305 5,281 17,937 1,068 16,240
Extraordinary item -- write off of deferred
bank fees, net of income tax benefit of
$766......................................... -- (1,362) -- -- --
-------- -------- -------- -------- --------
Income from continuing operations.............. 25,305 3,919 17,937 1,068 16,240
Income from discontinued operations -- net of
income taxes................................. -- -- -- -- 264
-------- -------- -------- -------- --------
Net income..................................... $ 25,305 $ 3,919 $ 17,937 $ 1,068 $ 16,504
======== ======== ======== ======== ========
BASIC EARNINGS PER SHARE:
Income from continuing operations before
extraordinary item........................... $ 1.25 $ 0.26 $ 0.90 $ 0.05 $ 0.78
Extraordinary item............................. -- (0.07) -- -- --
Income from continuing operations.............. 1.25 0.19 0.90 0.05 0.78
Income from discontinued operations............ -- -- -- -- 0.01
-------- -------- -------- -------- --------
Net income..................................... $ 1.25 $ 0.19 $ 0.90 $ 0.05 $ 0.79
======== ======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Income from continuing operations before
extraordinary item........................... $ 1.24 $ 0.26 $ 0.89 $ 0.05 $ 0.78
Extraordinary item............................. -- (0.07) -- -- --
-------- -------- -------- -------- --------
Income from continuing operations.............. 1.24 0.19 0.89 0.05 0.78
Income from discontinued operations............ -- -- -- -- 0.01
-------- -------- -------- -------- --------
Net income..................................... $ 1.24 $ 0.19 $ 0.89 $ 0.05 $ 0.79
======== ======== ======== ======== ========
Cash dividends declared and paid per common
share.......................................... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.15
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YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000(2) 1999(1) 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................ $ 76,701 $124,391 $188,156 $180,524 $170,037
Total assets................................... 333,770 310,802 545,630 507,148 473,731
Long-term debt................................. -- -- 89,389 58,950 24,356
Total noncurrent liabilities................... 74,511 58,831 252,782 220,604 190,092
Total shareholders' equity..................... 202,639 179,728 177,483 163,546 166,478
- ---------------
(1) On September 21, 1999, the Company sold its fabricating businesses to
Pechiney. Accordingly, the results of operations for 1999 do not include the
fabricating businesses after such date. Similarly, balance sheet data as of
December 31, 1999 does not include the fabricating businesses.
(2) Effective April 1, 2000, the Company purchased an additional 23% interest in
Mt. Holly. Accordingly, the results of operations for 2000 include the
additional interest beginning from such date. Also, balance sheet data as of
December 31, 2000 includes the additional interest in Mt. Holly.
(3) Included in other income for the year ended December 31, 2000 is
approximately $6.1 million received in partial settlement of the Company's
approximately $10.0 million claim with the Company's insurance carrier for
property damage and business interruption losses resulting from an illegal
strike at the Ravenswood facility in August 1999.
(4) Cost of goods sold in 2000 has been reduced by $1.8 million for alumina
sales.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial Statements
of the Company, including the notes thereto, appearing in Item 8.
OVERVIEW
The Company is a manufacturer of primary aluminum and the Company's net
sales are derived from the sale of such primary aluminum.
On September 21, 1999, the Company and Century of West Virginia sold their
fabricating businesses. Accordingly, the following information includes the
operations of these businesses through September 21, 1999.
Effective April 1, 2000, the Company purchased an additional 23% interest
in Mt. Holly for cash consideration of $94.7 million. This purchase increased
Century's ownership to 49.67%. Mt. Holly has the capacity to produce up to 480
million pounds of primary aluminum per year. Century's ownership represents
238.4 million pounds of this capacity.
On August 31, 2000, the Company entered into a stock purchase agreement
with Southwire. Under this agreement, the Company anticipates acquiring all of
the outstanding equity securities of Metalsco Ltd., a wholly-owned subsidiary of
Southwire which owns NSA, an entity that owns and operates the Hawesville
facility. The Hawesville facility has the capacity to produce 237,000 metric
tons (523 million pounds) of primary aluminum per year.
The Company also anticipates acquiring from Southwire, certain land,
facilities and rights related to NSA's aluminum reduction operations which are
not held by NSA. The purchase price is $460.0 million plus the assumption of
$7.8 million in industrial revenue bonds and is subject to certain post-closing
adjustments.
The Company and Glencore have entered into a memorandum of understanding
under which Glencore will effectively purchase a 20% undivided interest in the
Hawesville facility. To support the Company's financing of the transaction,
Glencore also will purchase $25.0 million in convertible preferred stock of the
Company. This stock will have a coupon of 8% and be convertible into the
Company's common stock at a 20% premium over the common stock's average price
during the 20 trading days immediately prior to the closing of the acquisition.
Completion of the purchase is contingent upon, among other matters, the Company
concluding financing for the acquisition.
The aluminum industry is highly cyclical and the market price of primary
aluminum (which trades as a commodity) is determined by worldwide supply and
demand conditions, and as such, is highly volatile. For example, over the past
13 years, the average LME cash price has ranged from a low of $0.52 per pound in
1993 to a high of $1.17 per pound in 1988. The cash price for primary aluminum
traded on the LME has averaged $.70, $0.62 and $0.62 per pound for the years
2000, 1999, and 1998, respectively. The Company's results of operations depend
to a large degree on the market prices of primary aluminum. Any adverse changes
in the conditions that affect the market price of primary aluminum could have a
material adverse affect on the Company's results of operations.
Of the approximately 369 million pounds of primary aluminum produced at
Century of West Virginia's reduction facility in 2000, approximately 323 million
pounds was used by Pechiney, with the balance sold primarily to the Glencore
Group and third parties at market prices. The Company's interest in Mt. Holly
amounted to approximately 205 million pounds of primary aluminum production in
2000. During 2000, Glencore purchased 141.9 million pounds of primary aluminum
that was produced at Mt. Holly. Century's remaining share of Mt. Holly's
production was sold to third parties. In total, the Company shipped 177.9
million pounds of primary aluminum products to the Glencore Group in 2000.
Revenues from these shipments amounted to $129.3 million (representing 30.2% of
2000 net sales). The Glencore Group has priced and unpriced agreements with the
Company to purchase, on an arms length basis, approximately 1.0 billion pounds
of primary aluminum products during 2001 through 2009.
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The principal elements comprising the Company's cost of goods sold are raw
materials, energy and labor. The major raw materials and energy sources used by
the Company in its production process are alumina, coal tar pitch, petroleum
coke, aluminum fluoride and electricity. The market price of alumina has been
volatile from time to time. Pursuant to the terms of an alumina supply agreement
with Alcoa since January 1, 1996, Century has paid a fixed price for alumina,
subject to fixed annual price increases of approximately 2.5%. This agreement
will expire at the end of 2001 and be replaced by a new long-term supply
agreement with Glencore. This new agreement provides for a fixed quantity of
alumina at prices determined by a market-based formula. In addition, as part of
its acquisition of an additional 23% interest in Mt. Holly, the Company assumed
a supply agreement with Glencore for the alumina raw material requirements
relative to the additional interest. The unit cost is also determined by a
market based formula. This alumina supply agreement expires in 2008.
The Company uses significant amounts of electricity in the aluminum
reduction process. A shortage of electrical power at affordable rates has caused
a number of the Company's competitors to curtail production at certain of their
reduction facilities. Due to the general availability of power and the Company's
use of fixed contract pricing, no such curtailment is anticipated at either of
the Company's facilities.
To fulfill its power requirements at Ravenswood, the Company purchases
electricity from Ohio Power at a fixed price pursuant to a power supply
agreement which terminates on July 31, 2003. Since, under the terms of the
agreement, the power rate is fixed, the Company's margins could be adversely
affected if aluminum prices decrease. Power for Mt. Holly is provided under a
contract with the South Carolina Public Service Authority. That contract
provides fixed pricing but is subject to modification for fuel adjustments and
demand sales. It terminates December 31, 2005.
On June 1, 1999, the Company entered into a new four year labor contract
with its hourly workers at Ravenswood. The agreement calls for fixed increases
in hourly wages in 1999, 2000, 2001 and 2002.
In August 1999, an illegal, one-day work stoppage temporarily shut down one
of the Company's four production lines at Ravenswood. The cost of this work
stoppage is estimated to be approximately $10.0 million including equipment
damaged as a result of the production line shutdown. The Company has filed a
claim with its insurance carrier for business interruption and equipment damage
relative to the work stoppage and has received partial settlement of
approximately $6.1 million from the carrier as of December 31, 2000.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the percentage
relationship to net sales of certain items included in the Company's statements
of operations.
PERCENTAGE OF NET SALES
-----------------------
2000 1999 1998
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 92.4 101.2 94.1
----- ----- -----
Gross profit (loss).................................... 7.6 (1.2) 5.9
Selling, general and administrative expenses................ 3.3 3.3 3.0
----- ----- -----
Operating income (loss)................................ 4.3 (4.5) 2.9
Gain on sale of fabricating businesses...................... 1.2 7.2 --
Interest income (expense) -- net............................ 0.5 (0.6) (0.3)
Other income (expense)...................................... 1.5 (0.1) 0.1
Net gain (loss) on forward contracts........................ 1.0 (1.0) 1.6
----- ----- -----
Income from continuing operations before income taxes....... 8.5 1.0 4.3
Income tax expense.......................................... (2.6) (0.1) (1.6)
----- ----- -----
Income from continuing operations before extraordinary
item................................................... 5.9% 0.9% 2.7%
===== ===== =====
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The following table sets forth, for the periods indicated, the pounds and
the average sales price per pound for certain of the Company's products:
SHEET AND PLATE PRODUCTS PRIMARY ALUMINUM
----------------------------------------- -------------------
DIRECT(1) TOLL DIRECT(1)(2)
------------------- ------------------ -------------------
POUNDS $/POUNDS POUNDS $/POUNDS POUNDS $/POUNDS
------- -------- ------ -------- ------- --------
(POUNDS IN THOUSANDS)
2000
First Quarter.......... -- -- -- -- 128,082 $0.75
Second Quarter......... -- -- -- -- 149,530 $0.73
Third Quarter.......... -- -- -- -- 151,219 $0.73
Fourth Quarter......... -- -- -- -- 152,787 $0.73
------- ----- ------ ----- ------- -----
Total............... -- -- -- -- 581,618 $0.74
1999
First Quarter.......... 113,751 $1.18 4,405 $0.25 122,250 $0.63
Second Quarter......... 113,579 $1.17 2,357 $0.23 131,018 $0.63
Third Quarter (3)...... 100,339 $1.16 1,818 $0.23 116,583 $0.66
Fourth Quarter......... -- $ -- -- $ -- 115,991 $0.70
------- ----- ------ ----- ------- -----
Total............... 327,669 $1.17 8,580 $0.24 485,842 $0.65
1998
First Quarter.......... 114,618 $1.23 7,154 $0.31 123,584 $0.75
Second Quarter......... 103,355 $1.23 9,592 $0.26 123,620 $0.72
Third Quarter.......... 109,205 $1.20 6,718 $0.29 128,652 $0.68
Fourth Quarter......... 106,437 $1.19 4,778 $0.38 120,650 $0.68
------- ----- ------ ----- ------- -----
Total............... 433,615 $1.21 28,242 $0.30 496,506 $0.71
- ---------------
(1) Does not include materials and products processed by the Company for a fee
("tolling") and forward sales contracts without physical delivery.
(2) For the years 1999 and 1998, the primary aluminum segment includes
intersegment sales to the sheet and plate products segment.
(3) The Company sold its fabricating businesses to Pechiney in September 1999.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Sales. Consolidated net sales decreased 24.3% to $428.6 million in
2000 from $566.3 million in 1999. The decrease was primarily the result of the
sale of the Company's former fabricating businesses in September 1999, partially
offset by increased average unit selling prices, higher primary aluminum
shipments and the acquisition of an additional interest in Mt. Holly in April
2000. Shipments in 1999 were impacted by the illegal strike at Century of West
Virginia's Ravenswood facility in August 1999.
Gross Profit and Loss. Gross profit for the year ended December 31, 2000
was $32.5 million compared to a loss of $6.6 million for the year ended December
31, 1999. The increase in gross profit from 1999 to 2000 was primarily due to
higher unit selling prices, increased shipments, reduced charges for inventory
writedowns and sales of alumina.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses decreased 26.5% to $13.9 million in 2000
from $18.9 million in 1999. The decrease was due to the sale of the Company's
former fabricating businesses in September 1999.
Gain on Sale of Fabricating Businesses. For the year ended December 31,
2000, the Company recorded a gain on the sale of its fabricating businesses of
$5.2 million. This resulted from the settlement of post-closing adjustments to
the transaction as originally recorded. For the year ended December 31, 1999,
the Company recorded a gain on the sale of its fabricating businesses of $41.1
million.
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Interest -- Net. Interest income for the year ended December 31, 2000 was
$2.3 million compared to interest expense of $3.5 million for the year ended
December 31, 1999. The change in interest was due to the lack of borrowing and
increased earnings on invested cash in 2000.
Other Income or Expense. Other income was $6.5 million in 2000 compared to
other expense of $0.8 million in 1999. The increase in other income was
primarily due to the receipt of approximately $6.1 million in partial settlement
of the Company's claim with its insurance providers relative to property damage
and business interruption losses resulting from the illegal strike at Century of
West Virginia's Ravenswood facility in August 1999.
Net Gains or Losses on Forward Contracts. Net gains on forward contracts
were $4.2 million in 2000 compared to a net loss on forward contracts of $5.4
million in 1999. The increase resulted from lower market prices for primary
aluminum as of December 31, 2000 as compared to the value of the Company's
forward sales contracts on that date.
Tax Provision. Income tax expense for the year ended December 31, 2000 was
$11.3 million compared to $0.6 million for the same period in 1999. The increase
was primarily due to higher operating income in 2000. Income tax expense for the
year ended December 31, 2000 and 1999, respectively, includes a $2.4 million and
$1.5 million reduction in estimated income taxes payable.
Net Income. Net income increased to $25.3 million in 2000 from $3.9
million in 1999. The increase was due to higher unit selling prices, increased
primary aluminum shipments, the purchase of the additional interest in Mt. Holly
and proceeds received in partial settlement of the Company's claim with its
insurance providers.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Consolidated net sales decreased $84.0 million (or 12.9%) in
1999 to $566.3 million from $650.3 million in 1998. The decrease was partially a
result of the sale of the Company's former fabricating businesses in September
1999 and reduced average unit selling prices. Primary aluminum product sales
(including shipments to the fabricating businesses of $136.8 million) decreased
$32.9 million (or 9.4%) in 1999 to $317.4 million from $350.3 million in 1998
(including shipments to the fabricating businesses of $234.5 million). The
decrease was a result of reduced volumes caused by the illegal strike at Century
of West Virginia's Ravenswood facility in August 1999 and to reduced average
unit selling prices during 1999 as compared to the average in 1998.
Gross Profit and Loss. The Company reported a gross loss of $6.6 million
in 1999 compared to a gross profit of $38.5 million in 1998 or a decrease of
$45.1 million. The decrease primarily resulted from lower unit selling prices,
the costs and effects of lost production of approximately $10 million resulting
from the illegal strike in August 1999, a charge of $12.3 million for inventory
writedowns and LIFO adjustments, and the sale of the Company's former
fabricating businesses.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses of $18.9 million in 1999 were slightly lower
than expenses of $19.2 million in 1998. The decrease was due to the sale of the
fabricating businesses partially offset by increased professional fee expenses.
Gain on Sale of Fabricating Businesses. The gain on the sale of the
fabricating businesses of $41.1 million in 1999 represents the excess of
proceeds received over the net assets sold to Pechiney on September 21, 1999,
adjusted for the expected effects of certain post-closing adjustments.
Interest Expense -- Net. Interest expense increased $1.3 million to $3.5
million in 1999 from $2.2 million in 1998. The increase was due to reduced
capitalized interest in 1999 compared to 1998 and to higher borrowings during
the first three quarters of 1999 compared to the same period in 1998, partially
offset by interest income earned in the fourth quarter of 1999.
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Net Gains or Losses on Forward Contracts. The Company incurred a net loss
on forward contracts of $5.4 million in 1999 compared to a net gain of $10.6
million in 1998. The decrease resulted from steadily increasing market prices
for primary aluminum during 1999 which reduced the value of the Company's
forward sales contracts.
Tax Provision. Tax expense for 1999 was $0.6 million compared to $10.2
million in 1998. The decrease was primarily the result of reduced operating
income.
Net Income. Net income for the year ended 1999 was $3.9 million compared
to $17.9 million for 1998. The decrease was a result of lower average unit
selling prices, reduced volumes, a charge for inventory writedowns and LIFO
adjustments, and the costs and effects of lost production from the illegal
strike in August 1999. The decrease was substantially offset by the gain on the
sale of the fabricating businesses.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $76.7 million and $124.4 million at December
31, 2000 and 1999, respectively. The decrease in working capital primarily
relates to a reduction in cash due to the purchase of the additional interest in
Mt. Holly.
The Company's statements of cash flows for the years indicated are
summarized below:
2000 1999 1998
--------- -------- -------
(DOLLARS IN THOUSANDS)
Net cash provided by (used in) operating activities........ $ 58,103 $(44,190) $25,369
Net cash (used in) provided by investing activities........ (106,158) 222,886 (51,838)
Net cash (used in) provided by financing activities........ (4,170) (93,521) 26,439
--------- -------- -------
(Decrease) increase in cash................................ $ (52,225) $ 85,175 $ (30)
========= ======== =======
Net cash provided by operating activities was $58.1 million during 2000.
Net cash used in operating activities was $44.2 million in 1999. Net cash
provided by operations was $25.4 million during 1998. The 2000 increase was
primarily the result of increased income from operations in that year and a
reduced investment in accounts receivable as of December 31, 2000. The 1999
decrease was primarily the result of reduced income from operations in that
year.
The Company's net cash used in investing activities was $106.2 million in
2000. The net cash provided by investing activities was $222.9 million in 1999.
The net cash used in investing activities was $51.8 million during 1998. The
large decrease in cash flow from investing activities in 2000 was a result of
the use of cash to purchase an additional interest in Mt. Holly in April 2000
compared to the receipt of cash from the sale of the fabricating businesses in
September 1999. Capital expenditures were $17.6 million, $23.0 million and $44.3
million for the years ended December 31, 2000, 1999 and 1998, respectively. The
Company used these expenditures to purchase, modernize or upgrade production
equipment, maintain facilities and comply with environmental regulations.
Capital expenditures for 2001 are expected to be approximately $18.0 million and
will be principally related to upgrading production equipment, maintaining
facilities and complying with environmental requirements.
Net cash used in financing activities was $4.2 million and $93.5 million in
2000 and 1999, respectively. Net cash provided by financing activities was $26.4
million in 1998. The improved cash flow from financing activities in 2000 was a
result of the lack of borrowing activity in 2000. In 1999, the Company utilized
a portion of the proceeds from the sale of the fabricating businesses to retire
all of its outstanding bank debt.
On March 31, 1999, the Company entered into an agreement with BankBoston,
N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to
$180.0 million of credit facilities to refinance indebtedness, to finance
certain capital expenditures and for other general corporate purposes. The
borrowing base for purposes of determining availability is based upon certain
eligible inventory and receivables. The credit facilities consisted of a
revolving loan of up to $160.0 million and a term loan of $20.0 million. The
revolving loan is secured by the inventory and receivables of Century of West
Virginia and
15
17
Berkeley. As a result of the sale of the fabricating businesses and the
Company's purchase of Xstrata's interest in the Mt. Holly facility, the Company
and its lenders agreed to reduce the revolving credit facilities from $160.0
million to $67.1 million.
The bank agreement, as amended, provides for various restrictive covenants,
including the following: (i) standard restrictions on dispositions of property
and assets except in the ordinary course of business, (ii) restrictions on the
incurrence of indebtedness and liens and the making of capital expenditures and
investments, (iii) a prohibition on the payment of dividends except dividends up
to $5.0 million per year, (iv) a prohibition on change of business or change of
control and (v) maintenance of certain financial ratios.
The Company is evaluating various options to fund its proposed $460 million
purchase of NSA. Options include significant debt financing which would
substantially increase the Company's leverage.
The Company's liquidity requirements arise primarily from working capital
needs and capital investments. The Company believes that cash flows from
operations and funds available under its Bank Agreement will be sufficient to
fund its working capital requirements, capital expenditures and debt service in
the near term and for the foreseeable future.
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
The Company spends significant amounts for compliance with environmental
laws and regulations. In addition, past manufacturing activities have resulted
in environmental impacts requiring remediation. Pursuant to certain
environmental laws, the Company, regardless of fault, may be liable for the
costs of remediation of contaminated property or for the amelioration of damage
to natural resources. Although the Company believes, based upon information
currently available to management, that it will not have liabilities in this
regard which are likely to have a material adverse effect on the Company, there
can be no assurance that future remedial requirements at currently and formerly
owned or operated properties or adjacent areas will not result in a material
adverse effect on the Company's financial condition, results of operations or
liquidity. The Company has planned environmental capital expenditures for the
years ending December 31, 2001, 2002, and 2003 of approximately $1.8 million,
$4.5 million and $3.9 million, respectively. In addition, the Company expects to
incur operating expenses relating to environmental matters of approximately $4.9
million in each of the years ending December 31, 2001, 2002 and 2003. As part of
its general capital expenditure plan, the Company also expects to incur capital
expenditures for other capital projects that may, in addition to improving
operations, reduce certain environmental impacts. See Item 1 "Environmental
Matters".
The Company is a defendant in several actions relating to various aspects
of its business. While it is impossible to predict the ultimate disposition of
any litigation, the Company does not believe that any of these lawsuits, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, results of operations or liquidity. See Item 3
"Legal Proceedings".
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133. "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
SFAS No. 138 which amended certain provisions of SFAS No. 133, including an
amendment to expand the normal purchase and sale exemption for supply contracts.
The Company has adopted the provisions of SFAS No. 133, as amended by SFAS No.
138, on January 1, 2001.
Most of the Company's fixed priced commitments qualified for the normal
purchase and sale exemption provided in SFAS No. 138. The Company's primary
aluminum financial instruments, which are currently recorded at fair value
through the statement of operations, have been designated as cash flow hedges as
of January 1, 2001. The Company's natural gas financial instruments have been
designated as a hedge and recorded at fair value on the balance sheet through
December 31, 2000. These natural gas contracts have also been designated as cash
flow hedges as of January 1, 2001. The transition adjustment required on January
1,
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2001 for the Company's adoption of SFAS No. 133 resulted in an after-tax
reduction of accrued liabilities by $0.9 million and an after tax increase in
other comprehensive income of $0.9 million.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides additional guidance on revenue recognition, as
well as criteria for when revenue is generally realized and earned. The Company
adopted SAB No. 101 during the fourth quarter and there was no impact on its
results of operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICES
Century produces primary aluminum products and the Company's earnings are
exposed to aluminum price fluctuations. The Company manages this risk through
the issuance of fixed price commitments and financial instruments. The Company
does not engage in trading or speculative transactions. Although the Company has
not materially participated in the purchase of call options, in cases where the
Company sells forward primary aluminum, it may purchase call options to preserve
the benefit from price increases significantly above forward sales prices. In
addition, it may purchase put options to protect itself from price decreases.
In connection with the sale of the aluminum fabricating businesses in
September 1999, the Company entered into a Molten Aluminum Purchase Agreement
(the "Metal Agreement") with Pechiney, that shall continue in effect until July
31, 2003 with provisions for extension. Pursuant to the Metal Agreement,
Pechiney has agreed to purchase and the Company has agreed to deliver, on a
monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds
of molten aluminum. The selling price is determined by a market based formula.
Subsequent to the purchase of an additional 23% interest in MHAC from
Xstrata, the Company entered into a ten year agreement with Glencore (the
"Glencore Metal Agreement") to sell approximately 110.0 million pounds of
primary aluminum products per year. Selling prices for the first two years are
determined by a market based formula. The remaining eight years of the contract
are at a fixed price as defined in the agreement.
Exclusive of the Metal Agreement and the Glencore Metal Agreement, the
Company had fixed price commitments to sell 50.3 million pounds and 124.4
million pounds of primary aluminum at December 31, 2000 and 1999, respectively.
Of the total fixed price sales commitments, 14.7 million pounds and 68.3 million
pounds at December 31, 2000 and 1999, respectively, were with the Glencore
Group. The Company had no fixed price commitments to purchase aluminum at
December 31, 2000 or December 31, 1999. The Company entered into a long-term
supply agreement for 936.0 million pounds of alumina annually, beginning January
1, 1996. That agreement will terminate at the end of 2001 and be replaced by a
new long-term supply agreement with Glencore. This new agreement provides for a
fixed quantity of alumina at prices determined by a market-based formula. In
addition, as part of its acquisition of an additional 23% interest in Mt. Holly,
the Company assumed a supply agreement with Glencore for the alumina raw
material requirements relative to the additional interest. The unit cost is also
determined by a market based formula. The alumina supply agreement terminates in
2008.
At December 31, 2000 and 1999, the Company had entered into 453.5 million
and 60.0 million pounds, respectively, of forward primary aluminum sales
contracts to mitigate the risk of commodity price fluctuations inherent in its
anticipated future shipments. Of these contracts, 396.4 million and 60.0 million
pounds were with the Glencore Group as of December 31, 2000 and 1999,
respectively. The contracts will be settled in cash at various dates in 2001
through 2003. Based on market prices at December 31, 2000, the forward sales
contracts could have been settled by the Company receiving approximately $1.7
million. The actual settlement was and will be based on market prices on the
respective settlement dates.
At December 31, 2000, the Company had entered into forward natural gas
purchase contracts to mitigate the risk of commodity price fluctuations inherent
in its anticipated future natural gas requirements. The
17
19
contracts will be settled in cash at various dates in 2001. Based on market
prices at December 31, 2000, the forward purchase contracts could have been
settled by the Company receiving approximately $1.5 million. The actual
settlement will be based on market prices on the respective settlement dates.
A hypothetical $0.01 per pound increase in the market price of primary
aluminum is estimated to have an unfavorable impact of $4.5 million on pre-tax
income in 2001 as a result of the forward primary aluminum sale contracts
entered into by the Company at December 31, 2000. This quantification of the
Company's exposure to the commodity price of aluminum is necessarily limited, as
it does not take into consideration the Company's inventory or fixed price
commitments. A hypothetical $1.00 per decatherm decrease in the market price of
natural gas is estimated to have an unfavorable impact of $0.8 million on
pre-tax income in 2001 as a result of the forward natural gas purchase contracts
entered into by the Company at December 31, 2000. Actual changes in commodity
prices may differ from hypothetical changes.
All gains and losses from forward contract activity are reported separately
in the statements of operations. Unrealized gains or losses on the forward
primary aluminum contracts, realized gains or losses from the cash settlement of
the forward primary aluminum contracts, and reversals of prior period unrealized
losses are reported as either gains or losses on forward contracts. Beginning
January 1, 2001, the Company designated its primary aluminum financial
instruments as cash flow hedges (see "New Accounting Standards" in Item 7). The
Company's forward natural gas purchase contracts have been designated as hedges
and unrealized gains or losses are deferred in the balance sheet until the
hedged transaction occurs.
Century monitors its overall position, and its metals and natural gas risk
management activities are subject to the management, control and direction of
senior management. These activities are regularly reported to the Board of
Directors of Century.
18
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Independent Auditors' Report................................ 20
Consolidated Balance Sheets at December 31, 2000 and 1999... 21
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.......................... 22
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998.............. 23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... 24
Notes to the Consolidated Financial Statements.............. 25-46
19
21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Century Aluminum Company:
We have audited the accompanying consolidated balance sheets of Century
Aluminum Company and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Century Aluminum Company and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 16, 2001
20
22
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 32,962 $ 85,187
Restricted cash equivalents............................... -- 5,642
Accounts receivable, trade -- net......................... 31,119 38,499
Due from affiliates....................................... 15,672 15,991
Inventories............................................... 44,081 44,936
Prepaid and other assets.................................. 9,487 6,379
-------- --------
Total current assets................................... 133,321 196,634
Property, Plant and Equipment -- Net........................ 184,526 105,158
Other Assets................................................ 15,923 9,010
-------- --------
Total............................................. $333,770 $310,802
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade................................... $ 30,072 $ 29,134
Due to affiliates......................................... 3,985 10,737
Accrued and other current liabilities..................... 17,739 27,770
Accrued employee benefits costs -- current portion........ 4,824 4,602
-------- --------
Total current liabilities.............................. 56,620 72,243
-------- --------
Accrued Pension Benefits Costs -- Less current portion...... 3,656 3,589
Accrued Postretirement Benefits Costs -- Less current
portion................................................... 42,170 39,391
Other Liabilities........................................... 6,560 9,073
Deferred Taxes.............................................. 22,125 6,778
-------- --------
Total noncurrent liabilities........................... 74,511 58,831
-------- --------
CONTINGENCIES AND COMMITMENTS (NOTE 12)
SHAREHOLDERS' EQUITY:
Common Stock (one cent par value, 50,000,000 shares
authorized; 20,339,203 and 20,202,538 shares issued and
outstanding at December 31, 2000 and 1999,
respectively).......................................... 203 202
Additional paid-in capital................................ 166,184 164,409
Retained earnings......................................... 36,252 15,117
-------- --------
Total shareholders' equity............................. 202,639 179,728
-------- --------
Total............................................. $333,770 $310,802
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
23
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
NET SALES:
Third-party customers..................................... $299,277 $497,475 $576,006
Related parties........................................... 129,320 68,801 74,252
-------- -------- --------
428,597 566,276 650,258
Cost of Goods Sold.......................................... 396,139 572,921 611,796
-------- -------- --------
Gross Profit (Loss)......................................... 32,458 (6,645) 38,462
Selling, General and Administrative Expenses................ 13,931 18,884 19,246
-------- -------- --------
Operating Income (Loss)..................................... 18,527 (25,529) 19,216
Gain on Sale of Fabricating Businesses...................... 5,156 41,130 --
Interest Income (Expense) -- Net............................ 2,267 (3,535) (2,204)
Other Income (Expense) -- Net.............................. 6,461 (789) 553
Net Gain (Loss) on Forward Contracts........................ 4,195 (5,368) 10,574
-------- -------- --------
Income Before Income Taxes and Extraordinary Item........... 36,606 5,909 28,139
Income Tax Expense.......................................... (11,301) (628) (10,202)
-------- -------- --------
Income Before Extraordinary Item............................ 25,305 5,281 17,937
Extraordinary Item -- Write Off of Deferred Bank Fees, Net
of Income Tax Benefit of $766............................. -- (1,362) --
-------- -------- --------
Net Income.................................................. $ 25,305 $ 3,919 $ 17,937
======== ======== ========
BASIC EARNINGS PER SHARE:
Income before extraordinary item.......................... $ 1.25 $ 0.26 $ 0.90
Extraordinary item........................................ -- (0.07) --
-------- -------- --------
Net Income................................................ $ 1.25 $ 0.19 $ 0.90
======== ======== ========
DILUTED EARNINGS PER SHARE:
Income before extraordinary item.......................... $ 1.24 $ 0.26 $ 0.89
Extraordinary item........................................ -- (0.07) --
-------- -------- --------
Net Income................................................ $ 1.24 $ 0.19 $ 0.89
======== ======== ========
Cash Dividends Paid Per Common Share........................ $ 0.20 $ 0.20 $ 0.20
======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
24
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
(DOLLARS IN THOUSANDS)
Balance, December 31, 1997...................... $200 $161,953 $ 1,393 $163,546
Net Income.................................... -- -- 17,937 17,937
Dividends..................................... -- -- (4,000) (4,000)
---- -------- ------- --------
Balance, December 31, 1998...................... 200 161,953 15,330 177,483
Net Income.................................... -- -- 3,919 3,919
Issuance of Common Stock...................... 2 2,456 -- 2,458
Dividends..................................... -- -- (4,132) (4,132)
---- -------- ------- --------
Balance, December 31, 1999...................... 202 164,409 15,117 179,728
Net Income.................................... -- -- 25,305 25,305
Issuance of Common Stock...................... 1 1,775 -- 1,776
Dividends..................................... -- -- (4,170) (4,170)
---- -------- ------- --------
Balance, December 31, 2000...................... $203 $166,184 $36,252 $202,639
==== ======== ======= ========
See notes to consolidated financial statements.
23
25
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 25,305 $ 3,919 $ 17,937
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 14,395 18,749 19,685
Deferred income taxes.............................. 12,448 22,022 (3,767)
Pension and other post retirement benefits......... 797 (16,656) (12,021)
Workers' compensation.............................. (1,604) (150) (1,314)
Inventory reserve.................................. 1,631 1,389 --
Gain on sale of property, plant and equipment...... (337) -- --
Gain on sale of fabricating businesses............. (5,156) (41,130) --
Change in operating assets and liabilities:
Accounts receivable, trade -- net................ 7,380 (42,803) 37,588
Due from affiliates.............................. 4,790 (467) (7,674)
Inventories...................................... 3,086 26,843 (22,789)
Prepaids and other assets........................ (5,391) (9,224) (876)
Accounts payable, trade.......................... (712) 8,519 (14,594)
Due to affiliates................................ 409 (1,518) (2,087)
Accrued and other current liabilities............ 1,621 (15,944) 13,366
Other -- net..................................... (559) 2,261 1,915
--------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 58,103 (44,190) 25,369
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............. (17,631) (22,983) (44,259)
Proceeds from sale of property, plant and equipment... 565 -- --
Purchase price adjustment related to business
acquisitions....................................... -- 296 --
Proceeds from sale of fabricating businesses.......... -- 245,400 --
Business acquisitions................................. (94,734) -- (7,251)
Capital contribution to Mt. Holly..................... -- -- (319)
Restricted cash deposits.............................. 5,642 173 (9)
--------- --------- ---------
Net cash (used in) provided by investing
activities....................................... (106,158) 222,886 (51,838)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings............................................ -- 340,708 233,610
Repayment of borrowings............................... -- (430,097) (203,171)
Dividends............................................. (4,170) (4,132) (4,000)
--------- --------- ---------
Net cash (used in) provided by financing
activities....................................... (4,170) (93,521) 26,439
--------- --------- ---------
Increase (Decrease) in Cash........................... (52,225) 85,175 (30)
Cash and Cash Equivalents, Beginning of Year.......... 85,187 12 42
--------- --------- ---------
Cash and Cash Equivalents, End of Year................ $ 32,962 $ 85,187 $ 12
========= ========= =========
See notes to consolidated financial statements.
24
26
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation -- Century Aluminum Company
("Century" or the "Company") is a holding company whose principal subsidiary is
Century Aluminum of West Virginia, Inc. ("Century of West Virginia"), formerly
known as Ravenswood Aluminum Corporation, which operates a primary aluminum
reduction facility near Ravenswood, West Virginia. Century of West Virginia,
through its wholly-owned subsidiary, Berkeley Aluminum, Inc. ("Berkeley"), holds
a 49.67% interest in a partnership which operates a primary aluminum reduction
facility in Mt. Holly, South Carolina (the "Mt. Holly Facility") and a 49.67%
undivided interest in the property, plant and equipment comprising the Mt. Holly
Facility. As of December 31, 2000, the remaining interest in the partnership and
the remaining undivided interest in the Mt. Holly Facility are owned by Alumax
of South Carolina, Inc., a subsidiary of Alcoa ("ASC"). ASC manages and operates
the facility pursuant to an Owners Agreement, prohibiting the disposal of the
interest held by any of the owners without the consent of the other owners and
providing for certain rights of first refusal. Pursuant to the Owners Agreement,
each owner furnishes its own alumina, or alumina owned by an affiliate, for
conversion to aluminum and is responsible for its pro rata share of the
operating and conversion costs.
Prior to April 1996, the Company was an indirect, wholly owned subsidiary
of Glencore International AG ("Glencore" and, together with its subsidiaries,
the "Glencore Group"). In April 1996, the Company completed an initial public
offering of its common stock. At December 31, 2000, the Glencore Group owned 39%
of Century's common shares outstanding.
On December 31, 1998, the Company acquired a cast aluminum plate business
located in Vernon, California, from Alcoa Inc. The business was named Century
Cast Plate, Inc. and operated as a wholly owned subsidiary of Century. The
business produced cast and machined aluminum plate.
On September 21, 1999, the Company completed the sale to Pechiney Rolled
Products, LLC, a Delaware limited liability company ("Pechiney"), of certain
assets and the assumption of certain liabilities of Century of West Virginia's
rolled products unit at Ravenswood, West Virginia (the "Rolling Business") and
all of the issued and outstanding shares of common stock of Century Cast Plate,
Inc. (together the "fabricating businesses"). The parties consummated the sale
pursuant to the Stock and Asset Purchase Agreement dated July 26, 1999 (the
"Purchase Agreement") by and among Century, Century of West Virginia and
Pechiney. The aggregate purchase price for the fabricating businesses was
$234,300. The purchase price was determined by arms-length negotiations between
the parties. Century used a portion of the purchase price to repay all of its
outstanding bank indebtedness.
Effective April 1, 2000, the Company purchased an additional 23% interest
in the Mt. Holly Facility for cash consideration of $94,734. This purchase
increased Century's ownership to 49.67%.
On August 31, 2000, the Company entered into a stock purchase agreement
with Southwire Company ("Southwire"), a privately held wire and cable
manufacturing company based in Carrollton, Georgia. Under this agreement, the
Company will acquire all of the outstanding equity securities of Metalsco Ltd.,
a wholly-owned subsidiary of Southwire which owns NSA Ltd. ("NSA"), an entity
that operates an aluminum reduction operation in Hawesville, Kentucky (the
"Hawesville facility"). The Hawesville facility has the capacity to produce
237,000 metric tons (523 million pounds) of primary aluminum per year. The
Company will also acquire from Southwire, certain land, facilities and rights
related to NSA's aluminum reduction operations which are not held by NSA. The
purchase price is $460,000 plus the assumption of $7,800 in industrial revenue
bonds and is subject to certain post-closing adjustments.
The Company and Glencore have entered into a memorandum of understanding
under which Glencore will effectively purchase a 20% undivided interest in the
Hawesville facility. To support the Company's financing of the transaction,
Glencore also will purchase $25,000 in convertible preferred stock of the
25
27
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
Company. This stock will have a coupon of 8% and be convertible into the
Company's common stock at a 20% premium over the common stock's average price
during the 20 trading days immediately prior to the closing of the acquisition.
Completion of the purchase is contingent upon, among other matters, the Company
concluding financing for the acquisition.
The Company's historical results of operations included in the accompanying
consolidated financial statements may not be indicative of the results of
operations to be expected in the future.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Century Aluminum Company and its subsidiaries, after
elimination of all significant intercompany transactions and accounts.
Berkeley's interest in the Mt. Holly partnership is accounted for under the
equity method. There are no material undistributed earnings in the Mt. Holly
partnership.
Revenue -- Revenue is generally recognized when goods are shipped and title
passes to customers in accordance with contract terms. In some instances, the
Company invoices customers prior to physical shipment of goods. In such
instances, revenue is recognized only when the customer has specifically
requested such treatment and has made a fixed commitment to purchase the
product. The goods must be complete, ready for shipment and physically separated
from other inventory with risk of ownership passing to the customer. The Company
must retain no performance obligations and a delivery schedule must be obtained.
Included in net sales during 1999 and 1998 are tolling fees that the
Company earned from smelting, casting and fabricating material supplied by
third-party customers. These fees are not related to primary aluminum shipments
and, as such, are not present in 2000 and will not be present in future years
due to the sale of the fabricating businesses to Pechiney. Net sales include
tolling fees of $2,045 and $8,469 for the years ended December 31, 1999 and
1998, respectively. Sales returns and allowances are treated as a reduction of
sales and are provided for based on historical experience and current estimates.
Cash and Restricted Cash Equivalents -- Cash and restricted cash
equivalents are comprised of cash and short-term investments having maturities
of less than 90 days at the time of purchase. The carrying amount of cash and
restricted cash equivalents approximates fair value. The restricted cash
equivalents as of December 31, 1999 represented amounts on deposit with the
state of West Virginia to support the Company's workers' compensation
self-insurance program in that state.
Accounts Receivable -- The accounts receivable, trade are net of an
allowance for uncollectable accounts of $285 and $29 at December 31, 2000 and
1999, respectively.
Inventories -- Alumina and aluminum inventories are stated at the lower of
cost (using the last-in, first-out ("LIFO") method) or market. The remaining
inventories (operating and other supplies) are valued at the lower of average
cost or market.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Additions, renewals and improvements are capitalized. Asset and
accumulated depreciation accounts are relieved for dispositions with resulting
gains or losses included in earnings. Maintenance and repairs are expensed as
incurred. Depreciation of plant and equipment is provided for by the
straight-line method over the following estimated useful lives:
Buildings and improvements.................................. 14 to 40 years
Machinery and equipment..................................... 5 to 22 years
The Company periodically evaluates the carrying value of long-lived assets
to be held and used when events and circumstances warrant such a review. The
carrying value of a separately identifiable, long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the
26
28
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
fair value of the long-lived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Other Assets -- At December 31, 2000 and 1999, other assets consist
primarily of the Company's investment in the Mt. Holly partnership, deferred
pension assets and deferred tax assets.
Income Taxes -- The Company accounts for income taxes using the liability
method, whereby deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. In evaluating
the Company's ability to realize deferred tax assets, the Company uses judgment
in considering the relative impact of negative and positive evidence. The weight
given to the potential effect of negative and positive evidence is commensurate
with the extent to which it can be objectively verified. Based on the weight of
evidence, both negative and positive, including the lack of historical earnings,
if it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is established.
Interest Expense -- Net -- Interest earned on investments is netted with
interest incurred on indebtedness. Interest incurred in the construction of
qualifying assets is capitalized as a component of the construction costs.
Postemployment Benefits -- The Company provides certain postemployment
benefits to former and inactive employees and their dependents during the period
following employment, but before retirement. These benefits include salary
continuance, supplemental unemployment and disability healthcare. Postemployment
benefits are accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits."
The statement requires recognition of the estimated future cost of providing
postemployment benefits on an accrual basis over the active service life of the
employee.
Fixed-Price Commitments and Forward Contracts -- The Company has entered
into various fixed-price commitments to purchase alumina and to sell primary
aluminum. The Company has also entered into forward primary aluminum contracts
to be settled in cash to manage the Company's exposure to changing primary
aluminum prices. These forward contracts have been designated as hedges as of
January 1, 2001. Prior to January 1, 2001, a change in market value of a forward
contract has been recognized as a gain or loss in the period of change and
recognized in the statements of operations as a gain or loss on forward
contracts.
The Company has also entered into forward natural gas purchase contracts to
be settled in cash to manage the Company's exposure to changing natural gas
prices. These forward contracts have been designated as hedges. Unrealized gains
and losses on the forward natural gas purchase contracts are deferred in the
balance sheet until the hedged transaction occurs. Once the hedged transaction
occurs, the realized gain or loss is recognized in cost of goods sold in the
statement of operations. If future natural gas needs are revised lower than
initially anticipated, the futures contracts associated with the reduction no
longer qualify for deferral and are marked to market. Mark-to-market gains and
losses are recorded in other income in the current period.
The effectiveness of natural gas hedges is measured by a historical and
probable future high correlation of changes in the fair value of the hedging
instruments with changes in value of the hedged item. If correlation ceases to
exist, hedge accounting is terminated and gains or losses recorded in other
income. To date, high correlation has always been achieved. As of December 31,
2000, the Company had a deferred gain of $1,514 on its natural gas hedges.
Financial Instruments -- The Company's financial instruments (principally
receivables, payables and forward contracts) are carried at amounts that
approximate fair value.
27
29
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
Concentration of Credit Risk -- Financial instruments, in addition to
forward contracts, which potentially expose the Company to concentrations of
credit risk, consist principally of cash investments and trade receivables. The
Company places its cash investments with highly rated financial institutions. At
times, such investments may be in excess of the FDIC insurance limit. With the
sale of the fabricating businesses to Pechiney, the Company significantly
reduced its customer base and thereby increased its concentrations of credit
risk with respect to trade receivables. The Company routinely assesses the
financial strength of its customers, but generally does not require collateral
to support trade receivables. As of December 31, 2000, the Company's receivables
from a certain customer were approximately $21,835 or 69.5% of total trade
accounts receivable.
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 disclosures 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.
Stock-Based Compensation -- The Company has elected not to adopt the
recognition provisions for employee stock-based compensation as permitted in
SFAS No. 123, "Accounting for Stock-Based Compensation".
New Accounting Standards -- In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138
which amended certain provisions of SFAS No. 133, including an amendment to
expand the normal purchase and sale exemption for supply contracts. The Company
was required to adopt SFAS No. 133, as amended by SFAS No. 138, on January 1,
2001.
Most of the Company's fixed priced commitments qualified for the normal
purchase and sale exemption provided in SFAS No. 138. The Company's primary
aluminum financial instruments, which are currently recorded at fair value
through the statement of operations, have been designated as cash flow hedges as
of January 1, 2001. The Company's natural gas financial instruments have been
designated as a cash flow hedge and recorded at fair value on the balance sheet
through December 31, 2000. These natural gas contracts have also been designated
as cash flow hedges as of January 1, 2001. The transition adjustment required on
January 1, 2001 for the Company's adoption of SFAS No. 133 resulted in an
after-tax reduction of accrued liabilities of $924 and an after tax increase in
other comprehensive income of $924.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides additional guidance on revenue recognition, as
well as criteria for when revenue is generally realized and earned. The Company
adopted SAB No. 101 during the fourth quarter and there was no impact on our
results of operations or financial position.
2. ACQUISITIONS AND DISPOSITIONS
On August 31, 2000, the Company entered into a stock purchase agreement
with Southwire Company ("Southwire"), a privately held wire and cable
manufacturing company based in Carrollton, Georgia. Under this agreement, the
Company will acquire all of the outstanding equity securities of Metalsco Ltd.,
a wholly-owned subsidiary of Southwire which owns NSA Ltd. ("NSA"), an entity
that operates an aluminum reduction operation in Hawesville, Kentucky (the
"Hawesville facility"). The Hawesville facility has the capacity to produce
237,000 metric tons (523 million pounds) of primary aluminum per year. The
Company will also acquire from Southwire, certain land, facilities and rights
related to NSA's aluminum reduction operations which are not held by NSA. The
purchase price is $460,000 plus the assumption of $7,800 in industrial revenue
bonds and is subject to certain post-closing adjustments.
28
30
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
The Company and Glencore have entered into a memorandum of understanding
under which Glencore will effectively purchase a 20% undivided interest in the
Hawesville facility. To support the Company's financing of the transaction,
Glencore also will purchase $25,000 in convertible preferred stock of the
Company. This stock will have a coupon of 8% and be convertible into the
Company's common stock at a 20% premium over the common stock's average price
during the 20 trading days immediately prior to the closing of the acquisition.
Completion of the purchase is contingent upon, among other matters, the Company
concluding financing for the acquisition.
Effective April 1, 2000, Century, through its wholly-owned indirect
subsidiary Berkeley, increased its 26.67% undivided interest in certain
property, plant and equipment of the Mt. Holly Facility to 49.67% by purchasing
a 23% undivided interest from Xstrata AG ("Xstrata") a publicly traded Swiss
company. As part of the purchase, Berkeley also acquired Xstrata's 23% interest
in the general partnership which operates and maintains the Mt. Holly Facility
(the "Operating Partnership", and together with the Mt. Holly Facility, the "Mt.
Holly Assets"). Prior to Berkeley's purchase of the Mt. Holly Assets, it held a
26.67% undivided interest in the Mt. Holly Facility and the Operating
Partnership. Glencore is a major shareholder of Xstrata.
The purchase was completed pursuant to an asset purchase agreement dated as
of March 31, 2000 (the "Mt. Holly Purchase Agreement") by and between Berkeley
and Xstrata. The aggregate purchase price for the Mt. Holly Assets was $94,734.
Under the terms of the Mt. Holly Purchase Agreement, Berkeley agreed to assume
certain of Xstrata's obligations and liabilities relating to the Mt. Holly
Assets. The terms of the Mt. Holly Purchase Agreement were determined through
arms'-length negotiations between the parties. The Company used available cash
to complete the purchase. The acquisition was accounted for using the purchase
method.
The following schedule represents the unaudited pro forma results of
operations for the year ended December 31, 2000 and 1999 assuming the
acquisition of the additional Mt. Holly Assets occurred on January 1, 1999. The
unaudited pro forma amounts may not be indicative of the results that actually
would have occurred if the transaction described above had been completed and in
effect for the periods indicated or the results that may be obtained in the
future. The unaudited pro forma amounts includes the effects of the Glencore
Metal Agreement (see Note 13) after April 1, 2000.
2000 1999
-------- --------
(UNAUDITED)
Net sales................................................... $446,678 $632,222
Net income (loss) before extraordinary item................. 24,585 (843)
Net income (loss)........................................... 24,585 (2,205)
Diluted earnings (loss) per share before extraordinary
item...................................................... 1.21 (0.04)
Diluted earnings (loss) per share........................... $ 1.21 $ (0.11)
On September 21, 1999, the Company and Century of West Virginia completed
the sale of their fabricating businesses to Pechiney. The transaction involved
the sale of certain assets and the assumption of certain liabilities and the
sale of all of the issued and outstanding shares of common stock of Century Cast
Plate. The aggregate purchase price for the fabricating businesses was $234,300
and the assumption of approximately $163,400 of current and noncurrent
liabilities. As a result of this transaction, the Company realized a gain of
$41,130 in 1999. Included in the gain are the net effects resulting from the
curtailment and settlement of the Company's employee benefit plans associated
with the fabricating businesses. The gain was increased by $5,156 in 2000 after
resolution of post closing adjustments which affected the fabricating
businesses' closing balance sheet as of September 21, 1999.
In connection with the sale, Century of West Virginia and Pechiney entered
into a Metal Supply Agreement ("Metal Agreement") dated as of September 21,
1999, which shall continue in effect until
29
31
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
July 31, 2003 with provisions for an extension. Pursuant to the Metal Agreement,
Pechiney has agreed to purchase and the Company has agreed to deliver
substantial quantities (from 23.0 million pounds to 27.0 million pounds per
month) of the molten aluminum produced at Century of West Virginia's reduction
facility located in Ravenswood, West Virginia. Pricing for shipments to Pechiney
is based on a market index as defined in the Metal Agreement. In addition,
Pechiney is providing primary aluminum casting services to Century of West
Virginia in connection with the excess molten aluminum produced at the
Ravenswood, West Virginia reduction facility, which was not purchased by
Pechiney. In connection with the transaction, the Company and Pechiney have
entered into a Shared Facilities and Shared Services Agreement ("Shared Services
Agreement") related to certain services, facilities, and related physical assets
that will be shared between the parties. Additionally, as part of the agreement,
the Company has agreed to indemnify Pechiney, up to certain limits, for certain
claims and environmental matters.
3. INVENTORIES
Inventories, at December 31, consist of the following:
2000 1999
------- -------
Raw materials............................................... $27,784 $27,271
Work-in-process............................................. 3,286 2,899
Finished goods.............................................. 3,859 5,715
Operating and other supplies................................ 9,152 9,051
------- -------
$44,081 $44,936
======= =======
At December 31, 2000 and 1999, approximately 79% and 80%, respectively of
inventories were valued at the lower of LIFO cost or market. The excess of the
first-in, first-out ("FIFO") cost over the LIFO cost was approximately $490 at
December 31, 2000. The excess of the LIFO cost (or market, if lower) of
inventory over the FIFO cost was approximately $1,845 at December 31, 1999.
Inventory at December 31, 2000 has been written down from LIFO cost to
estimated net realizable value. Results of operations include non-cash charges
of $1,631 and $12,272 for inventory write-downs and LIFO adjustments for the
years ended December 31, 2000 and 1999, respectively. Cost of goods sold has
been reduced by $1,759 for alumina sales to Glencore during the year ended
December 31, 2000.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at December 31, consists of the following:
2000 1999
-------- --------
Land and improvements....................................... $ 11,935 $ 4,431
Buildings and improvements.................................. 28,180 20,824
Machinery and equipment..................................... 236,146 154,881
Construction in progress.................................... 20,942 23,304
-------- --------
297,203 203,440
Less accumulated depreciation............................... 112,677 98,282
-------- --------
$184,526 $105,158
======== ========
At December 31, 2000 and 1999, the cost of property, plant and equipment
includes $136,349 and $56,605, respectively, and accumulated depreciation
includes $28,376 and $22,781, respectively, representing the Company's undivided
interest in the primary aluminum reduction facility in Mt. Holly, South
Carolina.
30
32
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
The Company has various operating lease commitments through 2003 relating
to machinery and equipment. Expenses under all operating leases were $310,
$1,077 and $1,839 for the years ended December 31, 2000, 1999 and 1998,
respectively. There were no noncancelable operating leases as of December 31,
2000.
5. DEBT
On March 31, 1999, the Company entered into an agreement with BankBoston,
N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to
$160,000 of revolving credit facilities and a $20,000 term loan to refinance
indebtedness, to finance certain capital expenditures and for other general
corporate purposes. As a result of the Bank Agreement, the Company recorded an
after tax extraordinary item of $1,362 to write-off deferred bank fees on its
previous financing. The borrowing base for purposes of determining availability
under the Bank Agreement was based upon certain eligible inventory and
receivables. On September 15, 1999, the Bank Agreement was amended to permit the
sale of the fabricating businesses to Pechiney and additionally required that on
the closing date the Company repay all amounts outstanding under the revolving
credit facilities (see Note 2 to the Consolidated Financial Statements). On
September 21, 1999, the Company repaid its outstanding debt under the revolving
credit facilities. Subsequently, the amount available on the revolving credit
facilities was reduced from $160,000 to $67,083.
The revolving credit facilities terminate on March 31, 2004. The Company
pays a monthly commitment fee on the unused portion of the revolving credit
facilities. The fee is based on the Company's level of performance with respect
to a certain financial ratio. Interest on the revolving credit facilities is
variable. The applicable rate is determined by adding a defined margin to a base
rate. The margin is defined according to the Company's performance with respect
to a certain financial ratio.
The revolving credit facility provides for various restrictive covenants,
including the following: (i) standard restrictions on dispositions of property
and assets except in the ordinary course of business, (ii) restrictions on the
incurrence of indebtedness and liens and the making of capital expenditures and
investments, (iii) a prohibition on the payment of dividends except dividends up
to $5,000 per year, (iv) a prohibition on change of business or change of
control and (v) maintenance of certain financial ratios.
31
33
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
6. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS AT DECEMBER 31
2000 1999
------- -------
ACCRUED AND OTHER CURRENT LIABILITIES
Income taxes................................................ $ 6,621 $ --
Transaction related costs and accruals...................... -- 18,887
Salaries, wages and benefits................................ 4,453 3,564
Stock compensation.......................................... 1,947 2,236
Other....................................................... 4,718 3,083
------- -------
$17,739 $27,770
======= =======
ACCRUED EMPLOYEE BENEFIT COSTS -- Current
Portion
Postretirement benefits..................................... $ 2,100 $ 1,928
Employee benefits cost...................................... 2,724 2,674
------- -------
$ 4,824 $ 4,602
======= =======
OTHER LIABILITIES
Workers' compensation....................................... $ 6,191 $ 7,795
Other....................................................... 369 1,278
------- -------
$ 6,560 $ 9,073
======= =======
Century of West Virginia is self-insured for workers' compensation, except
for certain catastrophic coverage that is provided under State of West Virginia
insurance programs. The liability for self-insured workers' compensation claims
has been discounted at 6% at December 31, 2000 and 1999. The components of the
liability for workers' compensation at December 31 are as follows:
2000 1999
------- -------
Undiscounted liability...................................... $11,466 $14,886
Less discount............................................. 3,249 5,065
------- -------
$ 8,217 $ 9,821
======= =======
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
Pension Benefits
The Company maintains noncontributory defined benefit pension plans
covering substantially all of its employees. For salaried employees, plan
benefits are based primarily on years of service and average compensation during
the later years of employment. For hourly employees, plan benefits are based
primarily on a formula that provides a specific benefit for each year of
service. The Company's funding policy is to contribute annually an amount based
upon actuarial and economic assumptions designed to achieve adequate funding of
the projected benefit obligations and to meet the minimum funding requirements
of ERISA. Plan assets consist principally of U.S. equity securities, growth
funds and fixed income accounts. As explained in Note 12, the Company agreed to
make additional contributions to the hourly plan in connection with the initial
public offering of the Company's common stock. In addition, the Company provides
supplemental executive retirement benefits ("SERB") for its executive officers.
32
34
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
Other Postretirement Benefits (OPEB)
In addition to providing pension benefits, the Company provides certain
healthcare and life insurance benefits for substantially all retired employees.
The Company accounts for these plans in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
No. 106 requires the Company to accrue the estimated cost of providing
postretirement benefits during the working careers of those employees who could
become eligible for such benefits when they retire. The Company funds these
benefits as the retirees submit claims.
The change in benefit obligations and change in plan assets as of December
31 are as follows:
2000 1999
------------------ --------------------
PENSION OPEB PENSION OPEB
------- ------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........... $36,483 $41,146 $158,482 $161,461
Service cost...................................... 1,212 1,697 2,626 2,956
Interest cost..................................... 2,719 3,658 8,005 8,160
Change in liability due to sale of businesses..... -- -- (129,120) (132,661)
Plan changes...................................... 2,015 (1,978) 9,769 801
(Gains) losses.................................... 1,956 10,665 (4,912) 8,589
Benefits paid..................................... (2,285) (2,543) (8,367) (8,160)
------- ------- -------- --------
Benefit obligation at end of year................. $42,100 $52,645 $ 36,483 $ 41,146
======= ======= ======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.... $40,724 $ -- $145,470 $ --
Actual return on plan assets...................... (1,005) -- 13,498 --
Change in assets due to sale of businesses........ -- -- (127,618) --
Employer contributions............................ 2,388 2,543 17,740 8,160
Benefits paid..................................... (2,285) (2,543) (8,366) (8,160)
------- ------- -------- --------
Fair value of assets at end of year............... $39,822 $ -- $ 40,724 $ --
======= ======= ======== ========
FUNDED STATUS OF PLANS
Funded status..................................... $ 2,278 $52,645 $ (4,241) $ 41,146
Unrecognized actuarial gain (loss)................ 1,409 (10,450) 8,079 --
Unrecognized transition obligation................ (755) -- (929) --
Unrecognized prior service cost................... (4,951) 2,075 (3,286) 105
------- ------- -------- --------
Net liability (asset) recognized.................. $(2,019) $44,270 $ (377) $ 41,251
======= ======= ======== ========
The hourly pension plan had an aggregate benefit obligation of $31,366 and
$29,488 and an aggregate fair value of plan assets of $34,430 and $35,639 at
December 31, 2000 and 1999, respectively. The salaried pension plan and SERB had
an aggregate benefit obligation of $10,734 and $6,995 and an aggregate fair
value of plan assets of $5,392 and $5,085 at December 31, 2000 and 1999,
respectively. There are no plan assets in the SERB due to the nature of the
plan.
33
35
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
Net periodic benefit costs were comprised of the following elements:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998
----------------- ------------------- -------------------
PENSION OPEB PENSION OPEB PENSION OPEB
------- ------ -------- ------- -------- -------
Service cost................. $1,212 $1,697 $ 2,625 $ 2,956 $ 3,004 $ 3,220
Interest cost................ 2,719 3,658 8,005 8,160 10,383 10,113
Expected return on plan
assets..................... (3,601) -- (10,323) -- (11,468) --
Net amortization and
deferral................... 416 207 1,010 732 978 670
------ ------ -------- ------- -------- -------
Net periodic cost............ $ 746 $5,562 $ 1,317 $11,848 $ 2,897 $14,003
====== ====== ======== ======= ======== =======
The following assumptions were used in the actuarial computations at
December 31:
2000 1999 1998
---- ---- ----
Discount rate............................................... 7.25% 7.50% 6.75%
Rate of increase in future compensation levels
Hourly pension plan....................................... 4.00% 4.00% 4.00%
Salaried pension plan..................................... 4.00% 4.00% 4.00%
Long term rate of return on pension plan assets............. 9.00% 9.00% 9.00%
For measurement purposes, a 6.00%, 6.00% and 5.50% annual rate increase in
the per capita cost of covered health care benefits was assumed for 2000, 1999
and 1998, respectively. The rates were assumed to remain at 6.00% for 2001 and
thereafter.
A one-percentage-point increase in the assumed rate of inflation in future
medical costs would increase the postretirement benefit obligation at December
31, 2000 by $458 and would increase aggregate 2000 service and interest cost by
$1,156. A one-percentage-point decrease in the assumed rate of inflation in
future medical costs would decrease the postretirement benefit obligation at
December 31, 2000 by $358 and would decrease aggregate 2000 service and interest
cost by $878.
The Company sponsors a tax-deferred savings plan under which eligible
employees may elect to contribute specified percentages of their compensation
with the Company providing matching contributions of 60% of the first 6% of a
participant's annual compensation contributed to the savings plan. One half of
the Company's contribution is invested in the common stock of Century and one
half of the Company's contribution is in cash. Company contributions to the
savings plan were $241, $585 and $774 for the years ended December 31, 2000,
1999 and 1998, respectively.
8. SHAREHOLDERS' EQUITY
Preferred Stock -- Under the Company's Restated Certificate of
Incorporation, the Board of Directors is authorized to issue up to 5,000,000
shares of preferred stock, with a par value of one cent per share, in one or
more series. The authorized but unissued preferred shares may be issued with
such dividend rates, conversion privileges, voting rights, redemption prices and
liquidation preferences as the Board of Directors may determine, without action
by shareholders.
9. STOCK BASED COMPENSATION
1996 Stock Incentive Plan -- The Company adopted the 1996 Stock Incentive
Plan (the "Stock Incentive Plan") for the purpose of awarding performance share
units and granting qualified incentive stock options and nonqualified stock
options to salaried officers and other key employees of the Company. The Stock
Incentive Plan has a term of ten years from its effective date. The number of
shares available under the Stock
34
36
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
Incentive Plan is 1,500,000. Granted stock options vest one-third on the grant
date and an additional one-third on each of the first and second anniversary
dates.
The Company awarded 460,000 service based performance share units at the
time of the initial public offering and 60,500 units during 2000 for no
consideration. The service based performance share units represent the right to
receive common stock, on a one-for-one basis on their vesting dates. The value
of the service based performance share units is $13 per share for the initial
award and $12.86 per share for the units awarded in 2000. The value of the
460,000 units granted in 1996 is being charged to compensation expense over
their five year vesting period, which is one-third at the end of each of the
third, fourth and fifth anniversary dates. The value of the 60,500 units granted
in 2000 is being charged to compensation expense over their three year vesting
period which is one-third at January 1, 2001, 2002 and 2003, respectively.
During 2000, 136,665 of the service based performance shares became vested and
were converted to Common Stock.
The Stock Incentive Plan, as presently administered, provides for
additional grants upon the attainment of certain established performance goals.
As of December 31, 2000, approximately 450,000 performance share units have been
authorized and will vest upon the attainment of the performance goals.
In 2000, the Company recognized $988 of expense related to the Stock
Incentive Plan. The service based performance share units do not affect the
issued and outstanding shares of common stock until conversion at the end of the
vesting periods. However, the service based performance share units are
considered common stock equivalents and therefore are included, using the
treasury stock method, in average common shares outstanding for diluted earnings
per share computations. Goal based performance share units are not considered
common stock equivalents until it becomes probable that performance goals will
be obtained.
The Company applies APB Opinion 25 and related interpretations in
accounting for the 1996 Stock Incentive Plan. Accordingly, no compensation cost
has been recognized for the stock option portions of the plan. Had compensation
cost for the Stock Incentive Plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS No.
123, the Company's net income and earnings per share would have changed to the
pro forma amounts indicated below:
2000 1999 1998
------- ------ -------
Net Income
As Reported.......................................... $25,305 $3,919 $17,937
Pro Forma............................................ $25,115 $4,074 $17,568
Basic earnings per share
As Reported.......................................... $ 1.25 $ 0.19 $ 0.90
Pro Forma............................................ $ 1.24 $ 0.20 $ 0.88
Diluted earnings per share
As Reported.......................................... $ 1.24 $ 0.19 $ 0.89
Pro Forma............................................ $ 1.23 $ 0.20 $ 0.87
Non-Employee Directors Stock Option Plan -- The Company adopted a
non-employee directors stock option plan for the purpose of granting
non-qualified stock options to non-employee directors. The number of shares
available under this plan is 200,000, of which options for 103,000 shares have
been awarded. The initial options vest one-third on the grant date and an
additional one-third on each of the first and second anniversary dates.
Subsequent options vest one-fourth each calendar quarter. Each option granted
under this plan will be exercisable for a period of ten years from the date of
grant.
35
37
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
A summary of the status of the Company's Stock Incentive Plan and the
Non-Employee Directors Stock Option Plan as of December 31, 2000, 1999 and 1998
and changes during the year ended on those dates is presented below:
2000 1999 1998
------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------- ------- -------- -------- -------- ------- --------
Outstanding at beginning of
year........................ 530,200 $13.19 609,900 $13.15 595,600 $13.31
Granted..................... 73,400 10.45 23,500 9.26 102,900 14.01
Exercised................... -- -- (333) 8.63 -- --
Forfeited................... -- -- (102,867) 12.58 (88,600) 15.22
------- ------ -------- ------ ------- ------
Outstanding at end of year.... 603,600 $12.77 530,200 $13.19 609,900 $13.15
======= ====== ======== ====== ======= ======
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------- -------------------------------
NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE AT WEIGHTED-AVG.
EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE PRICE 12/31/00 EXERCISE PRICE
- --------------- ----------- ---------------- ------------- -------------- --------------
$14.50 to $16.72 45,500 6.1 years $15.83 45,500 $15.83
$11.50 to $14.49 500,800 5.6 years $13.01 477,133 $13.02
$ 7.03 to $11.49 57,300 9.3 years $ 8.25 33,700 $ 8.69
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000 and 1999:
2000 1999
----- -----
Weighted average fair value per option granted during the
year...................................................... $4.05 $2.77
Dividends per quarter....................................... $0.05 $0.05
Risk-free interest rate..................................... 6.47% 5.54%
Expected volatility......................................... 30% 30%
Expected lives (in years)................................... 5 5
36
38
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
10. EARNINGS PER SHARE
Basic and diluted earnings per share for income from continuing operations
for the years ended December 31, are as follows (shares in thousands):
2000 1999 1998
------- ------- -------
BASIC EARNINGS PER SHARE:
Numerator:
Net income available to common shareholders......... $25,305 $ 3,919 $17,937
Denominator:
Average common shares outstanding................... 20,308 20,202 20,000
------- ------- -------
Basic earnings per share.............................. $ 1.25 $ 0.19 $ 0.90
======= ======= =======
DILUTED EARNINGS PER SHARE:
Numerator:
Net income available to common shareholders......... $25,305 $ 3,919 $17,937
Denominator:
Average common shares outstanding................... 20,308 20,202 20,000
Effect of dilutive securities:
Stock options and performance awards................ 170 155 266
------- ------- -------
Common shares outstanding, assuming dilution.......... 20,478 20,357 20,266
------- ------- -------
Diluted earnings per share............................ $ 1.24 $ 0.19 $ 0.89
======= ======= =======
11. INCOME TAXES
Significant components of the income tax expense from continuing operations
consist of the following:
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
-------- ------- --------
FEDERAL:
Current benefit (expense)......................... $ 656 $18,850 $(12,487)
Deferred (expense) benefit........................ (10,101) (19,183) 3,592
STATE:
Current benefit (expense)......................... 491 2,544 (1,482)
Deferred (expense) benefit........................ (2,347) (2,839) 175
-------- ------- --------
Total income tax expense....................... $(11,301) $ (628) $(10,202)
======== ======= ========
Income tax expense for the years ended December 31, 2000 and 1999 include
reductions in estimated income taxes payable of $2,400 and $1,500, respectively.
37
39
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
A reconciliation of the statutory U.S. Federal income tax rate to the
effective income tax rate on income from continuing operations is as follows:
2000 1999 1998
---- ---- ----
Federal statutory rate...................................... 35% 35% 35%
Effect of:
Permanent differences..................................... 1 (2) (2)
State taxes, net of Federal benefit....................... 3 3 3
Other..................................................... (8) (25) --
-- --- --
31% 11% 36%
== === ==
Permanent differences primarily relate to the Company's foreign sales
corporation and the meal and entertainment disallowance.
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
2000 1999
-------- --------
FEDERAL
Deferred federal tax assets:
Accrued postretirement benefit cost....................... $ 1,035 $ --
Accrued liabilities....................................... 5,196 8,758
Federal NOL carried forward............................... -- 2,587
General business credit................................... 165 165
-------- --------
Net deferred federal tax assets........................ 6,396 11,510
Deferred federal tax liabilities:
Tax over financial statement depreciation................. (23,018) (18,356)
-------- --------
Net deferred federal tax (liability) asset........ (16,622) (6,846)
-------- --------
STATE
Deferred state tax assets:
Accrued postretirement benefit cost....................... 148 --
Accrued liabilities....................................... 680 1,217
State NOL carried forward................................. 1,222 2,343
-------- --------
Net deferred state tax assets.......................... 2,050 3,560
Deferred state tax liabilities:
Tax over financial statement depreciation................. (3,288) (2,126)
-------- --------
Net deferred state tax asset...................... (1,238) 1,434
-------- --------
Net deferred tax (liability) asset.......................... $(17,860) $ (5,412)
======== ========
Of the $17,860 net deferred tax liability at December 31, 2000, $4,265 is
included in current assets. Of the $5,412 net deferred tax liability at December
31, 1999, $1,366 is included in current assets.
38
40
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
12. CONTINGENCIES AND COMMITMENTS
Environmental Contingencies
The Company spends significant amounts for compliance with environmental
laws and regulations. While the Company believes, based upon information
currently available to management, that it will not have liabilities in this
regard which are likely to have a material adverse effect on the Company, there
can be no assurance that future remedial requirements at currently and formerly
owned or operated properties or adjacent areas will not result in a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
The 1990 amendments to the Clean Air Act impose stringent standards on
aluminum industry air emissions. These amendments will affect the operations of
the Company's facilities. Technology-based standards relating to smelters and
carbon plants have been promulgated. However, the Company cannot predict the
total expenditures the Company will incur to comply with these standards. The
Company's general capital expenditure plan includes certain projects designed to
improve the Company's compliance with respect to both known and anticipated
requirements.
Pursuant to an Environmental Protection Agency ("EPA") order issued in 1994
under Section 3008(h) (the "3008(h) order") of the Resource Conservation and
Recovery Act ("RCRA"), Century of West Virginia is performing remediation
measures at a former oil pond area and in connection with cyanide contamination
in the groundwater. Century of West Virginia also conducted and, in December
1999, submitted to the EPA a RCRA facility investigation ("RFI") evaluating
other areas that may have contamination exceeding certain levels. After the RFI
is complete, Ravenswood will have 60 days within which to submit a corrective
measures study ("CMS") to the EPA proposing means of remediating areas that may
require cleanup. If any cleanup is required, EPA would issue a subsequent order.
Ravenswood believes this process will not be completed before mid 2001. The
Company is aware of some environmental contamination at Ravenswood, and it is
likely cleanup activities will be required in two areas of the facility.
Ravenswood believes a significant portion of this contamination is attributable
to the operations of a prior owner and will be the financial responsibility of
that owner, as discussed below.
Prior to the Company's acquisition of Ravenswood, Kaiser Aluminum &
Chemical Corporation ("Kaiser") owned and operated the facility for
approximately thirty years. Many of the conditions which Ravenswood investigated
under the 3008(h) order exist because of activities which occurred during
Kaiser's ownership and operation. With respect to those conditions, Kaiser will
be responsible for the costs of required cleanup under the terms of the Kaiser
Purchase Agreement. In addition, Kaiser retained title to certain land within
the Ravenswood premises and retains full responsibility for those areas. Under
current environmental laws, the Company may be required to remediate any
contamination which was discharged from areas which Kaiser owns or previously
owned or operated. However, if such remediation is required, the Company
believes Kaiser will be liable for some or all of the costs thereof pursuant to
the Kaiser Purchase Agreement.
In connection with the sale to Pechiney of the fabricating businesses, the
Company and Century of West Virginia provided Pechiney with certain
indemnifications. Those include the indemnification rights Century of West
Virginia and the Company, respectively, have under the Kaiser Purchase Agreement
(with respect to the real property transferred to Pechiney) and the Company's
Cast Plate, Inc., Stock Purchase Agreement with Alcoa. The Pechiney Purchase
Agreement provides further indemnifications which are limited, in general, to
pre-closing conditions which were not disclosed to Pechiney or to off site
migration of hazardous substances from pre-closing acts or omissions of Century
of West Virginia. Environmental indemnifications under the Pechiney Purchase
Agreement expire September 20, 2005. They are payable only to the extent they
exceed $2,000.
39
41
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
The Company, together with all other past and present owners of an alumina
facility at St. Croix, Virgin Islands, has entered into an Administrative Order
on Consent with the Environmental Protection Agency ("Order") pursuant to which
the signatories have agreed to carry out a Hydrocarbon Recovery Plan to remove
and manage oil floating on top of groundwater underlying the facility. Recovered
hydrocarbons and groundwater will be delivered to the adjacent petroleum
refinery where they will be received and managed. The owner of the petroleum
refinery will compensate the other signatories by paying them the fair market
value for the petroleum recovered. Lockheed Martin Corporation ("Lockheed"),
which sold the facility to one of the Company's affiliates, Virgin Islands
Alumina Corporation ("Vialco") in 1989, has tendered indemnity and defense of
this matter to Vialco pursuant to terms of the Lockheed -- Vialco Asset Purchase
Agreement. The Company also gave certain environmental indemnity rights to St.
Croix Alumina, LLC ("St. Croix"), an indirect affiliate of Alcoa, Inc., when it
sold the facility to St. Croix. Those rights extend only to environmental
conditions arising from Vialco's operation of the facility and then only after
St. Croix has spent $300 on such conditions. Management does not believe Vialco
will have any indemnification obligation to St. Croix arising out of the Order.
Further, management does not believe Vialco's liability under this Order will
have a material adverse effect on the Company's financial condition, results of
operations, or liquidity.
It is the Company's policy to accrue for costs associated with
environmental assessments and remedial efforts when it becomes probable that a
liability has been incurred and the costs can be reasonably estimated. The
aggregate environmental related accrued liabilities were $900 at December 31,
2000 and 1999. All accruals have been recorded without giving effect to any
possible recoveries. With respect to ongoing environmental compliance costs,
including maintenance and monitoring, such costs are expensed as incurred.
Because of the issues and uncertainties described above, and the Company's
inability to predict the requirements of the future environmental laws, there
can be no assurance that future capital expenditures and costs for environmental
compliance will not have a material adverse effect on the Company's future
financial condition, results of operations, or liquidity. Based upon all
available information, management does not believe that the outcome of these
environmental matters, or environmental matters concerning Mt. Holly, will have
material adverse effect on the Company's financial condition, results of
operations, or liquidity.
Legal Contingencies
While Century of West Virginia has been a named defendant (along with many
other companies) in approximately 2,362 civil actions brought by employees of
third party contractors who allege asbestos-related diseases arising out of
exposure at facilities where they worked, including Ravenswood, all of those
actions relating to the Ravenswood facility have been settled as to the Company
and as to Kaiser. Approximately 10 of those civil actions alleged exposure
during the period the Company owned Ravenswood, and the Company has agreed to
settlements for non-material amounts. The Company is awaiting receipt of final
documentation of those settlements and entry of dismissal orders. Management
believes there are no unsettled asbestos cases pending against the Company.
The Company has pending against it or may be subject to various other
lawsuits, claims and proceedings related primarily to employment, commercial,
environmental and safety and health matters. Although it is not presently
possible to determine the outcome of these matters, management believes their
ultimate disposition will not have a material adverse effect on the Company's
financial condition, results of operations, or liquidity.
In August 1999, an illegal, one-day work stoppage temporarily shut down one
of the Company's four production lines at the Century of West Virginia facility.
The cost of this work stoppage is estimated to be approximately $10,000
including equipment damaged as a result of the production line shutdown. During
2000, the Company filed a claim with its insurance carrier for business
interruption and equipment damage relative to the work stoppage and has received
partial settlement of approximately $6,100. The receipts from
40
42
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
the claim have been included in the statement of operations under the caption
"Other Income (Expense) -- Net".
Commitments
To fulfill its power requirements at Ravenswood, the Company purchases
electricity from Ohio Power at a fixed price pursuant to a power supply
agreement which terminates on July 31, 2003. Power for Mt. Holly is provided
under a contract with the South Carolina Public Service Authority. That contract
provides fixed pricing but is subject to modification for fuel adjustments and
demand sales. It terminates December 31, 2005.
On January 23, 1996, the Company and the Pension Benefit Guaranty
Corporation ("PBGC") entered into an agreement (the "PBGC Agreement") which
provided that the Company make scheduled cash contributions to its pension plan
for hourly employees in 1996, 1997, 1998 and 1999. The Company made its
scheduled contributions for each of the years. As part of the agreement, the
Company had granted the PBGC a first priority security interest in (i) the
property, plant and equipment at its Century of West Virginia facility and (ii)
all of the outstanding shares of Berkeley. On February 2, 2001 the agreement
with the PBGC, dated January 23, 1996, was terminated and the PBGC agreed to
release its first priority security interest.
Other
Century of West Virginia's hourly employees, which comprise 81% of the
Company's workforce are represented by the United Steelworkers of America and
are currently working under a four year labor agreement effective June 1, 1999.
13. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS
The Company produces primary aluminum products and manages risk through the
issuance of fixed-price commitments and financial instruments.
In connection with the sale of the aluminum fabricating businesses in
September 1999, the Company entered into a Molten Aluminum Purchase Agreement
(the "Metal Agreement") with Pechiney, that shall continue in effect until July
31, 2003 with provisions for extension. Pursuant to the Metal Agreement,
Pechiney has agreed to purchase and the Company has agreed to deliver, on a
monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds
of molten aluminum. The selling price is determined by a market based formula.
Subsequent to the purchase of an additional 23% interest in Mt. Holly from
Xstrata, the Company entered into a ten year agreement with Glencore (the
"Glencore Metal Agreement") to sell approximately 110.0 million pounds of
primary aluminum products per year. Selling prices for the first two years are
determined by a market based formula. The remaining eight years of the contract
are at a fixed price as defined in the agreement.
Exclusive of the Metal Agreement and the Glencore Metal Agreement, the
Company had fixed price commitments to sell 50.3 million pounds and 124.4
million pounds of primary aluminum at December 31, 2000 and 1999, respectively.
Of the total fixed-price sales commitments, 14.7 million pounds and 68.3 million
pounds at December 31, 2000 and 1999, respectively, were with the Glencore
Group. The Company had no fixed-price commitments to purchase aluminum at
December 31, 2000 or 1999.
In order to manage the Company's exposure to fluctuating commodity prices,
the Company enters into forward sales contracts for primary aluminum that will
be settled in cash. These contracts are used to offset fluctuations in the
selling price of anticipated sales occurring in the month the contracts are
settled. The Company had forward sales contracts for 453.5 million and 60.0
million pounds of primary aluminum to be settled in cash at December 31, 2000
and 1999, respectively. Of these contracts, 396.4 million and 60.0 million
41
43
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
pounds were with the Glencore Group at December 31, 2000 and 1999, respectively.
The forward sales contracts at December 31, 2000 are scheduled for settlement at
various dates in 2001 thru 2003. Based on market prices at December 31, 2000,
the forward sales contracts could be settled by the Company receiving
approximately $1,734. The actual settlement will be based on market prices on
the respective settlement dates. On January 1, 2001, the Company designated the
forward sales contracts as hedges and will account for gains and losses pursuant
to FAS No. 133 as amended by FAS No. 138. Prior to January 1, 2001, realized and
unrealized gains and losses on forward sales contracts have been reported in the
statement of operations under the caption "Net Gain (Loss) on Forward
Contracts".
The Company also enters into forward purchase contracts for natural gas
that will be settled in cash. These contracts are intended to manage the
Company's exposure to fluctuations in prices of the natural gas used in its
production process. The Company has designated these contracts as a hedge.
Accordingly, unrealized gains and losses are deferred until the hedged purchase
of natural gas occurs. Unrealized gains and losses are recorded in the balance
sheet under the captions "Prepaid and Other Assets" and "Accrued and Other
Current Liabilities". Based on market prices at December 31, 2000, the forward
purchase contracts could be settled by the Company receiving approximately
$1,514.
The forward sales and purchase contracts are subject to the risk of
non-performance by the counterparties. However, the Company only enters into
forward contracts with counterparties it determines to be creditworthy. If any
counterparty failed to perform according to the terms of the contract, the
accounting impact would be limited to the difference between the nominal value
of the contract and the market value on the date of settlement.
The Company entered into a long-term supply agreement for 936.0 million
pounds of alumina annually, beginning January 1, 1996. That agreement will
terminate at the end of 2001 and be replaced by a new long-term supply agreement
with Glencore. This new agreement provides for a fixed quantity of alumina at
prices determined by a market-based formula. In addition, as part of its
acquisition of an additional 23% interest in Mt. Holly, the Company assumed a
supply agreement with Glencore for the alumina raw material requirements
relative to the additional interest. The unit cost is also determined by a
market based formula. The alumina supply agreement terminates in 2008.
Although the Company has not materially participated in the purchase of
call options, in cases where Century sells forward primary aluminum, it may
purchase call options to preserve the opportunity to benefit from price
increases significantly above the forward sales prices. In addition, in cases
where the Company purchases forward primary aluminum, it may purchase put
options to protect itself from price decreases.
14. RELATED PARTY TRANSACTIONS
The significant related party transactions occurring during the years ended
December 31, 2000, 1999 and 1998, and not discussed elsewhere in the notes to
the consolidated financial statements, are described below.
Related Party Transactions -- Century
During the years 1998, 1999 and 2000 and at December 31, 2000, the Chairman
of the Board of Directors of Century was a member of the Board of Directors of
Glencore International AG. In addition, during the years ended and at December
31, 2000, 1999 and 1998, one of Century's Board members was the Chairman of the
Board of Directors of Glencore International AG.
42
44
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
Related Party Transactions -- Century of West Virginia
During the years ended December 31, 2000, 1999 and 1998, Century of West
Virginia purchased and sold alumina, primary and scrap aluminum in transactions
with Glencore at prices which management believes approximated market.
Related Party Transactions -- Berkeley
A substantial portion of Berkeley's sales during the years ended December
31, 2000, 1999 and 1998 were to Glencore.
Summary
A summary of the aforementioned related party transactions for the years
ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
-------- ------- -------
Net sales............................................ $129,320 $68,801 $74,252
Purchases............................................ 16,993 63,256 43,651
Net gain (loss) on forward contracts................. 2,261 (5,368) 10,574
See Note 13 for a discussion of the Company's fixed-price commitments and
forward contracts with related parties.
15. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------ ------
Cash paid for:
Interest.............................................. $ 371 $6,305 $5,528
Income taxes.......................................... 771 2,021 9,850
Cash received from:
Interest.............................................. 2,675 1,670 --
Income tax refunds.................................... 13,322 174 5,584
Non-Cash Investing Activities
During the years ended December 31, 1999 and 1998, $1,845 and $3,242,
respectively, of interest cost incurred in the construction of equipment was
capitalized. No interest was capitalized during the year ended December 31,
2000.
16. BUSINESS SEGMENTS
Prior to September 21, 1999, the Company operated in two reportable
business segments; primary aluminum and sheet and plate products. The primary
aluminum segment produces rolling ingot, t-ingot, extrusion billet and foundry
ingot. The sheet and plate segment produced a wide range of products such as
brazing sheet for sale to automobile manufacturers, heat treated and non-heat
treated plate for sale to aerospace and defense manufacturers, heavy gauge,
wide-leveled coil for sale to heavy truck, truck trailer, marine and rail car
manufacturers and sheet and coil for sale to building products manufacturers.
The accounting policies of the segments were the same as those described in
Note 1 "Summary of Significant Accounting Policies" except that intersegment
revenues were accounted for based upon a market-
43
45
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
based standard established by the Company. The Company evaluated segment
performance based upon gross profit.
Effective with the sale of the sheet and plate segment to Pechiney on
September 21, 1999, the Company now operates in one business segment: primary
aluminum.
CORPORATE,
UNALLOCATED &
PRIMARY SHEET AND PLATE ELIMINATIONS TOTAL
-------- --------------- ------------- --------
2000
Net Sales
Third-party and intersegment customers........ $299,277 $ -- $ -- $299,277
Related party customers....................... 129,320 -- -- 129,320
Depreciation and amortization................... 14,208 -- 187 14,395
Segment gross profit (loss)(4).................. 32,645 -- (187) 32,458
Segment assets(1)............................... 327,131 -- 6,639 333,770
Expenditures for segment assets................. 17,631 -- -- 17,631
1999
Net Sales
Third-party and intersegment customers........ $248,569 $385,754 $(136,848) $497,475
Related party customers....................... 68,801 -- -- 68,801
Depreciation and amortization................... 9,986 8,577 186 18,749
Segment gross profit (loss)(2)(3)............... (17,232) 10,773 (186) (6,645)
Segment assets(1)............................... 303,992 -- 6,810 310,802
Expenditures for segment assets................. 14,737 8,246 -- 22,983
1998
Net Sales
Third-party and intersegment customers........ $276,025 $534,522 $(234,541) $576,006
Related party customers....................... 74,252 -- -- 74,252
Depreciation and amortization................... 9,308 10,191 186 19,685
Segment gross profit (loss)..................... 28,791 9,857 (186) 38,462
Segment assets(1)............................... 181,383 353,028 11,219 545,630
Expenditures for segment assets................. 19,132 25,126 1 44,259
- ---------------
(1) Segment assets include accounts receivable, due from affiliates, inventory
and property, plant and equipment-net, the remaining assets are unallocated
corporate assets, deferred tax assets and intersegment eliminations.
(2) The primary segment includes a non-cash charge of $4,623 for inventory
writedowns and LIFO adjustments.
(3) The sheet and plate segment includes a non-cash charge of $7,649 for
inventory writedowns and LIFO adjustments.
(4) Includes a non-cash charge of $1,631 for inventory writedowns.
44
46
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
Included in the consolidated financial statements are the following amounts
related to geographic locations:
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Net Sales
United States.................................... $428,597 $501,655 $568,136
Canada........................................... -- 38,572 54,763
Europe........................................... -- 15,840 14,611
Other............................................ -- 10,209 12,748
At December 31, 2000 and 1999, all of the Company's long-lived assets were
located in the United States.
Revenues from one customer, Glencore, represented 30.2%, 12.1% and 11.4% of
the Company's consolidated revenues in 2000, 1999 and 1998, respectively.
Revenues from another customer represented 55.1% and 10.4% of the Company's
consolidated sales in 2000 and 1999, respectively. Revenues from this customer
in 1998 were less than 10% of the Company's consolidated revenues.
17. QUARTERLY INFORMATION (UNAUDITED)
On September 21, 1999, the Company and Century of West Virginia sold their
fabricating businesses. Accordingly, the following information includes the
operations of these businesses through September 21, 1999. Effective April 1,
2000, the Company acquired an additional 23% interest in Mt. Holly and the
following information contains the results of the acquisition from that date.
Financial results by quarter for the years ended December 31, 2000 and 1999
are as follows:
GROSS INCOME (LOSS) INCOME (LOSS)
NET PROFIT BEFORE PER SHARE BEFORE NET INCOME
SALES (LOSS) EXTRAORDINARY ITEM NET INCOME EXTRAORDINARY ITEM PER SHARE
-------- ------- ------------------ ---------- ------------------ ----------
2000:
1st Quarter(1)....... $ 96,449 $ 8,167 $ 5,627 $ 5,627 $ 0.28 $ 0.28
2nd Quarter(2)(3).... 109,065 7,873 6,897 6,897 0.34 0.34
3rd Quarter.......... 111,103 8,077 4,349 4,349 0.21 0.21
4th Quarter(4)....... 111,980 8,341 8,432 8,432 0.41 0.41
1999:
1st Quarter.......... $163,359 $ 1,559 $(2,759) $(2,759) $(0.14) $(0.14)
2nd Quarter(5)....... 169,006 (827) (5,080) (5,080) (0.25) (0.25)
3rd Quarter(6)(7).... 153,045 (7,144) 16,649 15,287 0.82 0.76
4th Quarter(8)....... 80,866 (233) (3,529) (3,529) (0.17) (0.17)
- ---------------
(1) The first quarter 2000 gross profit includes non-cash charges of $1,631 for
inventory writedowns.
(2) The second quarter 2000 income before extraordinary item includes an
additional pre-tax gain on the sale of the fabricating businesses of $5,156.
(3) The second quarter 2000 income before extraordinary item includes proceeds
of $3,000 in partial settlement of the Company's claim with its insurance
carrier.
(4) The fourth quarter 2000 income before extraordinary item includes proceeds
of $3,065 in partial settlement of the Company's claim with its insurance
carrier.
45
47
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED)
(5) The second quarter 1999 gross profit includes non-cash charges of $3,842 for
inventory write-downs and LIFO adjustments.
(6) The third quarter 1999 gross profit includes non-cash charges of $11,748 for
inventory writedowns and LIFO adjustments.
(7) The Company recorded a pre-tax gain on the sale of the fabricating
businesses of $41,130 and an after-tax extraordinary charge of $1,362 to
write-off deferred debt fees in the third quarter of 1999.
(8) The fourth quarter 1999 gross profit includes a non-cash credit of $3,318
for the net effect of inventory writedowns and LIFO adjustments.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
46
48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This Item will be included in an amendment to this report on Form 10-K to
be filed within 120 days after the close of the fiscal year covered by this
report on Form 10-K. The information regarding Executive Officers of the
Registrant is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
This Item will be included in an amendment to this report on Form 10-K to
be filed within 120 days after the close of the fiscal year covered by this
report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This Item will be included in an amendment to this report on Form 10-K to
be filed within 120 days after the close of the fiscal year covered by this
report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This Item will be included in an amendment to this report on Form 10-K to
be filed within 120 days after the close of the fiscal year covered by this
report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Century Aluminum Company
and the Independent Auditors' Report are included in Part II, Item 8 of this
Form 10-K.
Independent Auditors' Report.
Consolidated Balance Sheets at December 31, 2000 and 1999.
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998.
Notes to the Consolidated Financial Statements.
47
49
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report.
Schedule I -- Condensed Financial Information of Registrant as of December
31, 2000 and 1999 and for each of the three years in the period ended December
31, 2000.
Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 2000, 1999 and 1998.
(a)(3) LIST OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 Stock and Asset Purchase Agreement dated July 26, 1999 by
and among Century Aluminum Company, Century Aluminum of West
Virginia, Inc. and Pechiney Rolled Products LLC(f)
2.2 Management Services Agreement dated as of September 21, 1999
by and between Century Aluminum Company and Pechiney Rolled
Products LLC(f)
2.3 Molten Aluminum Purchase Agreement dated as of September 21,
1999 by and between Century Aluminum of West Virginia, Inc.
and Pechiney Rolled Products LLC(f)
2.4 Amended and Restated Shared Facilities and Services
Agreement dated as of September 21, 1999 by and between
Century Aluminum of West Virginia, Inc. and Pechiney Rolled
Products LLC(f)
3.1 Restated Certificate of Incorporation of Registrant.*
3.2 Amended and Restated Bylaws of Registrant, dated March 5,
1999.(e)
4.1 Form of Stock Certificate.*
10.1 Revolving Credit and Term Loan Agreement among Century
Aluminum Company, Century Aluminum of West Virginia, Inc.,
Berkeley Aluminum, Inc., and Century Cast Plate, Inc., as
Borrowers, various lending institutions, as lenders,
BankBoston, N.A., as Agent, The CIT Group/ Business Credit,
Inc., as Co-Agent, and BancBoston Robertson Stephens Inc.,
as Arranger, dated as of March 31, 1999.(e)
10.2 Alumina Supply Agreement between Alcoa Alumina & Chemicals,
L.L.C., Alcoa of Australia, Ltd. and Ravenswood Aluminum
Corporation, dated July 24, 1995.*(a)
10.4 Agreement between Ravenswood Aluminum Corporation and United
Steelworkers of America AFL-CIO, Local 5668, dated November
30, 1994.*
10.5 Agreement between Ravenswood Aluminum Corporation and United
Steelworkers of America AFL-CIO, Local 5668, dated June 12,
1992.*
10.6 Employment Agreement between Century Aluminum Company and
Craig A. Davis.(b)(e)
10.7 Employment Agreement between Century Aluminum Company and
Gerald A. Meyers.(b)(e)
10.8 Employment Agreement between Century Aluminum Company and
Gerald J. Kitchen.(b)(e)
10.9 Employment Agreement between Century Aluminum Company and
David W. Beckley.(b)(e)
10.10 Form of Employment Agreement between Century Aluminum
Company and Steven R. Sedberry.*(b)
10.11 Form of Severance Agreement between Century Aluminum Company
and Craig A. Davis.*(b)
10.11a Amendment to Severance Protection Agreement between Century
Aluminum Company and Craig A. Davis(e)
10.12 Form of Severance Agreement between Century Aluminum Company
and Gerald A. Meyers.*(b)
10.12a Amendment to Severance Protection Agreement between Century
Aluminum Company and Gerald A. Meyers(e)
10.13 Form of Severance Agreement between Century Aluminum Company
and Gerald J. Kitchen.*(b)
48
50
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.13a Amendment to Severance Protection Agreement between Century
Aluminum Company and Gerald J. Kitchen(e)
10.14 Form of Severance Agreement between Century Aluminum Company
and David W. Beckley.*(b)
10.14a Amendment to Severance Protection Agreement between Century
Aluminum Company and David W. Beckley(e)
10.15 Form of Severance Agreement between Century Aluminum Company
and Steven R. Sedberry.*(b)
10.16 1996 Stock Incentive Plan as amended through June 8,
1999.(b)(e)
10.17 Non-Employee Directors Stock Option Plan.*(b)
10.18 Amended and Restated Asset Purchase Agreement between Kaiser
Aluminum & Chemical Corporation and Ravenswood Acquisition
Corporation, dated as of December 13, 1988.*
10.19 Acquisition Agreement between Virgin Islands Alumina
Corporation and St. Croix Alumina, L.L.C., dated July 19,
1995.*
10.20 Ravenswood Environmental Services Agreement between Kaiser
Aluminum & Chemical Corporation and Ravenswood Aluminum
Corporation, dated as of February 7, 1989.*
10.21 Asset Purchase Agreement Between Xstrata Aluminum
Corporation and Berkeley Aluminum, Inc. dated as of March
31, 2000 (g)
10.22 Form of Tax Sharing Agreement.*
10.23 Form of Disaffiliation Agreement.*
10.26 Amended and Restated Owners Agreement between Alumax of
South Carolina, Inc., Berkeley Aluminum, Inc. and Glencore
Primary Aluminum Company LLC, dated as of January 26, 1996.*
10.27 Limited Term Firm Power Supply Agreement between Ravenswood
Aluminum Corporation and Ohio Power Company dated as of June
28, 1996.(c)
10.28 Amendment No. 1 to the Limited Term Firm Power Supply
Agreement between Ravenswood Aluminum Corporation and Ohio
Power Company dated as of June 28, 1996.(c)
10.29 Tenth Amendment to Loan and Security Agreement by and among
Century Aluminum of West Virginia, Inc. and Berkeley
Aluminum, Inc. and BankAmerica Business Credit, Inc. entered
into as of May 11,1998.(d)
10.30 Century Aluminum Company 1996 Stock Incentive Plan
Implementation Guidelines.(b)(d)
10.31 Century Aluminum Company Incentive Compensation Plan.(b)(d)
49
51
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
- ---------------
* Incorporated by reference to the Registrant's Form S-1 Registration
Statement, as amended, Registration No. 33-95486.
(a) Confidential treatment has been granted as to portions of this exhibit.
(b) Management contract or compensatory plan.
(c) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
(d) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(e) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
(f) Incorporated by reference to the Registrant's Report on Form 8-K dated
October 6, 1999.
(g) Incorporated by reference to the Registrant's Report on Form 8-K dated April
20, 2000.
(B) REPORTS ON FORM 8-K: NONE
50
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
CENTURY ALUMINUM COMPANY
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Chief Operating
Officer
Dated: March 9, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CRAIG A. DAVIS Chairman and Chief Executive March 9, 2001
- --------------------------------------------------- Officer
Craig A. Davis
/s/ WILLIAM HAMPSHIRE Vice-Chairman March 9, 2001
- ---------------------------------------------------
William R. Hampshire
/s/ GERALD A. MEYERS President, Chief Operating March 9, 2001
- --------------------------------------------------- Officer and Director
Gerald A. Meyers
/s/ DAVID W. BECKLEY Executive Vice President and March 9, 2001
- --------------------------------------------------- Chief Financial Officer
David W. Beckley (Principal Financial Officer
and Principal Accounting
Officer)
/s/ ROMAN A. BNINSKI Director March 9, 2001
- ---------------------------------------------------
Roman A. Bninski
/s/ JOHN P. O'BRIEN Director March 9, 2001
- ---------------------------------------------------
John P. O'Brien
/s/ STUART M. SCHREIBER Director March 9, 2001
- ---------------------------------------------------
Stuart M. Schreiber
51
53
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Century Aluminum Company:
We have audited the consolidated financial statements of Century Aluminum
Company and subsidiaries (the "Company") as of December 31, 2000 and 1999, and
for each of the three years in the period ended December 31, 2000, and have
issued our report thereon dated February 16, 2001 included elsewhere in this
Form 10-K. Our audits also included the financial statement schedules listed in
Item 14 of this Form 10-K. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 16, 2001
52
54
CENTURY ALUMINUM COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Prepaid and Other Assets.................................... $ 2,610 $ 316
-------- --------
Total current assets................................... 2,610 316
Property, Plant and Equipment, Net.......................... 662 843
Investments in Wholly-Owned Subsidiaries.................... 217,707 192,402
-------- --------
Total............................................. $220,979 $193,561
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to Subsidiaries......................................... $ 14,257 $ 9,873
Accrued and Other Current Liabilities....................... 3,267 2,427
-------- --------
Current Liabilities.................................... 17,524 12,300
Other Liabilities........................................... 816 1,533
Contingencies and Commitments (Note 2)
Shareholders' Equity
Common Stock.............................................. 203 202
Additional paid-in capital................................ 166,184 164,409
Retained earnings......................................... 36,252 15,117
-------- --------
Total shareholders' equity............................. 202,639 179,728
-------- --------
Total............................................. $220,979 $193,561
======== ========
See notes to condensed financial information
53
55
CENTURY ALUMINUM COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Selling, General and Administrative Expenses................ $ 9,717 $10,599 $ 9,268
------- ------- -------
Operating (Loss) Income..................................... (9,717) (10,599) (9,268)
Income Tax Benefit (Expense)................................ 3,498 3,816 3,336
------- ------- -------
Income Before Equity in Income From Continuing Operations of
Wholly-Owned Subsidiaries................................. (6,219) (6,783) (5,932)
Equity in Income From Continuing Operations of Wholly-Owned
Subsidiaries.............................................. 31,524 12,064 23,869
------- ------- -------
Income Before Equity in Extraordinary Charge of Wholly-Owned
Subsidiaries.............................................. 25,305 5,281 17,937
Equity in Extraordinary Charge of Wholly-Owned
Subsidiaries.............................................. -- (1,362) --
------- ------- -------
Net Income.................................................. $25,305 $ 3,919 $17,937
======= ======= =======
Basic Earnings Per Common Share
Income before extraordinary charge........................ $ 1.25 $ 0.26 $ 0.90
Extraordinary charge...................................... -- (0.07) --
------- ------- -------
Net income................................................ $ 1.25 $ 0.19 $ 0.90
======= ======= =======
Diluted Earnings Per Common Share
Income before extraordinary charge........................ $ 1.24 $ 0.26 $ 0.89
Extraordinary charge...................................... -- (0.07) --
------- ------- -------
Net income................................................ $ 1.24 $ 0.19 $ 0.89
======= ======= =======
See notes to condensed financial information
54
56
CENTURY ALUMINUM COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
NET CASH FROM OPERATING ACTIVITIES
Net income............................................... $ 25,305 $ 3,919 $ 17,937
Equity in undistributed net income of subsidiaries....... (31,524) (12,064) (23,869)
Depreciation............................................. 181 186 186
Change in other prepaids and current assets.............. (2,294) (45) (271)
Change in other current liabilities...................... 2,616 2,628 2,257
Change in other liabilities.............................. (717) (1,767) 3,300
-------- -------- --------
Net cash used in operating activities...................... (6,433) (7,143) (460)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment................ -- -- (1)
Business acquisitions.................................... -- 7,254 (7,254)
-------- -------- --------
Net cash provided by (used in) investing activities........ -- 7,254 (7,255)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from (payments to) subsidiaries............... 10,603 4,021 11,715
Dividends paid........................................... (4,170) (4,132) (4,000)
-------- -------- --------
Net cash provided by (used in) financing activities........ 6,433 (111) 7,715
-------- -------- --------
Net increase/(decrease) in cash............................ -- -- --
Beginning cash............................................. -- -- --
-------- -------- --------
Ending Cash................................................ $ -- $ -- $ --
======== ======== ========
See notes to condensed financial information
55
57
CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- In the accompanying condensed financial
information of the Registrant ("parent-company-only financial statements"), the
Company's investment in subsidiaries is stated at cost plus equity in
undistributed earnings and losses of subsidiaries. The Company's share of income
from continuing and discontinued operations of subsidiaries is reflected using
the equity method of accounting. Parent-company-only financial statements should
be read in conjunction with the Company's consolidated financial statements and
the notes to such consolidated financial statements appearing in this Form 10-K
("Consolidated Financial Statements").
Certain amounts in 1999 and 1998 have been reclassified to conform with the
presentation in 2000.
2. CONTINGENCIES AND COMMITMENTS
For disclosure of contingencies and commitments, see Notes 4, 12 and 13 to
the Consolidated Financial Statements.
3. SHAREHOLDERS' EQUITY
For disclosure of information concerning shareholders' equity, see Note 8
to the Consolidated Financial Statements.
56
58
CENTURY ALUMINUM COMPANY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END
OF PERIOD EXPENSE DEDUCTIONS(1) OF PERIOD
---------- ---------- ------------- ----------
(DOLLARS IN THOUSANDS)
Year Ended December 31, 1998:
Allowance for doubtful trade accounts
receivable.................................... $2,270 $120 $ -- $2,390
Year Ended December 31, 1999:
Allowance for doubtful trade accounts
receivable.................................... $2,390 $109 $2,470 $ 29
Year Ended December 31, 2000:
Allowance for doubtful trade accounts
receivable.................................... $ 29 $256 $ -- $ 285
- ---------------
(1) On September 21, 1999, the Company and Century of West Virginia completed
the sale of the fabricating businesses to Pechiney. As such, Pechiney
assumed the risk of any bad debts included in the accounts receivable of the
fabricating businesses.
57