CENTURY ALUMINUM CO - 10-K Annual Report

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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, 1997

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 (408) 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 28, 1998 20,000,000 shares of common stock of the registrant
were issued and outstanding. Based upon the NASDAQ closing price on February 27,
1998, the aggregate market value of the common stock held by non-affiliates of
the registrant was $200,692,827.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 4, 1998 (to be filed pursuant to Regulation 14A
within 120 days after the close of the fiscal year covered by this report on
Form 10-K) are incorporated by reference into Part III of this Form 10-K.

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PART I.

ITEM 1. BUSINESS

Century Aluminum Company ("Century" or the "Company") is a leading North
American integrated producer of primary aluminum and a broad range of
value-added and specialized flat-rolled sheet and plate aluminum products.
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 and a multi-purpose rolling mill,
strategically located on the Ohio River in Ravenswood, West Virginia. Century of
West Virginia, through its wholly-owned subsidiary, Berkeley Aluminum Company
("Berkeley"), also owns a 26.67% undivided interest in a reduction facility in
Mt. Holly, South Carolina ("the Mt. Holly Facility"). Century's reduction
facilities have an aggregate annual capacity of approximately 490 million pounds
of primary aluminum, of which approximately 300 million pounds are used by
Century of West Virginia's rolling and plate mills. In 1997, Century produced
490 million pounds of primary aluminum, shipped 540.7 million pounds of sheet
and plate aluminum products, and had total net sales of $721.0 million.

In April 1995, pursuant to a restructuring within Glencore International AG
and its subsidiaries, (hereinafter, "Glencore International," "Glencore" or the
"Glencore Group", respectively), Century of West Virginia acquired Virgin
Islands Alumina Company ("Vialco") and Berkeley (which was previously a direct
wholly-owned subsidiary of Century) and Century of West Virginia became a
wholly-owned subsidiary of Century. The restructuring was accounted for as a
transfer of interests among companies under the common control of Glencore
International and, as a result, the assets and liabilities of Century of West
Virginia have been accounted for at historical cost. In July 1995, the Vialco
Alumina Facility was sold to a subsidiary of Alcoa L.L.C. Accordingly, the
Consolidated Financial Statements of the Company do not include the historical
results of Vialco.

Prior to March 1996, the Company had holdings in a number of other entities
in unrelated businesses that are presented as discontinued operations. Effective
March 28, 1996, the Company made a special distribution, in the form of a pro
rata redemption of shares to its then current shareholders, comprised of these
holdings.

In April 1996, the Company completed an initial public offering of its
Common Stock. The selling shareholders, which are part of the Glencore Group,
have retained 7,925,000 common shares, or 39.6% of the shares outstanding.

Century of West Virginia's reduction facility produces primary aluminum,
which is alloyed and cast into rolling ingot, principally for use by its rolling
plant. 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. Until January
1, 1996, Century's requirements for alumina, the raw material used by its
reduction facilities to produce primary aluminum, were purchased pursuant to a
variable-price supply agreement with Glencore Ltd. and, since January 1, 1996,
have been purchased pursuant to a long-term fixed-price supply agreement with
Alcoa L.L.C. and Alcoa Australia. Glencore Ltd. is a U. S. Branch of Glencore
AG, which in turn, is wholly-owned by Glencore.

The Company operates one of the largest multi-purpose rolling plants in
North America, with the capacity to manufacture in excess of 600 million pounds
of flat-rolled sheet and plate aluminum products per annum. The Company's hot
rolling mill processes aluminum ingot for the production of plate as wide as 150
inches and coil as wide as 103 inches. Its 130-inch cold rolling mill, one of
the largest in North America, has the capability to produce precision coils of
sheet up to 103 inches wide and up to one-quarter inch thick. Its plate mill
includes what the Company believes is the world's largest heavy-duty plate
stretcher and a five-axis profiler, affording it the ability to produce heavy
gauge and uniquely-configured plate products. These capabilities enable it to
manufacture value-added products satisfying exacting technical and production
standards, as well as products with specifications which only it and a limited
number of competitors can meet. The Company believes that these capabilities
also enable it to maintain a diversified and balanced product mix

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and provide it with the flexibility to target new markets and shift product mix,
thereby reducing the Company's dependence on any given product and its
end-user's industry.

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. In turn, prices of flat-rolled aluminum sheet and plate have
reflected this price volatility as well as fluctuations attributable to general
and industry-specific economic conditions.

Primary Aluminum

The most commonly used indicator of pricing in the aluminum industry is the
average price per 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 both primary and many
fabricated aluminum products in the aluminum industry. The prices for primary
aluminum have fluctuated widely. Over the past ten years, the average LME cash
price has ranged from a low of $.52 per pound in 1993 to a high of $1.17 per
pound in 1988, and averaged $.72 per pound.

Prices for primary aluminum declined from 1989 to 1993 due to a worldwide
oversupply of aluminum, resulting from increased exports from the Commonwealth
of Independent States ("CIS") and former Eastern Bloc countries, overcapacity in
the industry and weakness in the general economy. Beginning in 1994, inventories
began to decline and prices rose, principally due to the increased demand for
aluminum associated with the U. S. economic recovery. Inventories of aluminum on
the LME have declined from the high levels of nearly 2.7 million tonnes in June
1994 to 951,275 tonnes as of December 31, 1996, with further declines to 624,800
tonnes as of December 31, 1997. The average LME cash price was $0.73, $0.68 and
$0.82 per pound for the years ended December 31, 1997, 1996 and 1995,
respectively. During this period, the LME cash price steadily declined from an
average of $0.94 per pound in January 1995 to $0.61 per pound in October 1996.
Since then, industry fundamentals have improved, and the LME cash price
increased to an August 1997 average of $0.78 per pound. The LME cash price has
since declined to an average of $0.67 per pound in January 1998, due, in part,
to the economic uncertainties in Asia.

Flat-Rolled Aluminum Products

The markets for aluminum products are highly diverse and include sheet,
plate and foil; rod, bar and wire; extrusion, forgings, castings, powder and
paste. The Company competes in the markets for sheet and plate products, which
represented approximately 62% of the total United States aluminum mill product
shipments in 1997. The principal end-user markets for aluminum sheet and plate
products are: transportation; containers and packaging; aerospace; building and
construction; consumer durables; electrical; and machinery and equipment.
Manufacturers in these end-user markets use aluminum sheet and plate to make
numerous products, including: beverage cans; passenger cars, boats, trucks,
trailers, rail cars and aircraft; screens, roofing systems, and aluminum siding;
heating, ventilation and air conditioning equipment; electrical components; and
computers and copying machines.

Although the market for aluminum is cyclical, overall demand for
flat-rolled aluminum sheet and plate products in the United States, the
principal market served by the Company, has grown at an average annual rate of
3.6% over the last five years to approximately 10.3 billion pounds in 1997.
Although most sheet and plate products are sold directly to the end-user
markets, approximately 15% of sheet products and 60% of plate products are sold
through the distributor market. Distributors principally resell to the
transportation, building and construction, and consumer durables end-user
markets. Distributors have been increasing their share of the domestic aluminum
sheet and plate market in recent years as aluminum producers have been reducing
downstream processing and as end-users have been reducing their raw material
inventories.

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PRODUCTS AND MARKETS

The Company produces and sells primary aluminum. The Company also produces
a diverse range of flat-rolled sheet and plate products for the aerospace,
transportation and industrial ("ATI") markets. The Company sells sheet and plate
products directly to manufacturers that fabricate aluminum sheet into finished
products or to distributors who resell into various markets. Among the various
products using aluminum sheet and plate manufactured by the Company are:
passenger cars, boats, trucks, trailers, rail cars and aircraft; roofing systems
and aluminum siding; beverage cans; heating, ventilation and air conditioning
equipment; electrical components; and computer and copying equipment. Within the
ATI markets, the Company has focused on higher margin, value-added and
specialized products, including brazing sheet used in automotive cooling
systems, heat treatable and non-heat treatable aluminum plate for the aerospace
and defense industries, and heavy-gauge, wide-leveled coil and sheet for the
heavy truck, dump body, marine and rail car sectors.

Distributor coil and flat sheet accounted for 21.1%, 19.0% and 12.2%,
respectively; primary aluminum accounted for 19.3%, 22.0% and 20.0%,
respectively; brazing sheet accounted for 12.3%, 11.7% and 9.5%, respectively;
and can body sheet accounted for 10.2%, 10.1% and 14.8%, respectively, of
Century's net sales for the years ended December 31, 1997, 1996 and 1995.

The Company's strategy is to focus on maximizing productivity, minimizing
operating costs, emphasizing higher margin, value-added and specialized
products, broadening its customer base, diversifying its product mix and
penetrating new markets. Consistent with this strategy, the Company announced a
new operating plan in 1997 that affects its Century of West Virginia operations.
The new operating plan features a continuation of the shift to high-value rolled
aluminum products, a 20 percent reduction in the production of certain low
margin rolled aluminum products and a streamlining of the rolled products
organization to attain higher levels of operating efficiency.

COMPETITION

The markets for primary aluminum and aluminum sheet and plate products are
diverse and highly competitive. The Company competes in the production and sale
of primary aluminum and flat-rolled sheet and plate aluminum products with
numerous other aluminum reduction facilities and rolling mills in the United
States and Canada (including large, single purpose can sheet mills, continuous
casters or mini-mills, and other multi-purpose mills) and with imported
products, principally from Europe, Venezuela and the C.I.S. 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, Alumax, Alcan, Kaiser and
Reynolds.

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
preserve for the Company prevailing margins for its flat-rolled sheet and plate
sales and lock-in a certain level of profitability on its primary aluminum
production.

While the Company's pricing terms vary to accommodate flat-rolled sheet and
plate customer requirements, pricing of its sales is generally offered on the
following bases: (i) a fixed-price basis, which is only used for short or normal
lead-time orders, (ii) a "take or pay" basis, where the customer is required to
purchase the rolled product in accordance with the contract terms or pay for the
primary aluminum forward contract plus an administrative fee, or (iii) an
indexed price, where the customer pays an agreed-upon margin above an
established index, such as the LME. In 1997, fixed price orders generally
represented approximately 52% of

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these orders, "take or pay" represented 30% of the orders, and the balance was
on an indexed pricing basis. "Take or pay" and indexed price terms are
relatively recent industry practices, and there can be no assurance that
aluminum customers, in general, or Century's customers, in particular, will
continue to accept these terms. Century also converts primary aluminum for
selected customers on a tolling basis, where it is paid a fee for processing the
customer's metal. In 1997, tolled product shipments amounted to 49.0 million
pounds, or 9.1% of total sheet and plate shipments, and accounted for revenues
of $14.4 million, or 2.5% of total revenues from sheet and plate production. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

Century produces primary aluminum products and manufactures aluminum sheet
and plate products and manages the risks of each accordingly. The Company enters
into forward primary aluminum contracts to hedge fixed-price purchase and sale
commitments and inventory positions and to cover expected future sales and to
otherwise manage the Company's exposure to changing prices.

Although Century 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
Century purchases forward primary aluminum, it may purchase put options to
protect itself from price decreases.

Century monitors its overall position, and its metal 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.

SALES AND DISTRIBUTION

Century serves customers principally in the aerospace, transportation and
industrial sectors. Approximately 68% of Century's 1997 sheet and plate
shipments were made directly to manufacturers that fabricate the Company's
aluminum sheet into finished products. The remaining 32% of the Company's 1997
sheet and plate shipments were to distributors. For the year ended December 31,
1997, Century's ten largest sheet and plate customers accounted for
approximately 46% of total sheet and plate sales. 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. For financial information
regarding export sales, see Note 16 to the Consolidated Financial Statements.

The Company shipped 143.8 million pounds of primary aluminum products in
the form of tee-ingot to the Glencore Group in 1997. Revenues from these
shipments amounted to $105.5 million (representing 14.6% of 1997 net sales). The
Glencore Group has agreements with the Company to purchase 151.0 million pounds
of primary aluminum products during 1998 and 1999. However, there can be no
assurance that the Company will continue to do business with the Glencore Group
beyond the existing agreements.

BACKLOG

The Company's backlog was approximately $341 million at December 31, 1997,
of which approximately 89% will be filled during 1998. The Company's backlog at
December 31, 1996 was approximately $475 million.

ENVIRONMENTAL MATTERS

The Company's operations are subject to increasingly stringent
environmental, health and safety laws and regulations. In addition, in the past,
the Company's manufacturing activities (and those of its predecessors) have
resulted in environmental impacts requiring remediation by the Company. 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

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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, 1998, 1999, and 2000 of
approximately $3.7 million, $3.0 million and $1.6 million, respectively. In
addition, the Company expects to incur expenses relating to environmental
matters of approximately $9.2 million, $9.5 million and $9.9 million for the
years ending December 31, 1998, 1999 and 2000, respectively. As part of its
general capital expenditure plan, the Company also expects to incur capital
expenditures for other capital projects which 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."

In 1990, Congress passed amendments to the Clean Air Act which impose more
stringent standards on the aluminum industry with respect to air emissions. The
Clean Air Act amendments will directly affect the operations of the Company's
facilities. The regulations relating to smelter and carbon plants in connection
with these amendments have been promulgated, while those relating to casting and
fabrication plants have yet to be developed. Consequently, the Company cannot
predict with certainty the total amount of environmental expenditures the
Company will incur to comply with the known and anticipated regulations. The
Company's general capital expenditure plan includes certain projects designed to
improve the Company's compliance position with respect to both the known and
anticipated requirements of these regulations.

Pursuant to an order issued in September 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, and is
conducting a RCRA facility investigation ("RFI") and a corrective measures study
("CMS") to evaluate and develop corrective alternatives for any areas that have
contamination exceeding certain levels. The Company completed initial sampling
and analysis and submitted its initial findings to the Environmental Protection
Agency ("EPA"). The EPA has requested that the Company perform additional field
work and testing. As a result, the Company anticipates that the RFI will not be
completed before late 1998. Once the RFI and CMS are complete, the EPA will
assess the need for clean-up, and if any clean-up is required, a subsequent
order will be issued. At this time, the Company is unable to determine the
extent of clean-up measures, if any, that may be required. However, the Company
is aware of some environmental contamination at Century of West Virginia, and it
is likely that clean-up activities will be required in at least some areas of
the facility. The Company 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 the Century of West Virginia
facility, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated
the facility for approximately thirty years. Many of the conditions which the
Company is required to investigate under the 3008(h) order arise out of
activities which occurred during Kaiser's ownership and operation, and with
respect to those conditions, Kaiser will be responsible for the costs of the RFI
and required cleanup under the terms of the purchase agreement ("Kaiser Purchase
Agreement"). In addition, Kaiser retained title to certain land within the
Century of West Virginia premises and retains full responsibility for those
areas. Under current environmental laws and regulations, the Company may be
required to remediate any contamination discovered during or after completion of
the RFI, which contamination was discharged from areas which Kaiser previously
owned or operated, or for which Kaiser has retained ownership or responsibility.
However, if such remediation is required, the Company believes that Kaiser will
be liable for some or all of the costs thereof pursuant to the Kaiser Purchase
Agreement.

The Company is aware of two areas of contamination in the soil and
groundwater at its previously-owned Vialco facility. At the first of these
areas, the Company has removed quantities of contaminated soils and has
transported and disposed of such soils in approved facilities. In addition, it
has begun a bioremediation program which it believes will fulfill the remaining
legal requirements with respect to such soils. In the second area, the Company
believes that a substantial amount of the contamination originated from an
adjacent refinery owned by Hess Oil Virgin Islands, Inc. ("HOVIC"). The Company
further believes that the vast majority of any contamination which did not
originate from HOVIC was caused by releases on the property which predated
Vialco's ownership and will not be the legal responsibility of Vialco. Pursuant
to the
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Acquisition Agreement by which Vialco sold the premises to St. Croix Alumina,
L.L.C., a subsidiary of Alcoa Alumina and Chemicals L.L.S. ("St. Croix"), Vialco
retained liability for environmental conditions existing at the time of the sale
only to the extent such conditions arose from operation of the facility by
Vialco. In addition, indemnification arises only if the conditions require
remediation or give rise to claims under the laws in effect at the time of sale.
Finally, St. Croix may not request indemnity from Vialco until St. Croix has
spent $300,000 on such environmental conditions and Vialco's indemnity is capped
at $18.0 million. Management of the Company does not believe that the retained
liability, if any, 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 $1.1 million at
December 31, 1997 and $800,000 at December 31, 1996. All accruals have been
recorded without giving effect to any possible future insurance or Kaiser
indemnity proceeds. With respect to ongoing environmental compliance costs,
including maintenance and monitoring, such costs are expensed as incurred.

Because of the uncertainties described above, and the Company's inability
to predict the requirements of 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. However, based upon all
available information and after consultation with counsel, management does not
believe that the outcome of these environmental matters will have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.

RESEARCH AND DEVELOPMENT

Century performs ongoing process and product development work in
coordination with outside laboratories. Company programs have focused on both
product and process improvements. The Company has sought to produce new alloys
and products to enhance the strength, braze ability and corrosion resistance of
brazing sheet, develop tempers and higher gauge ranges for the improvement of
existing applications and the development of new applications in the aerospace
and tooling markets, and develop enhanced formability non-heat treatable alloys
for transportation applications. On the process side, the Company has made
efforts in its rolling operations to improve process control through the
application of mill models and enhanced diagnostics and in its reduction
operations to refine the computer control of pots and to reduce electricity
usage by using different anode stub configurations. Century also participates in
a consortium consisting of government research laboratories and other aluminum
companies to develop new alloys for use in automotive body applications.
Expenditures for third-party research and development totaled $2.2 million, $2.6
million and $2.6 million in 1997, 1996 and 1995, respectively, and are expected
to be $1.9 million in 1998.

PATENTS AND TRADEMARKS

The Company owns a number of patents 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 employees approximately 2,040 persons. The present
work force is comprised of approximately 1,575 hourly employees, represented by
the United Steelworkers of America ("USWA"), and approximately 465 salaried
personnel. Century of West Virginia's hourly employees are currently working
under a four and one-half year labor agreement with the USWA which expires on
May 31, 1999.

Century maintains noncontributory defined benefit pension plans and defined
contribution 401 (k) plans for its salaried and hourly employees. Management has
established as a key strategy the improvement of labor relations and believes
that its relations with its employees are good.

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ITEM 2. PROPERTIES

Century of West Virginia's facility houses the Company's principal
operations. The facility occupies 105 acres under roof on a site totaling 2,800
acres strategically located on the Ohio River in 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 490 million pounds of primary
aluminum. Its rolling plant has a production capacity in excess of 600 million
pounds per annum.

The Company's Century of West Virginia reduction facility, which was built
in 1955, has an annual production capacity of approximately 370 million pounds
and produces primary aluminum which is alloyed and cast into rolling ingot
principally for use by its rolling plant. Approximately 300 million pounds of
its primary aluminum production are used to satisfy the primary aluminum
requirements of its rolling and plate mills with the balance sold in the form of
sow.

The Mt. Holly Facility was constructed in 1980 by Alumax using Alcoa
technology and is the most recently constructed reduction facility in the United
States. The Mt. Holly Facility has a total production capacity of approximately
450 million pounds, of which Century owns a 26.67% undivided interest. The
remaining undivided interest in the Mt. Holly Facility is owned 50.33% by Alumax
of South Carolina, Inc. ("ASC") and 23.00% by a subsidiary of Sudelektra Holding
AG, a publicly traded Swiss company. The Glencore Group is a major shareholder
of Sudelektra Holding AG. 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.

The Company's rolling plant is one of the largest multi-purpose rolling
plants in North America. The Company's hot rolling mill processes aluminum ingot
for the production of plate as wide as 150 inches and coil as wide as 103
inches. Its 130-inch cold rolling mill, one of the largest in North America, has
the capability to produce coils of sheet up to 103 inches wide and up to
one-quarter inch thick. Its plate mill includes what the Company believes is the
world's largest heavy-duty plate stretcher and a five-axis profiler, affording
it the capabilities to produce heavy gauge and uniquely-configured plate
products. These capabilities enable it to manufacture value-added products
requiring exacting technical and production standards, as well as products
within the ATI market with specifications which only it and a limited number of
competitors can meet.

Until September 29, 1995, Century also owned the Bedford Facility, located
in Bedford, Indiana, specifically designed for the recycling of used beverage
cans and the production of recycled secondary ingot ("RSI"). The Bedford
Facility had a production capacity of 150 million pounds per annum. The Company
used approximately 35 million pounds of RSI and the remaining output was sold to
third parties. In September 1995, Century sold the Bedford Facility to IMCO
Recycling Inc. ("IMCO"). As part of such sale, Century and IMCO entered into two
toll conversion agreements, pursuant to which IMCO processes scrap provided by
Century into RSI for agreed-upon conversion fees.

Equipment failures at the Company's Century of West Virginia facility 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 facility
also is 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

Century of West Virginia is a named defendant (along with other companies)
in approximately 3,873 civil actions brought by individuals seeking to recover
significant compensatory and/or punitive damages in connection with various
asbestos-related diseases. However, counsel for the plaintiffs have represented
that Century of West Virginia will be dismissed from 2,422 cases because the
plaintiffs in these cases had no contact with the Century of West Virginia
facility. All of the remaining 1,451 plaintiffs have been employees of
independent contractors who claim to have been exposed to asbestos in the course
of performing services at various facilities, including the Century of West
Virginia facility. The cases are typically resolved based upon factual
determinations as to the facilities at which the plaintiffs worked, the periods
of time during which work was performed, the type of work performed and the
conditions in which work was performed. If the plaintiffs' work was performed
during the period when Kaiser owned the Century of West Virginia facility,
Kaiser has retained responsibility, pursuant to the terms of the Kaiser Purchase
Agreement, for defense and indemnity. If a plaintiff is shown to have worked at
the Century of West Virginia facility after the time Century of West Virginia
purchased the facility from Kaiser, Kaiser assumes the defense and liability,
subject to a reservation of rights against Century of West Virginia. The Company
believes it is unlikely that existing or potential plaintiffs were exposed to
asbestos at the Century of West Virginia facility after Century of West Virginia
purchased the facility from Kaiser, although eighteen plaintiffs have claimed
they were exposed during this period of time. Claims with eight of these
plaintiffs have been settled for nominal amounts or dismissed. Therefore, while
the impact of the asbestos proceedings is impossible to predict, the Company
believes that the ultimate resolution will not have a material adverse effect on
the Company's financial condition, results of operations or liquidity.

On November 17, 1996, a suit was brought in the United States District
Court for the Southern District of West Virginia against Century of West
Virginia and Kaiser purportedly on behalf of a proposed class believed to
consist of approximately 150 salaried employees and retirees of Century of West
Virginia. Plaintiffs claim that in 1989 defendants misrepresented the terms of
the salaried employee pension plan and/or benefits. Century of West Virginia has
denied liability and asked the court to deny class certification. On March 2,
1998, the court granted Century of West Virginia' motion and denied class
certification. While it is impossible to predict the outcome of this litigation,
Century of West Virginia will continue to defend the matter vigorously and the
Company believes the outcome will not have a material adverse effect on its
financial condition, results of operations or liquidity.

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, in the opinion of the
Company's management, such proceedings and actions should not, individually or
in the aggregate, 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 in the Company
during the fourth quarter of 1997.

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10

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..... 57 Chairman and Chief Executive Officer of the Company since
August 1995; Chairman and Chief Executive Officer of Century
of West Virginia since August 1995; Chairman and acting
Chief Executive Officer of Century of West Virginia from
April 1992 through July 1995; Executive of Glencore
International and Glencore AG from September 1990 to March
1996 and Director of Glencore International since December
1993; former Executive Vice President of Alumax.

Gerald A. Meyers... 48 President and Chief Operating Officer and Director of the
Company since August 1995; President and Chief Operating
Officer of Century of West Virginia since January 1993 and
Director of Century of West Virginia since April 1994;
Operations Manager of Logan Aluminum (joint venture between
Alcan Aluminum Limited and Atlantic Richfield Company) from
November 1988 to December 1992; Director, Aluminum
Association and West Virginia Chamber of Commerce.

Gerald J. 57 Executive Vice President, General Counsel and Chief
Kitchen.......... Administrative Officer of the Company since September 1995;
Vice President, General Counsel and Chief Administrative
Officer of Century of West Virginia since August 1995;
Partner of the law firm of Thoits, Love, Hershberger &
McLean; former Vice President and General Counsel of Alumax.

David W. Beckley... 53 Executive Vice President and Chief Financial Officer of the
Company since September 1995; Vice President and Chief
Financial Officer of Century of West Virginia since
September 1995; Independent consultant from May 1995 through
August 1995; Vice President and Corporate Controller of
Alliant Techsystems, Inc. (defense contractor) from May 1990
through May 1995

Steven R. 42 Vice President, Sales and Marketing, of the Company since
Sedberry......... August 1995; Vice President, Sales and Marketing, of Century
of West Virginia, since January 1994; and National Sales
Manager (1992-1994), of Alcoa.

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11

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 since its
initial public offering in April 1996.

HIGH LOW
------ ------

1997
First Quarter............................................ $19.25 $16.50
Second Quarter........................................... $18.00 $14.00
Third Quarter............................................ $18.00 $14.50
Fourth Quarter........................................... $17.50 $13.00
1996
Second Quarter........................................... $16.19 $13.38
Third Quarter............................................ $16.25 $13.88
Fourth Quarter........................................... $17.50 $12.50

The Company declared and paid dividends of $0.20 and $0.15 per share of
Common Stock during 1997 and 1996, respectively. The Company has a loan
agreement that contains, among other things, restrictions on the payment of
dividends by the Company. See Note 4 to the Consolidated Financial Statements.

At December 31, 1997, there were seventeen holders of record and
approximately one thousand, two hundred beneficial owners of the Company's
common stock.

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, 1997 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,
1994 and 1993 are 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

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12

Operations" and the Consolidated Financial Statements and notes thereto
appearing in Items 7 and 8, respectively.

YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net Sales -- third party customers........ $615,467 $550,168 $610,722 $474,067 $334,858
Net Sales -- related parties.............. 105,521 138,711 137,260 95,558 112,718
-------- -------- -------- -------- --------
Total net sales........................... 720,988 688,879 747,982 569,625 447,576
Cost of goods sold........................ 698,724 643,156 654,385 568,810 466,403
-------- -------- -------- -------- --------
Gross profit (loss)....................... 22,264 45,723 93,597 815 (18,827)
Selling, general and administrative
expenses............................... 17,948 18,614 12,729 11,647 12,942
-------- -------- -------- -------- --------
Operating income (loss)................... 4,316 27,109 80,868 (10,832) (31,769)
Interest expense -- net, others........... (3,066) (2,058) (3,578) (6,620) (5,891)
Interest expense -- net, affiliates....... -- -- (369) (2,158) (9,854)
Other income.............................. 419 91 1,472 361 233
Net gain on forward contracts............. -- -- 9,616 11,668 --
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes.................... 1,669 25,142 88,009 (7,581) (47,281)
Income tax benefit (expense).............. (601) (8,902) (34,502) 1,704 (1,353)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations............................. 1,068 16,240 53,507 (5,877) (48,634)
Income (loss) from discontinued
operations -- net of income taxes...... -- 264 5,773 5,769 (360)
-------- -------- -------- -------- --------
Net income (loss)......................... $ 1,068 $ 16,504 $ 59,280 $ (108) $(48,994)
======== ======== ======== ======== ========
Basic and diluted earnings (loss) per
common share:
Income (loss) from continuing
operations............................. $ 0.05 $ 0.78 $ 2.31 $ (0.25) $ (2.10)
Income (loss) from discontinued
operations............................. -- 0.01 0.25 0.25 (0.02)
-------- -------- -------- -------- --------
Net income (loss)......................... $ 0.05 $ 0.79 $ 2.56 $ -- $ (2.12)
======== ======== ======== ======== ========
Cash dividends declared and paid per
common share........................... $ 0.20 $ 0.15 $ -- $ -- $ --
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................... $180,524 $170,037 $151,324 $ 17,332 $ 20,433
Total assets.............................. 507,148 473,731 538,120 536,463 420,898
Long-term debt............................ 58,950 24,356 -- -- 86,250
Total debt................................ 58,950 24,356 -- 130,000 176,250
Total noncurrent liabilities.............. 220,604 190,092 178,511 197,556 193,635
Total shareholders' equity (deficiency)... 163,546 166,478 225,509 76,744 (15,270)

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 an integrated manufacturer of primary aluminum and a broad
range of value-added and specialized flat-rolled sheet and plate products. The
Company's net sales are derived from the sale of primary aluminum and
flat-rolled sheet and plate aluminum products and from the tolling of primary
aluminum and

12
13

scrap into rolled products. The Company sells rolled products either directly to
customers, in which case revenues and cost of goods sold include metal costs, or
as a toll, in which case the customer provides the metal and the Company's
revenues and cost of goods sold do not include metal costs.

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, the cash price
for primary aluminum traded on the LME averaged $0.73, $0.68 and $0.82 per pound
for the years 1997, 1996, and 1995, respectively. In turn, prices of flat-rolled
sheet and plate aluminum products have reflected this volatility, as well as
fluctuations attributable to general and industry-specific economic conditions,
which affect the Company's volume and mix of sheet and plate products sold.

Of the approximately 370 million pounds of primary aluminum produced at the
Company's Century of West Virginia reduction facility in 1997, the Company
utilized approximately 300 million pounds for its rolling operations, with the
balance sold primarily to the Glencore Group and third parties at market prices.
The Company's interest in the Mt. Holly Facility amounted to approximately 120
million pounds of primary aluminum production in 1997. During 1997, Glencore
Ltd. purchased 75.4 million pounds of primary aluminum that was produced at the
Mt. Holly Facility. Century's remaining share of the Mt. Holly Facility
production was sold to third parties.

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, aluminum scrap, coal tar
pitch, petroleum coke, aluminum fluoride and electricity. The market price of
alumina has been volatile from time to time. From 1992 through 1995, Century
purchased its alumina requirements from Glencore Ltd. at variable prices tied to
the market price of primary aluminum. On July 24, 1995, Century entered into a
long-term fixed-price alumina supply contract with Alcoa L.L.C. and Alcoa
Australia. Pursuant to the supply agreement, since January 1, 1996, Century has
paid a fixed price for alumina, subject to fixed annual price increases of
approximately 2.5% through 2001. Although the Company produces the primary
aluminum metal required by its rolling operations, it attempts to use as much
aluminum scrap as possible through purchases in the open market to meet the
total requirement of its rolling operations. The market price for aluminum scrap
closely follows the price of primary aluminum and has been subject to
significant cyclical price fluctuations.

The Company uses significant amounts of electricity in the aluminum
reduction process. To fulfill its power requirements at the Century of West
Virginia facility, during the years 1994 and 1995, and through June 30, 1996,
the Company purchased electricity from Ohio Power at a price based principally
upon Ohio Power's costs of production. Under this agreement, Century's price for
electricity decreased if the LME primary ingot price was less than certain
specified levels and increased, limited to the extent of cumulative net
decreases, if the LME primary ingot price was greater than certain specified
levels. The Company and the same public utility signed a power supply agreement,
covering the period from July 1, 1996 through July 31, 2003. Under this
agreement, it will pay a fixed price for electricity used. However, for the
period from July 1, 1996 through July 31, 1998, if the LME primary ingot price
were to exceed certain specified levels, the price for electricity used would
increase, to the extent of cumulative net price decreases under the previous
contract with the same utility. Since, under the terms of the new agreement, the
power rate will be fixed, the Company's margins could be adversely affected if
aluminum prices decrease.

With respect to its labor costs, in 1992, the Company established a
progress share plan for eligible union employees, providing for contributions of
10% of Century of West Virginia's pre-plan, after-tax income (as defined) for
each plan year through 1997 when the plan terminated. On November 30, 1994, the
Company entered into a new four and one-half year labor contract with its hourly
workers. This agreement will expire on May 31, 1999. The agreement calls for
increases in hourly wages in 1996, 1997 and 1998. Each of the three yearly wage
increases will result in increased wage costs of approximately 2.0%.
Additionally, there is a cost-of-living adjustment equal to one cent per hour
for each full .3% change in the Consumer Price Index published by the U.S.
Department of Labor's Bureau of Labor Statistics.

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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
-----------------------
1997 1996 1995
----- ----- -----

Net Sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 96.9 93.4 87.5
----- ----- -----
Gross profit........................................... 3.1 6.6 12.5
Selling, general and administrative expenses................ 2.5 2.7 1.7
----- ----- -----
Operating income....................................... 0.6 3.9 10.8
Interest expense -- net..................................... (0.4) (0.2) (0.5)
Other income................................................ 0.1 -- 0.2
Net gain on forward contracts............................... -- -- 1.3
----- ----- -----
Income from continuing operations before income taxes....... 0.3 3.7 11.8
Income tax expense.......................................... (0.1) (1.3) (4.6)
----- ----- -----
Income from continuing operations........................... 0.2% 2.4% 7.2%
===== ===== =====

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:

FLAT-ROLLED SHEET PRIMARY
AND PLATE PRODUCTS ALUMINUM
--------------------------------------- ---------------------------------------
DIRECT(1) TOLL DIRECT(1) TOLL
------------------ ------------------ ------------------ ------------------
POUNDS $/POUNDS POUNDS $/POUNDS POUNDS $/POUNDS POUNDS $/POUNDS
------- -------- ------- -------- ------- -------- ------- --------
(POUNDS IN THOUSANDS)

1997
First Quarter........ 138,916 $1.10 12,017 $0.32 47,666 $0.74 -- --
Second Quarter....... 134,411 $1.14 13,130 $0.29 46,059 $0.76 -- --
Third Quarter........ 112,232 $1.17 9,217 $0.32 46,780 $0.76 -- --
Fourth Quarter....... 106,112 $1.24 14,649 $0.26 44,121 $0.76 -- --
Total............. 491,671 $1.15 49,013 $0.29 184,626 $0.75 -- --
1996
First Quarter........ 115,708 $1.17 20,936 $0.32 46,774 $0.79 -- --
Second Quarter....... 113,333 $1.15 34,887 $0.29 31,349 $0.80 -- --
Third Quarter........ 104,146 $1.14 29,396 $0.32 36,702 $0.78 -- --
Fourth Quarter....... 109,626 $1.09 20,493 $0.31 78,540 $0.75 -- --
Total............. 442,813 $1.14 105,712 $0.31 193,365 $0.77 -- --
1995
First Quarter........ 119,961 $1.27 27,284 $0.31 14,434 $0.84 26,032 $0.69
Second Quarter....... 110,962 $1.29 35,132 $0.36 18,480 $0.76 29,170 $0.74
Third Quarter........ 97,672 $1.27 35,204 $0.37 16,525 $0.76 26,609 $0.69
Fourth Quarter....... 109,373 $1.24 26,790 $0.35 27,637 $0.72 28,230 $0.70
Total............. 437,968 $1.27 124,410 $0.35 77,076 $0.76 110,041 $0.71

- ---------------
(1) Does not include materials and products processed by the Company for a fee
("tolling") and forward sales contracts without physical delivery.

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15

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Net Sales. Net sales increased $32.1 million (or 4.7%) in 1997 to $721.0
million from $688.9 million in 1996. Shipments of flat-rolled sheet and plate
products were down 1.4% or 7.8 million pounds from 1996 totals. Although
shipments were down slightly, a shift from tolling of flat-rolled sheet and
plate products to direct sales of sheet and plate products increased revenue in
1997 by $20.7 million. Other shifts in the volume on flat-rolled sheet and plate
products sold increased revenue in 1997 by $17.6 over 1996 totals. Due to shifts
in mix toward higher value-added products and price improvements in the fourth
quarter of 1997, average realized prices in 1997 improved over the average
realized prices in 1996. This improvement caused revenues to be higher in 1997
by $6.5 million.

Century shipped 184.6 million pounds of primary products in 1997, down 8.7
million pounds from 1996 shipments. The decrease in primary products shipments
stems from an unusually high level of primary products shipments in the fourth
quarter of 1996. Lower volume reduced revenues by $6.2 million and lower average
realized prices reduced revenue by $3.7 million from 1996 levels.

Cost of Goods Sold. Cost of goods sold increased $55.6 million (or 8.6%)
in 1997 due to a number of factors. As a result of the shift from tolling of
flat-rolled sheet and plate products to direct sales, the Company's cost of raw
materials increased commensurate with the increased direct sales. Higher LME
prices and the resultant impact on aluminum scrap prices increased the Company's
net metal costs. In addition, the Company experienced operating problems at its
cast house. The inefficiencies, increased costs and insufficient production of
rolling ingot that resulted from the operating problems caused cost of goods
sold to increase.

In the third quarter of 1997, the Company announced a new operating plan
that affects its Century of West Virginia operations. The new operating plan
features a continuation of the shift to high-value rolled aluminum products, a
20 percent reduction in the production of certain low margin rolled aluminum
products, a streamlining of the rolled products organization to attain higher
levels of operating efficiency and a voluntary early retirement program. As a
result of the new plan, the Company recorded $3.0 million of costs, primarily
for voluntary retirement incentives.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $0.7 million (or 3.6%) lower in 1997 than in 1996.
Legal and administrative costs in 1997 were up $2.0 million. However, 1996 was
impacted negatively by a one time charge of $2.7 million for certain
environmental matters and an increased provision for doubtful accounts.

Interest Expense. Interest expense was $1.0 million more in 1997 than in
1996 due to the increased level of borrowings.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Net Sales. Net sales decreased $59.1 million (or 7.9%) in 1996 to $688.9
million from $748.0 million in 1995. The lower sales revenues were principally
attributable to the influence of the primary aluminum market on fabricated
aluminum sales prices. Lower realized prices for the direct sheet and plate
shipments accounted for $56.8 million of 1996 revenue decline. Sheet and plate
direct shipments increased by 4.8 million pounds in 1996 to 442.8 million
pounds, while sheet and plate toll shipments decreased 18.7 million pounds to
105.7 million pounds. Revenue increases from the increased direct sheet and
plate shipments were offset by revenue decreases from the sheet and plate toll
shipments. Primary aluminum shipments increased 6.2 million pounds in 1996 to
193.4 million pounds. The additional volume increased net revenue by $4.4
million compared to 1995. No primary aluminum was tolled at Berkeley in 1996,
while in 1995, all of Berkeley's sales were through a tolling arrangement. Thus,
despite the drop in primary aluminum prices in 1996, the switch from toll to
direct at Berkeley caused the net revenues from primary aluminum to increase
$8.4 million over 1995 levels. Lower realized prices on sheet and plate toll
shipments and the loss of revenue due to the sale of the Bedford Facility (see
Note 12 to the Consolidated Financial Statements) account for the remainder of
the revenue decreases.

Costs of Goods Sold. Total cost of goods sold were reduced by $11.2
million to $643.2 million in 1996, primarily due to lower costs for purchased
scrap attributable to the influence of the primary aluminum market.
15
16

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $18.6 million in 1996 from $12.7 million in
1995. Contributing to this increase were additional costs Century experienced to
operate as a public company. In addition, during the fourth quarter of 1996, the
Company recorded charges of $2.7 million for certain environmental matters and
an increased provision for doubtful accounts.

Interest Expense. Interest expense decreased $1.8 million during 1996 to
$2.1 million from $3.9 million during 1995. This decrease was primarily due to
lower average borrowings outstanding during 1996.

Net Gain on Forward Contracts. During 1995, the Company entered into a
series of forward sales contracts which had the effect of offsetting the metal
it was obligated to acquire under a forward purchase contract entered into
during the year ended December 31, 1994. As a result, the Company recognized
gains of $9.6 million relating to these contracts in 1995. During 1996, the
Company had no similar transactions.

Income from Discontinued Operations. Prior to March 28, 1996, the Company
had holdings in a number of other entities in unrelated businesses that are
presented as discontinued operations. These discontinued operations were
distributed in the form of a pro rata redemption of shares on March 28, 1996.
Income in 1996 from discontinued operations decreased $5.5 million from the 1995
level due primarily to the inclusion of the discontinued operations for only
three months during 1996.

LIQUIDITY AND CAPITAL RESOURCES

Working capital amounted to $180.5 million and $170.0 million at December
31, 1997 and 1996, respectively. The Company's liquidity requirements arise
primarily from working capital requirements and capital investments.

The Company's statements of cash flows for the years indicated are
summarized below:

1997 1996 1995
-------- -------- -------
(DOLLARS IN THOUSANDS)

Net cash from operating activities.......................... $ 9,318 $ 8,438 $81,878
Net cash from (used in) investing activities................ (39,982) (72,592) 49,077
Net cash from (used in) financing activities................ 30,594 21,356 (90,000)
-------- -------- -------
Increase (decrease) in cash................................. $ (70) $(42,798) $40,955
======== ======== =======

Net cash flows from operating activities were $9.3 million, $8.4 million
and $81.9 million during 1997, 1996 and 1995, respectively. Lower net income and
growth in accounts receivable due to a shift from toll to direct sales and
higher realized prices caused the cash flow from operations to decrease from the
1996 amount. These decreases were offset primarily by the increase in accounts
payable. Lower net income and increased pension contributions in 1996 caused the
cash flow from operations to decrease from the 1995 amount. Cash flow in 1995
benefited from net income and the sale of accounts receivable, (See Note 4 to
the Consolidated Financial Statements) partially offset by an increased level of
accounts receivable to support the Company's growth in net sales.

The Company's investing activities included capital expenditures for
property, plant and equipment. In addition, investing activities included cash
used for the purchase of accounts receivable and cash used in entities in
unrelated businesses that are presented as discontinued operations. Capital
expenditures were $40.0 million, $20.6 million and $13.2 million for the years
ended December 31, 1997, 1996 and 1995, respectively. The Company used these
expenditures to purchase, modernize or upgrade production equipment, maintain
facilities and comply with environmental regulations. In 1996, the Company
purchased $50.0 million of its accounts receivable concurrent with the
refinancing of the Company's credit facilities. In addition, the Company
received in 1995, $60.0 million and $8.5 million for the sale of Vialco assets
and the Bedford Facility, respectively. Capital expenditures for 1998 are
expected to be approximately $45.0 million and will be principally related to
capacity expansion, upgraded production equipment, maintenance of facilities and
compliance with environmental requirements.

16
17

The Company contemplates spending approximately $200 million for capital
expenditures for projects between 1998 and 2002. Included in these expenditures
are plans to complete the $28 million project that will double the heat-treated
plate production capacity.

Net cash flows from financing activities were $30.6 million and $21.4
million in 1997 and 1996, respectively. Net cash flows used in financing
activities were $90.0 million for 1995.

On January 30, 1996, Century of West Virginia, Berkeley and Bank of America
Business Credit, Inc. ("Bank of America"), entered into an agreement, as amended
through February 13, 1998, pursuant to which Bank of America is providing
Century of West Virginia and Berkeley a three-year, $150 million Bank Revolving
Credit Facility ("Facility"). The interest rate is, at the Company's election,
(i) the Bank of America base rate plus .75% or (ii) the one-, two-, three- or
six-month LIBOR plus 2.00%. The interest rate margins of .75% and 2.00% may
remain constant, or may be increased by up to .50%, depending upon the
attainment of certain financial ratios. Borrowings of $59.0 million as of
December 31, 1997 under the Facility are collateralized by all of Century of
West Virginia's and Berkeley's inventory and receivables and are guaranteed by
the Company.

Under the terms of the Facility, as amended, the Company is required to
meet certain financial covenants. Based on its current financial condition and
internal forecasts through the end of 1998, the Company believes that it will be
in compliance with all covenants.

Pursuant to the requirements of ERISA, the Company filed a notice with the
Pension Benefit Guaranty Corporation ("PBGC") relating to its initial public
offering and the resultant disaffiliation of Century of West Virginia from the
Glencore Group. After discussions with the PBGC, the Company entered into an
agreement with the PBGC (the "PBGC Agreement") on January 23, 1996, and made
additional cash contributions of $20.0 million to its pension plan for hourly
employees in 1996. The PBGC Agreement also provides for scheduled contributions
to be made to the Company's pension plan for hourly employees with respect to
1997, 1998 and 1999. The Company made its scheduled contribution for 1997 and
estimates that its scheduled contributions in each of the remaining years will
be $7.0 million above the minimum required contributions under Section 412 of
the Internal Revenue Code. The Company has granted to 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. In
addition, Century must grant the PBGC a first priority security interest in the
first $50 million of the property, plant and equipment of any business or
businesses that the Company acquires. The Company, in its discretion, may,
however, substitute Berkeley's undivided interest in the Mt. Holly Facility in
lieu of any such after-acquired property, plant and equipment as well as the
shares of Berkeley. The PBGC Agreement will terminate if (a) the Company's
termination liabilities under ERISA for its two pension plans are less that
$10.0 million or (b) if, after December 31, 2000, the Company has made the
payments required by the PBGC Agreement and (i) the unsecured debt of the
Company is rated BBB- or better by Standard & Poor's and Baa3 or better by
Moody's, (ii) the Company has obtained certain agreed-upon private ratings on a
hypothetical issue of unsecured debt, or (iii) the Company meets certain
financial performance criteria.

The Company has provided a $27.5 million letter of credit to insure its
performance under the Owners Agreement governing the Mt. Holly Facility. The
Company's obligation to maintain the letter of credit will terminate at such
times as the Company achieves certain financial measurements.

The Company believes that cash flows from operations and funds available
under the Facility will be sufficient to fund its working capital requirements,
capital expenditures, pension funding and debt service requirements in the near
term and for the foreseeable future.

METALS RISK MANAGEMENT

Century produces primary aluminum products and manufactures aluminum sheet
and plate products and manages the risks of each accordingly. The Company enters
into forward primary aluminum contracts to hedge fixed-price purchase and sale
commitments and inventory positions and to cover expected future sales and to
otherwise manage the Company's exposure to changing prices.

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18

Pursuant to the foregoing strategy, the Company had fixed price commitments
to sell 302.7 million pounds and 407.6 million pounds of primary and scrap
aluminum and aluminum sheet and plate products at December 31, 1997 and December
31, 1996, respectively. Forward purchase contracts for approximately 2.0 million
pounds and 27.9 million pounds of primary aluminum at December 31, 1997 and
December 31, 1996, respectively, did not qualify for hedge accounting treatment
because the Company's aggregate metals position exceeded its fixed-price sales
commitments at such dates. Costs of goods sold includes either a net credit or a
net charge relating to the unrealized gains or losses on these contracts that
did not satisfy the technical requirements for hedge accounting, realized gains
or losses from the cash settlement of forward contracts, unrealized losses on
purchase and sales commitments, and reversals of prior period unrealized losses.
The resultant charges were $6.8 million, $6.7 million and $0.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively. In addition, at
December 31, 1997, the Company had forward sales contracts with Glencore, Ltd.
for 100 million pounds of primary aluminum to hedge 1998 and 1999 production. At
December 31, 1996, the Company had forward sales contracts with Glencore, Ltd.
for 116 million pounds of primary aluminum to hedge 1997 and 1998 production.
Accounting standards require that such contracts be marked to market. As of
December 31, 1997 and 1996, the Company deferred unrealized losses of $3.5
million and $7.7 million, respectively, on such contracts.

During 1994, the Company entered into a forward purchase contract for 120
million pounds of primary aluminum with Glencore to cover a portion of its 1995
sheet and plate product sales. During the year ended December 31, 1995, the
Company entered into forward sales contracts with Glencore which had the effect
of offsetting the metal it was obligated to acquire under the forward purchase
contract. For the year ended December 31, 1995, the Company recognized net gains
of $9.6 million related to these contracts.

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.

Century monitors its overall position, and its metals 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. Prior to Century becoming a public company, substantially all of its
forward contracts were with Glencore Ltd., which did not require margin
deposits. The Company continues to conduct its metals risk management activities
through the Glencore Group and third parties, who do not require margin
deposits.

ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES

The Company has incurred and, in the future, will continue to incur capital
expenditures and operating expenses for matters relating to environmental
control, remediation, monitoring and compliance. Capital expenditures for
environmental control for the years ended December 31, 1997, 1996 and 1995 were
approximately $3.4 million, $0.7 million and $2.2 million, respectively, and
operating expenses relating to environmental matters were approximately $7.4
million, $7.0 million and $8.3 million for the same years. The Company has
planned environmental capital expenditures for the years ending December 31,
1998, 1999 and 2000 of approximately $3.7 million, $3.0 million and $1.6
million, respectively. In addition, the Company expects to incur expenses
relating to environmental matters of approximately $9.2 million, $9.5 million
and $9.9 million for the years ending December 31, 1998, 1999 and 2000,
respectively. The Company believes that compliance with current environmental
laws and regulations is not likely to have a material adverse effect on the
Company's financial condition, results of operations or liquidity; however,
environmental laws and regulations have changed rapidly in recent years and the
Company may become subject to more stringent environmental laws and regulations
in the future. In addition, the Company may be required to conduct remediation
activities in the future pursuant to various orders issued by the EPA and West
Virginia Department of Environmental Protection. There can be no assurance that
compliance with more stringent environmental laws and regulations that may be
enacted in the future, or future remediation costs, would not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity. See Item 1 "Environmental Matters".

18
19

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".

OTHER

The Company has reviewed its data management systems to identify areas that
could be impacted by the "Year 2000" issue. The Year 2000 issue results from
software systems that only allow for the last two digits, rather than four
digits, for the applicable year. If left uncorrected, errors could occur in
computations that are dependent upon dates. As a result of its review, the
Company has begun a multi-phase project to significantly enhance its data
management systems.

The Company will replace its existing financial systems and adopt
electronic tracking for its production processes and inventory. Initial work
will be completed in mid 1999 at a cost of approximately $8.0 million, with a
substantial portion of this amount capitalized. The project will streamline and
accelerate data collection and allow all information systems to meet Year 2000
requirements.

As part of the multi-phase project, current systems for customer service,
maintenance and payroll will be replaced, and new systems for quality and
laboratory management, production scheduling and capacity planning will be
added.

NEW ACCOUNTING STANDARDS

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for annual financial statements beginning in 1998 and
for interim financial statements beginning in 1999. The Company will adopt this
standard beginning January 1, 1998.

19
20

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report................................ 21
Consolidated Balance Sheets at December 31, 1997 and 1996... 22
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.......................... 23
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. 24
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 1996 and 1995........................... 25
Notes to the Consolidated Financial Statements.............. 26-44

20
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, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 13, 1998

21
22

CENTURY ALUMINUM COMPANY

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

DECEMBER 31,
--------------------
1997 1996
-------- --------

ASSETS
Current Assets:
Cash...................................................... $ 42 $ 112
Restricted cash equivalents............................... 5,805 5,801
Accounts receivable, trade -- net......................... 111,146 89,283
Due from affiliates....................................... 8,362 12,681
Inventories............................................... 170,085 176,149
Prepaid and other assets.................................. 8,082 3,172
-------- --------
Total current assets................................... 303,522 287,198
Property, plant and equipment -- net........................ 198,341 176,135
Other assets................................................ 5,285 10,398
-------- --------
Total............................................. $507,148 $473,731
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade................................... $ 51,411 $ 31,341
Due to affiliates......................................... 10,560 18,900
Accrued and other current liabilities..................... 22,364 27,429
Accrued employee benefits costs -- current portion........ 38,663 39,491
-------- --------
Total current liabilities.............................. 122,998 117,161
-------- --------
Revolving term loan......................................... 58,950 24,356
Accrued pension benefits costs -- less current portion...... 12,139 26,616
Accrued postretirement benefits costs -- less current
portion................................................... 118,532 112,551
Due to affiliates........................................... 6,673 3,766
Other liabilities........................................... 24,310 22,803
-------- --------
Total noncurrent liabilities........................... 220,604 190,092
-------- --------
Contingencies and commitments (Note 13)
Shareholders' equity:
Common Stock (one cent par value, 50,000,000 shares
authorized; 20,000,000 shares outstanding at December
31, 1997 and 1996, respectively)....................... 200 200
Additional paid-in capital................................ 161,953 161,953
Retained earnings......................................... 1,393 4,325
-------- --------
Total shareholders' equity............................. 163,546 166,478
-------- --------
Total............................................. $507,148 $473,731
======== ========

See notes to consolidated financial statements.
22
23

CENTURY ALUMINUM COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------

Net sales:
Third-party customers.................................... $615,467 $550,168 $610,722
Related parties.......................................... 105,521 138,711 137,260
-------- -------- --------
720,988 688,879 747,982
Cost of goods sold......................................... 698,724 643,156 654,385
-------- -------- --------
Gross profit............................................... 22,264 45,723 93,597
Selling, general and administrative expenses............... 17,948 18,614 12,729
-------- -------- --------
Operating income........................................... 4,316 27,109 80,868
Interest expense -- Net
Others................................................... (3,066) (2,058) (3,578)
Affiliates............................................... -- -- (369)
Other income............................................... 419 91 1,472
Net gain on forward contracts.............................. -- -- 9,616
-------- -------- --------
Income from continuing operations before income taxes...... 1,669 25,142 88,009
Income tax expense......................................... (601) (8,902) (34,502)
-------- -------- --------
Income from continuing operations.......................... 1,068 16,240 53,507
Income from discontinued operations -- Net of income
taxes.................................................... -- 264 5,773
-------- -------- --------
Net Income................................................. $ 1,068 $ 16,504 $ 59,280
======== ======== ========
Basic and diluted earnings per common share
Income from continuing operations........................ $ 0.05 $ 0.78 $ 2.31
Income from discontinued operations...................... -- 0.01 0.25
-------- -------- --------
Net income............................................... $ 0.05 $ 0.79 $ 2.56
======== ======== ========
Cash dividends paid per common share....................... $ 0.20 $ 0.15 $ --
======== ======== ========

See notes to consolidated financial statements.
23
24

CENTURY ALUMINUM COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

ADDITIONAL
ADDITIONAL MINIMUM RETAINED TOTAL
COMMON PAID-IN PENSION EARNINGS SHAREHOLDERS'
STOCK CAPITAL LIABILITY (DEFICIT) EQUITY
------ ---------- ---------- --------- -------------

Balance, December 31, 1994.......... $231 $142,892 $(120) $(66,259) $ 76,744
Net Income........................ 59,280 59,280
Reduction of additional minimum
Pension liability.............. 120 120
Conversion of debt outstanding
under Revolving credit
facility....................... 40,000 40,000
Contribution of Vialco net
assets......................... 48,915 48,915
Capital contributions............. 450 450
---- -------- ----- -------- --------
Balance, December 31, 1995.......... 231 232,257 -- (6,979) 225,509
Net Income........................ 16,504 16,504
Dividends......................... (3,000) (3,000)
Special distribution of
Discontinued operations........ (31) (70,304) (2,200) (72,535)
---- -------- ----- -------- --------
Balance, December 31, 1996.......... 200 161,953 -- 4,325 166,478
Net Income........................ 1,068 1,068
Dividends......................... (4,000) (4,000)
---- -------- ----- -------- --------
Balance, December 31, 1997.......... $200 $161,953 $ -- $ 1,393 $163,546
==== ======== ===== ======== ========

See notes to consolidated financial statements.
24
25

CENTURY ALUMINUM COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- --------- ---------

Cash flows from operating activities:
Net income............................................. $ 1,068 $ 16,504 $ 59,280
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization....................... 18,427 18,009 17,709
Deferred income taxes............................... (6,392) (7,921) 8,908
Pension and other postretirement benefits........... (4,992) (23,932) (373)
Worker's compensation............................... 308 1,469 (1,003)
Gain on sale of facilities and equipment............ -- -- (3,744)
Income from discontinued operations................. -- (264) (5,773)
Change in operating assets and liabilities:
Accounts receivable, trade -- net:
Sale of receivables............................ -- -- 50,000
Other.......................................... (21,863) 19,312 (22,336)
Due from affiliates............................... 4,319 3,507 4,638
Inventories....................................... 6,064 (16,293) 752
Prepaids and other assets......................... 1,830 (1,882) (835)
Accounts payable, trade........................... 20,069 (6,346) 7,442
Due to affiliates................................. (5,433) 7,945 (25,300)
Accrued and other current liabilities............. (5,065) (3,764) (10,804)
Other -- net...................................... 978 2,094 3,317
-------- --------- ---------
Net cash provided by operating activities...... 9,318 8,438 81,878
-------- --------- ---------
Cash flows from investing activities:
Purchase of accounts receivable........................ -- (50,000) --
Purchase of property, plant and equipment.............. (39,967) (20,561) (13,229)
Investment in Mt. Holly................................ (11) (2,815) --
Proceeds from the sale of Vialco assets................ -- -- 60,000
Proceeds from the sale of Bedford facility............. -- -- 8,500
Restricted cash deposits............................... (4) 784 (935)
Investment in discontinued operations.................. -- -- (5,259)
-------- --------- ---------
Net cash provided by (used in) investing
activities................................... (39,982) (72,592) 49,077
-------- --------- ---------
Cash flows from financing activities:
Borrowings............................................. 234,816 200,833 42,000
Repayment of borrowings................................ (200,222) (176,477) (132,000)
Dividends.............................................. (4,000) (3,000) --
-------- --------- ---------
Net cash provided by (used in) financing
activities................................... 30,594 21,356 (90,000)
-------- --------- ---------
Increase (decrease) in cash.............................. (70) (42,798) 40,955
Cash, beginning of year.................................. 112 42,910 1,955
-------- --------- ---------
Cash, end of year........................................ $ 42 $ 112 $ 42,910
======== ========= =========

See notes to consolidated financial statements.
25
26

CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT 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 and an aluminum fabrication facility in Ravenswood, West
Virginia. Century of West Virginia, through its wholly-owned subsidiary,
Berkeley Aluminum, Inc. ("Berkeley"), holds a 26.67% interest in a partnership
which operates a primary aluminum reduction facility in Mt. Holly, South
Carolina (the "Mt. Holly Facility") and a 26.67% undivided interest in the
property, plant and equipment comprising the Mt. Holly Facility. As of December
31, 1997, the remaining interest in the partnership and the remaining undivided
interest in the Mt. Holly Facility are owned 50.33% by Alumax of South Carolina,
Inc. ("ASC") and 23.00% by a subsidiary of Sudelektra Holding AG, a publicly
traded Swiss company. Glencore International AG ("Glencore" and together with
its subsidiaries, the "Glencore Group") is a major shareholder of Sudelektra
Holding AG. 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.

The Company produces primary aluminum products and manufactures aluminum
sheet and plate products.

As explained in Note 11, the Company had holdings in a number of other
entities in unrelated businesses that are presented as discontinued operations
because the Company made a special distribution, in the form of a pro rata
redemption of shares of its then current shareholders, comprised of these
holdings effective March 28, 1996. The disclosures herein relate to continuing
operations, unless otherwise indicated.

Prior to April 1996, the Company was an indirect, wholly-owned subsidiary
of Glencore. In April 1996, the Company completed an initial public offering of
its common stock. At December 31, 1997, the Glencore Group owned 39.6% of
Century's common shares outstanding.

Prior to 1996, Century of West Virginia and Berkeley operated as separate
entities, under the control of Glencore. As explained in Notes 7, 14 and 15,
these two companies have had significant related party transactions with
Glencore Ltd. and its affiliates. Glencore Ltd. is a U.S. branch of Glencore AG,
which in turn, is wholly-owned by Glencore.

On April 26, 1995, Berkeley and Virgin Islands Alumina Corporation
("Vialco"), whose principal asset was an inactive alumina refinery in the United
States Virgin Islands (see Note 12), became subsidiaries of Century of West
Virginia. Substantially all of Vialco's assets were sold to an unrelated buyer
on July 24, 1995. The difference between the assets and liabilities of Vialco
was recorded as additional paid-in capital.

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 recognized when title passes to customers in
accordance with contract terms, which may precede or coincide with shipments to
customers. Included in net sales are tolling fees which the Company earns from
smelting, casting and fabricating material supplied by third-party customers and
related
26
27
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

parties. Net sales include tolling fees of $14,428, $32,480 and $132,017 for the
years ended December 31, 1997, 1996 and 1995, 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.

Accounts Receivable -- The accounts receivable, trade are net of an
allowance for uncollectable accounts of $2,270 and $1,700 at December 31, 1997
and 1996, 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 reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that their carrying value may not be
recoverable.

Other Assets -- At December 31, 1997, other assets consist primarily of the
Company's investment in the Mt. Holly partnership and deferred tax assets. At
December 31, 1996, other assets consist primarily of the pension asset
recognized in accordance with SFAS No. 87, "Employers' Accounting for Pensions",
the Company's investment in the Mt. Holly partnership 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 valuing
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 -- The Company does not have significant interest
income. 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 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 primary aluminum
and to sell primary and scrap aluminum and aluminum sheet and plate products.
Unrealized losses (and recoveries of previously recognized unrealized
27
28
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

losses) on fixed-price commitments are recognized as adjustments to cost of
goods sold in the period in which they arise. Gains on such commitments are
recognized when the ultimate sale is completed .

The Company enters into forward primary aluminum contracts, principally
with the Glencore Group, to hedge fixed-price purchase and sale commitments and
inventory positions ("specific contracts") and to cover expected future sales
and to otherwise manage the Company's exposure to changing prices ("general
contracts"). A change in market value of a forward contract is recognized as a
gain or loss in the period of change unless the contract meets specific criteria
to qualify for hedge accounting. The criteria are: the item to be hedged exposes
the Company to market price risk, the forward contract reduces exposure to this
risk, the forward contract is designated as a hedge, and there is a high degree
of correlation between changes in the market value of the contract and changes
in the market value of the hedged item. Changes in the market value of forward
contracts that qualify for hedge accounting, including closed forward contracts,
are deferred and reflected in cost of goods sold when the underlying physical
transaction takes place. The deferred gains and losses are reflected on the
balance sheet in inventory. If a forward contract is used to hedge an
anticipated transaction and the transaction is no longer likely to occur, any
gains or losses are included in the income statement as cost of goods sold.

Changes in the market value of specific contracts that do not meet the
criteria for hedge accounting are recognized in the income statement as cost of
goods sold in the period in which they arise. Changes in the market value of
general contracts are recognized in the income statement as gains or losses on
forward contracts in the period in which they arise.

Financial Instruments -- The Company's financial instruments (principally
receivables, payables, debt and certain forward contracts) are carried at
amounts which approximate fair value.

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.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across many different geographical regions and markets. The
Company routinely assesses the financial strength of its customers, but
generally does not require collateral to support trade receivables.

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".

Reclassifications -- Certain reclassifications of 1996 and 1995 information
were made to conform to the 1997 presentation.

28
29
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

2. INVENTORIES

Inventories, at December 31, consist of the following:

1997 1996
-------- --------

Raw materials.......................................... $ 62,440 $ 56,954
Work-in-process........................................ 62,675 55,040
Finished goods......................................... 23,199 35,711
Operating and other supplies........................... 18,206 20,745
Unrealized losses on forward contracts................. 3,565 7,699
-------- --------
$170,085 $176,149
======== ========

At December 31, 1997 and 1996, approximately 89% and 88% of inventories
were valued at the lower of LIFO cost or market. The excess of the LIFO cost (or
market, if lower) of inventory over the first-in, first-out ("FIFO") cost was
approximately $16,670 and $20,368 at December 31, 1997 and 1996, respectively.

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at December 31, consists of the following:

1997 1996
-------- --------

Land and improvements.................................. $ 5,696 $ 5,677
Buildings and improvements............................. 33,991 30,760
Machinery and equipment................................ 262,398 248,045
Construction in progress............................... 38,939 16,740
-------- --------
341,024 301,222
Less accumulated depreciation.......................... 142,683 125,087
-------- --------
$198,341 $176,135
======== ========

At December 31, 1997 and 1996, the cost of property, plant and equipment
includes $49,561 and $45,810, respectively, and accumulated depreciation
includes $18,559 and $16,676, respectively, representing the Company's undivided
interest in the primary aluminum reduction facility in Mt. Holly, South
Carolina.

The Company has various operating lease commitments through 2002 relating
to machinery and equipment. Expense under all operating leases was $1,504,
$1,717 and $1,609 for the years ended December 31, 1997, 1996 and 1995,
respectively.

Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are approximately $1,212 annually through 2002.

4. DEBT

Bank Revolving Credit Facility -- On January 30, 1996, Century of West
Virginia and Berkeley entered into a Bank Revolving Credit Facility ("Facility")
with Bank of America Business Credit, Inc. ("Bank of America"). The Facility, as
amended through February 13, 1998, is for a three-year term and consists of
revolving loans and letters of credit made to each of Century of West Virginia
and Berkeley of up to $150,000 in the aggregate ($40,000 for letters of credit).
The borrowing base for purposes of determining availability under the Facility
is based upon certain eligible inventory and receivables. On January 30, 1996,
Century of West Virginia used $50,000 of this facility to purchase receivables
that had been sold under a prior loan agreement.
29
30
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Subject to certain limitations, the borrowers may select base rate or LIBOR
loans. The interest rate is (i) for base loans, 0.75% in excess of the base
rate, which is the rate publicly announced from time to time by Bank of America
as its reference rate, or (ii) for LIBOR loans, 2.00% in excess of the one-,
two-, three- or six-month LIBOR as quoted from time to time by Bank of America.
The interest rate margins of .75% and 2.00% may remain constant, or may be
increased by up to .50%, depending upon the attainment of certain financial
ratios. Interest is payable monthly on base rate loans and at the end of the
applicable interest period on LIBOR loans (quarterly on six-month LIBOR loans).
The interest rate on the borrowings under the Facility was 8.38% on December 31,
1997.

The loans are secured by a first priority security interest in all of
Century of West Virginia's and Berkeley's inventory, receivables, contract
rights and general intangibles.

The Company has paid commitment and closing fees in the aggregate amount of
$1,760 in connection with the Facility. Other fees include: (i) unused line and
administration fees, payable monthly, at the aggregate rate of .375% per annum,
on the difference between $150,000 and the amount actually borrowed (including
the undrawn amount of outstanding letters of credit) and (ii) monthly letter of
credit fees which are equal to 1.75% per annum of the undrawn amount of each
outstanding letter of credit.

Century has guaranteed all obligations of Century of West Virginia and
Berkeley under the Facility. The guaranty is secured by all of Century's present
and future inventory and receivables.

The Facility provides for various restrictive covenants, including the
following: (i) standard restrictions on dispositions of property or 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 the lesser of $5,000 per year or 20 cents per issued share (payable quarterly
at 5 cents per share) provided that the availability under the Facility is at
least $20,000, (iv) restrictions on transactions with and payments to affiliates
and (v) maintenance of certain financial ratios.

The Facility provides customary events of default, including default upon
the nonpayment of principal, interest, fees or other amounts, the occurrence of
a change of control and a cross-default with respect to certain other
obligations of the Company.

30
31
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

5. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS AT DECEMBER 31,

1997 1996
------- -------

Accrued and Other Current Liabilities
Income taxes............................................. $10,276 $12,421
Salaries, wages and benefits............................. 6,953 8,491
Other.................................................... 5,135 6,517
------- -------
$22,364 $27,429
======= =======
Accrued Employee Benefit Costs -- Current Portion
Pensions................................................. $25,779 $26,770
Postretirement benefits.................................. 5,800 5,500
Employee benefits cost................................... 7,084 7,221
------- -------
$38,663 $39,491
======= =======
Other Liabilities
Workers' compensation.................................... $21,829 $21,521
Other.................................................... 2,481 1,282
------- -------
$24,310 $22,803
======= =======

The Company is self-insured for workers' compensation, except for certain
catastrophic coverage which is provided under State of West Virginia insurance
programs. Cash equivalents of $5,650 are restricted by the Company's
self-insurance arrangements. The liability for self-insured workers'
compensation claims has been discounted at 6% at December 31, 1997 and 1996. The
components of the liability for workers' compensation at December 31 are as
follows:

1997 1996
------- -------

Undiscounted liability................................... $43,322 $40,592
Less discount............................................ 15,536 13,113
------- -------
$27,786 $27,479
======= =======

6. 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,
international equity securities, growth funds and fixed income accounts. As
explained in Note 13, 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 for its executive officers.

31
32
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Net periodic pension cost was comprised of the following elements:

YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------ ------------------
HOURLY SALARIED HOURLY SALARIED HOURLY SALARIED
PLAN PLAN PLAN PLAN PLAN PLAN
-------- -------- ------- -------- ------- --------

Service cost............................ $ 1,725 $ 1,272 $ 1,688 $ 909 $ 1,727 $ 786
Interest cost........................... 8,750 1,694 8,347 1,636 8,087 1,342
Actual return on plan assets............ (18,422) (3,639) (7,888) (2,024) (6,257) (2,560)
Net amortization and deferral........... 14,313 2,817 5,968 1,603 6,570 2,337
-------- ------- ------- ------- ------- -------
Net periodic pension cost............... $ 6,366 $ 2,144 $ 8,115 $ 2,124 $10,127 $ 1,905
======== ======= ======= ======= ======= =======

The following assumptions were used in the actuarial computations at
December 31:

1997 1996 1995
---- ---- ----

Discount rate............................................... 7.0% 7.5% 7.5%
Rate of increase in future compensation levels
Hourly Plan............................................... 4.0% 5.0% 5.0%
Salaried Plan............................................. 4.0% 4.5% 4.5%
Long term rate of return on plan assets..................... 9.0% 8.0% 8.0%

The funded status and amounts recognized in the consolidated balance sheets
as of December 31 are as follows:

1997 1996
------------------- -------------------
HOURLY SALARY HOURLY SALARY
PLAN PLAN PLAN PLAN
-------- ------- -------- -------

Actuarial present value of accumulated
obligations:
Vested.......................................... $125,097 $18,257 $116,526 $14,003
Nonvested....................................... 2,317 568 1,167 226
-------- ------- -------- -------
Accumulated benefit obligations................... 127,414 18,825 117,693 14,229
Effect of projected compensation increases........ 109 6,038 306 8,910
-------- ------- -------- -------
Projected benefit obligation...................... 127,523 24,863 117,999 23,139
Plan assets at fair value......................... 100,807 19,352 70,982 15,343
-------- ------- -------- -------
Projected benefit obligation in excess of plan
assets.......................................... 26,716 5,511 47,017 7,796
Unrecognized actuarial gain....................... 6,602 7,012 1,335 3,969
Unrecognized prior service cost................... (3,535) (4,388) (5,836) (5,090)
Additional liability recognized................... -- -- 4,195 --
-------- ------- -------- -------
Accrued pension benefit costs recognized in
consolidated balance sheets..................... $ 29,783 $ 8,135 $ 46,711 $ 6,675
======== ======= ======== =======

In accordance with the provisions of SFAS No. 87, the Company recorded an
additional minimum liability of $4,195 at December 31, 1996, representing the
excess of unfunded accumulated benefit obligations over previously recorded
pension cost liabilities. This amount was offset by an intangible pension asset
of $4,195 (representing unrecognized prior service cost). At December 31, 1997,
the unfunded accumulated benefit obligations did not exceed previously recorded
pension cost liabilities. Accordingly, the additional minimum liability and
intangible pension asset were removed from the Company's balance sheet.

32
33
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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. Effective February 1, 1995,
the contribution matching provision was 50% of the first 6% of a participant's
annual compensation contributed to the savings plan. Effective July 1, 1996 the
contribution matching provision was increased to 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 $806, $661 and $488 for the years ended December 31, 1997,
1996 and 1995, respectively.

Other Postretirement Benefits

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 claims are submitted by the retirees.

The components of net periodic postretirement benefit cost are as follows:

YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------

Service cost.................................. $ 2,786 $ 2,521 $ 2,313
Interest cost................................. 9,676 9,212 9,116
Net amortization and deferral................. (149) (95) 373
------- ------- -------
Net periodic postretirement benefit cost...... $12,313 $11,638 $11,802
======= ======= =======

An additional one-percentage-point increase in the assumed rate of
inflation in future medical costs would increase the accumulated postretirement
benefit obligation at December 31, 1997 by $18,738 and would increase aggregate
1997 service and interest cost by $2,157.

The following assumptions were used in the actuarial computations as of
December 31:

1997 1996 1995
---- ---- ----

Discount rate........................................... 7.0% 7.5% 7.5%
Expected rates of increases in future medical costs..... 5.5% 6.0% 6.0%

The accrued postretirement benefits costs recorded in the consolidated
balance sheets as of December 31 include the following components:

1997 1996
-------- --------

Accumulated postretirement benefit obligation:
Retirees............................................. $ 72,609 $ 51,352
Fully eligible active participants................... 32,002 45,522
Other active participants............................ 32,882 29,643
-------- --------
Accumulated postretirements benefit obligation
unfunded............................................. 137,493 126,517
Unrecognized actuarial loss............................ (14,507) (9,964)
Unrecognized plan amendment credit..................... 1,346 1,498
-------- --------
Accrued postretirement benefits costs recognized in
consolidated balance sheets.......................... $124,332 $118,051
======== ========

33
34
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

7. SHAREHOLDERS' EQUITY

Common Stock -- On February 19, 1996, the Board of Directors approved a
40,000 for 1 split of the Company's common stock. The effect of the stock split
has been retroactively applied to the earliest period presented.

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.

Additional Paid-In Capital -- Amounts shown as capital contributions
include $450 (net of income taxes of $300) in the year ended December 31, 1995,
representing the allocation of certain corporate expenses of Glencore AG. In
addition, on March 1, 1995, the Board of Directors of Century of West Virginia
agreed to accept an offer from Glencore to convert the $40,000 principal amount
then outstanding under a credit facility into additional paid-in capital.

8. 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 Incentive Plan is 1,200,000. 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 performance
share units at the time of the initial public offering for no consideration. The
performance share units represent the right to receive common stock, on a
one-for-one basis on their vesting dates. The value of the performance share
units, $13 per share, 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 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 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.

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 been reduced to
the pro forma amounts indicated below:

1997 1996
------ -------

Net Income As Reported......................... $1,068 $16,504
Pro Forma........................... $ 681 $16,176
Basic earnings per share As Reported......................... $ 0.05 $ 0.79
Pro Forma........................... $ 0.03 $ 0.78
Diluted earnings per share As Reported......................... $ 0.05 $ 0.79
Pro Forma........................... $ 0.03 $ 0.77

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

34
35
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

shares available under this plan is 200,000, of which 61,000 have been awarded.
The non-qualified options vest one-third on the grant date and an additional
one-third on each of the first and second anniversary dates. Each option granted
under this plan will be exercisable for a period of ten years from the date of
grant.

A summary of the status of the Company's Stock Incentive Plan and the
Non-Employee Directors Stock Option Plan as of December 31, 1997 and 1996 and
changes during the year ended on that date is presented below:

1997 1996
------------------------ -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ------- -------------- ------- --------------

Outstanding at beginning of year......... 543,000 $13.13 -- --
Granted.................................. 53,700 $15.12 543,000 $13.13
Exercised................................ -- -- -- --
Forfeited................................ (1,100) $13.00 -- --
------- ------ ------- ------
Outstanding at end of year............... 595,600 $13.31 543,000 $13.13
======= ====== ======= ======

The following table summarizes information about fixed stock options
outstanding at December 31, 1997:

OPTIONS OUTSTANDING
- --------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVG ----------------------------
NUMBER REMAINING WEIGHTED-AVG NUMBER
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE WEIGHTED-AVG
EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 EXERCISE PRICE
- ---------------- ----------- ---------------- ------------ ----------- --------------

$13.00 to $18.75 595,600 8.4 years $13.31 379,167 $13.23

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 1997 and 1996:

1997 1996
----- -----

Weighted average fair value per option granted during the
year...................................................... $3.83 $3.28
Dividends per quarter....................................... $0.05 $0.05
Risk-free interest rate..................................... 5.91% 5.93%
Expected volatility......................................... 30% 30%
Expected lives (in years)................................... 3 3

35
36
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

9. 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):

1997 1996 1995
------- ------- -------

BASIC EARNINGS PER SHARE:
Numerator:
Income from continuing operations available to common
shareholders........................................... $ 1,068 $16,240 $53,507
Denominator:
Average common shares outstanding......................... 20,000 20,780 23,120
Basic earnings per share.................................... $ 0.05 $ 0.78 $ 2.31
======= ======= =======
DILUTED EARNINGS PER SHARE:
Numerator:
Income from continuing operations available to common
shareholders........................................... $ 1,068 $16,240 $53,507
Denominator:
Average common shares outstanding......................... 20,000 20,780 23,120
Effect of dilutive securities:
Stock options and performance awards...................... 241 96 --
------- ------- -------
Common shares outstanding, assuming dilution................ 20,241 20,876 23,120
Diluted earnings per share.................................. $ 0.05 $ 0.78 $ 2.31
======= ======= =======

10. INCOME TAXES

Significant components of the income tax expense from continuing operations
consist of the following:

YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- -------- --------

Federal:
Current (expense) benefit................................. $(6,056) $(14,628) $(19,924)
Deferred (expense) benefit................................ 5,554 7,002 (7,809)
State:
Current (expense) benefit................................. (937) (2,195) (5,670)
Deferred (expense) benefit................................ 838 919 (1,099)
------- -------- --------
Total income tax expense.................................. $ (601) $ (8,902) $(34,502)
======= ======== ========

36
37
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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:

1997 1996 1995
---- ---- ----

Federal statutory rate...................................... 35% 35% 35%
Effect of:
Permanent differences..................................... (3) (3) --
State taxes, net of Federal benefit....................... 4 3 5
Valuation allowance....................................... -- -- (5)
Other..................................................... -- -- 4
--- --- ---
36% 35% 39%
=== === ===

Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:

1997 1996
-------- --------

FEDERAL
Deferred federal tax assets:
Accrued postretirement benefit cost....................... $ 27,957 $ 24,261
Accrued liabilities....................................... 12,710 13,154
-------- --------
Net deferred federal tax assets........................ 40,667 37,415
Deferred federal tax liabilities:
Tax over financial statement depreciation................. (33,541) (35,671)
-------- --------
Net deferred federal tax asset......................... 7,126 1,744
-------- --------
STATE
Deferred state tax assets:
Accrued postretirement benefit cost....................... 3,994 3,466
Accrued liabilities....................................... 1,899 1,821
-------- --------
Net deferred state tax assets.......................... 5,893 5,287
Deferred state tax liabilities:
Tax over financial statement depreciation................. (4,713) (5,117)
-------- --------
Net deferred state tax asset........................... 1,180 170
-------- --------
Net deferred tax asset...................................... $ 8,306 $ 1,914
======== ========

Of the $8,306 net deferred tax asset at December 31, 1997, $1,566 is
included in other assets, the remainder is included in current assets. At
December 31, 1996, all of the net deferred tax asset was included in other
assets.

11. DISCONTINUED OPERATIONS

The Company made a special distribution of certain holdings of the Company
in the form of a pro rata redemption of shares of its then current shareholders
on March 28, 1996. The special distribution was comprised of the Company's
holdings in several operations whose businesses were unrelated to the continuing
aluminum operations of the Company, consisting principally of an inactive oil
trading business, a distributor of ferro alloys and a finance business, whose
principal activities consisted of providing financing to entities within the
Glencore group of companies. The net assets and operating activities related to
the businesses comprising

37
38
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

the special distribution have been classified as discontinued operations in the
accompanying consolidated financial statements.

Summary operating results of discontinued operations are as follows:

YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
---- ------- --------

Net Sales............................................... $-- $31,065 $188,122
=== ======= ========
Income before income taxes.............................. $-- $ 433 $ 11,531
Income tax expense...................................... -- (169) (5,758)
--- ------- --------
Income from discontinued operations..................... $-- $ 264 $ 5,773
=== ======= ========

12. SALE OF ASSETS AND BUSINESSES

Vialco -- On April 26, 1995, Vialco became a subsidiary of Century of West
Virginia with assets of $60,000 together with $11,085 of liabilities and $48,915
of additional paid-in capital recorded on such date. On July 24, 1995, the
Company completed the sale for gross proceeds of $60,000, to an unrelated buyer,
of the production assets and inventories of the Vialco facility, which had been
idle since January 1995. There was no gain or loss on the sale. Concurrently
with the sale, the Company entered into a long-term alumina supply agreement
with the buyer and an affiliate of the buyer, as described in Note 14.
Management has determined that the alumina purchase prices in the agreement
approximate market prices. Under the terms of the sale, the buyer did not assume
certain of Vialco's liabilities. (See Note 13 for a discussion of certain
contingencies relating to Vialco.)

The Bedford Facility -- On September 29, 1995, the Company sold its Bedford
facility in Bedford, Indiana for $8,500 and realized a gain of $3,744, which is
included in other income for the year ended December 31, 1995. The net assets
and the operating results of this facility, which are included in the
accompanying consolidated financial statements to the date of sale, are not
material.

13. CONTINGENCIES AND COMMITMENTS

Environmental Contingencies

The Company's operations are subject to various environmental laws and
regulations. The Company has spent, and expects to spend in the future,
significant amounts for compliance with those laws and regulations.

Pursuant to an order issued in September 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, and is
conducting a RCRA facility investigation ("RFI") and a corrective measures study
("CMS") to evaluate and develop corrective alternatives for any areas that have
contamination exceeding certain levels. The Company completed initial sampling
and analysis and submitted its initial findings to the Environmental Protection
Agency ("EPA"). The EPA has requested that the Company perform additional field
work and testing. As a result, the Company anticipates that the RFI will not be
completed before late 1998. Once the RFI and CMS are complete, the EPA will
assess the need for clean-up, and if any clean-up is required, a subsequent
order will be issued. At this time, the Company is unable to determine the
extent of clean-up measures, if any, that may be required. However, the Company
is aware of some environmental contamination at Century of West Virginia, and it
is likely that clean-up activities will be required in at least some areas of
the facility. The Company 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.

38
39
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Prior to the Company's acquisition of the Century of West Virginia
facility, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated
the facility for approximately thirty years. Many of the conditions which the
Company is required to investigate under the 3008(h) order arise out of
activities which occurred during Kaiser's ownership and operation, and with
respect to those conditions, Kaiser will be responsible for the costs of the RFI
and required cleanup under the terms of the purchase agreement ("Kaiser Purchase
Agreement"). In addition, Kaiser retained title to certain land within the
Century of West Virginia premises and retains full responsibility for those
areas. Under current environmental laws and regulations, the Company may be
required to remediate any contamination discovered during or after completion of
the RFI, which contamination was discharged from areas which Kaiser previously
owned or operated, or for which Kaiser has retained ownership or responsibility.
However, if such remediation is required, the Company believes that Kaiser will
be liable for some or all of the costs thereof pursuant to the Kaiser Purchase
Agreement.

The Company is aware of two areas of contamination in the soil and
groundwater at its previously-owned Vialco facility. At the first of these
areas, the Company has removed quantities of contaminated soils and has
transported and disposed of such soils in approved facilities. In addition, it
has begun a bioremediation program which it believes will fulfill the remaining
legal requirements with respect to such soils. In the second area, the Company
believes that a substantial amount of the contamination originated from an
adjacent refinery owned by Hess Oil Virgin Islands, Inc. ("HOVIC"). The Company
further believes that the vast majority of any contamination which did not
originate from HOVIC was caused by releases on the property which predated
Vialco's ownership and will not be the legal responsibility of Vialco. Pursuant
to the Acquisition Agreement by which Vialco sold the premises to St. Croix
Alumina, L.L.C., a subsidiary of Alcoa Alumina and Chemicals L.L.S. ("St.
Croix"), Vialco retained liability for environmental conditions existing at the
time of the sale only to the extent such conditions arose from operation of the
facility by Vialco. In addition, indemnification arises only if the conditions
require remediation or give rise to claims under the laws in effect at the time
of sale. Finally, St. Croix may not request indemnity from Vialco until St.
Croix has spent $300 on such environmental conditions and Vialco's indemnity is
capped at $18,000. Management of the Company does not believe that the retained
liability, if any, 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 $1,052 and $800 at
December 31, 1997 and 1996, respectively. All accruals have been recorded
without giving effect to any possible future insurance or Kaiser indemnity
proceeds. 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 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 and after consultation with counsel, management does not
believe that the outcome of these environmental matters will have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.

Legal Contingencies

Century of West Virginia is a named defendant (along with other companies)
in approximately 3,873 civil actions brought by individuals seeking to recover
significant compensatory and/or punitive damages in connection with various
asbestos-related diseases. However, counsel for the plaintiffs have represented
that Century of West Virginia will be dismissed from 2,422 cases because the
plaintiffs in these cases had no

39
40
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

contact with the Century of West Virginia facility. All of the remaining 1,451
plaintiffs have been employees of independent contractors who claim to have been
exposed to asbestos in the course of performing services at various facilities,
including the Century of West Virginia facility. The cases are typically
resolved based upon factual determinations as to the facilities at which the
plaintiffs worked, the periods of time during which work was performed, the type
of work performed and the conditions in which work was performed. If the
plaintiffs' work was performed during the period when Kaiser owned the Century
of West Virginia facility, Kaiser has retained responsibility, pursuant to the
terms of the Kaiser Purchase Agreement, for defense and indemnity. If a
plaintiff is shown to have worked at the Century of West Virginia facility after
the time Century of West Virginia purchased the facility from Kaiser, Kaiser
assumes the defense and liability, subject to a reservation of rights against
Century of West Virginia. The Company believes it is unlikely that existing or
potential plaintiffs were exposed to asbestos at the Century of West Virginia
facility after Century of West Virginia purchased the facility from Kaiser,
although eighteen plaintiffs have claimed they were exposed during this period
of time. Claims with eight of these plaintiffs have been settled for nominal
amounts or dismissed. Therefore, while the impact of the asbestos proceedings is
impossible to predict, the Company believes that the ultimate resolution will
not have a material adverse effect on the Company's financial condition, results
of operations or liquidity.

On November 17, 1996, a suit was brought in the United States District
Court for the Southern District of West Virginia against Century of West
Virginia and Kaiser purportedly on behalf of a proposed class believed to
consist of approximately 150 salaried employees and retirees of Century of West
Virginia. Plaintiffs claim that in 1989 defendants misrepresented the terms of
the salaried employee pension plan and/or benefits. Century of West Virginia has
denied liability and asked the court to deny class certification. On March 2,
1998, the court granted Century of West Virginia's motion and denied class
certification. While it is impossible to predict the outcome of this litigation,
Century of West Virginia will continue to defend the matter vigorously, and the
Company believes the outcome will not have a material adverse effect on its
financial condition, results of operations or liquidity.

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.

Commitments

The Company and a public utility have signed a power supply agreement,
covering the period from July 1, 1996 through July 31, 2003. This agreement
replaces a power supply agreement with the same utility that was due to expire
in 1998. Billings, under the old agreement, were computed using a formula based
principally upon the utility's operating costs. Such billings were decreased if
the London Metals Exchange ("LME") primary ingot price was less than certain
specified levels, and increased, limited to the extent of cumulative net
decreases, if the LME primary ingot price was greater that certain specified
levels. Under the new agreement, the Company will pay a fixed price for
electricity used. However, for the period from July 1, 1996 through July 31,
1998, if the LME primary ingot price were to exceed certain specified levels,
the price for electricity used would increase, to the extent of cumulative net
price decreases under the previous contract with the same utility. The Public
Utilities Commission of Ohio has approved the agreement.

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 a cash contribution of $20,000 to its pension
plan for hourly employees in 1996. The Company made the contributions in 1996.
The PBGC Agreement also provides for scheduled contributions to be made to the
Company's pension plan for hourly employees with respect to 1997, 1998 and 1999.
The Company made its scheduled contribution for

40
41
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1997 and estimates that its scheduled contributions in each of the remaining
years will be $7,000 above the minimum required contributions under Section 412
of the Internal Revenue Code. The Company has 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. In
addition, Century must grant the PBGC a first priority security interest in the
first $50,000 of the property, plant and equipment of any business or businesses
that the Company acquires. The Company, in its discretion, may, however,
substitute Berkeley's undivided interest in the Mt. Holly Facility in lieu of
any such after-acquired property, plant and equipment as well as the shares of
Berkeley. The PBGC Agreement will terminate if (a) the Company's termination
liabilities under ERISA for its two pension plans are less than $10.0 million or
(b) if, after December 31, 2000, the Company has made the payments required by
the PBGC Agreement and (i) the unsecured debt of the Company is rated BBB- or
better by Standard & Poor's and Baa3 or better by Moody's, (ii) the Company has
obtained certain agreed-upon private ratings on a hypothetical issue of
unsecured debt, or (iii) the Company meets certain financial performance
criteria.

During 1992, the Company established a progress sharing plan (the "Plan")
for eligible union employees. Under the terms of the Plan, the Company created a
progress sharing pool, defined as 10% of Century of West Virginia's pre-Plan,
after-tax income (as defined) of each Plan year through 1997 when the Plan
terminated.

The Company has provided a $27,500 letter of credit to ensure its
performance under the Owners Agreement governing the Mt. Holly Facility. The
Company's obligation to maintain the letter of credit will terminate at such
time as the Company achieves certain financial measurements.

See Note 14 for a discussion of the Company's fixed-price commitments and
forward contracts.

14. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS

The Company produces primary aluminum products and manufactures aluminum
sheet and plate products and manages the risks of each accordingly. The Company
enters into forward primary aluminum contracts to hedge fixed-price purchase and
sale commitments and inventory positions and to cover expected future sales and
to otherwise manage the Company's exposure to changing prices.

Pursuant to the foregoing strategy, the Company had fixed price commitments
to sell 302.7 million pounds and 407.6 million pounds of primary and scrap
aluminum and aluminum sheet and plate products at December 31, 1997 and December
31, 1996, respectively. Forward purchase contracts for approximately 2.0 million
pounds and 27.9 million pounds of primary aluminum at December 31, 1997 and
December 31, 1996, respectively, did not qualify for hedge accounting treatment
because the Company's aggregate metals position exceeded its fixed-price sales
commitments at such dates. Cost of goods sold includes either a net credit or a
net charge relating to the unrealized gains or losses on these contracts that
did not satisfy the technical requirements for hedge accounting, realized gains
or losses from the cash settlement of forward contracts, unrealized losses on
purchase and sales commitments and reversals of prior period unrealized losses.
The resultant charges were $6,837, $6,670 and $898 for the years ended December
31, 1997, 1996 and 1995, respectively. In addition, at December 31, 1997, the
Company had forward sales contracts with Glencore, Ltd. for 100 million pounds
of primary aluminum to hedge 1998 and 1999 production. At December 31, 1996, the
Company had forward sales contracts with Glencore, Ltd. for 116 million pounds
of primary aluminum to hedge 1997 and 1998 production. Accounting standards
require that such contracts be marked to market. As of December 31, 1997 and
1996, the Company deferred unrealized losses of $3,565 and $7,699, respectively,
on such contracts. At December 31, 1997, the Company had fixed price commitments
to purchase 107 million pounds of primary and scrap aluminum.

During 1994, the Company entered into a forward purchase contract for 120
million pounds of primary aluminum with Glencore to cover a portion of its 1995
sheet and plate product sales. During the year ended

41
42
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

December 31, 1995, the Company entered into forward sales contracts with
Glencore which had the effect of offsetting the metal it was obligated to
acquire under the forward purchase contract. For the year ended December 31,
1995, the Company recognized net gains of $9,616 related to these contracts.

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.

Concurrent with the sale of Vialco (see Note 12), the Company entered into
a long-term supply agreement for 936 million pounds of alumina annually,
beginning January 1, 1996. Century will pay a fixed price for alumina with fixed
annual price increases of approximately 2.5% through 2001. Pricing for the years
2002 through 2006 will be subject to agreement between the parties.

15. RELATED PARTY TRANSACTIONS

The related party transactions occurring during the years ended December
31, 1997, 1996 and 1995, and not discussed elsewhere in the notes to the
consolidated financial statements,are described below.

Related Party Transactions -- Century

During the years 1996 and 1997 and at December 31, 1997, the Chairman of
the Board of Directors of Century was a member of the Board of Directors of
Glencore International AG. Prior to March 28, 1996, he was also an officer of
Glencore. In addition, during the year ended and at December 31, 1997, one of
Century's Board members was employed by Glencore International AG.

Related Party Transactions -- Century of West Virginia

During the years ended December 31, 1997, 1996 and 1995, Century of West
Virginia purchased alumina and bought and sold primary and scrap aluminum in
transactions with Glencore Ltd. at prices which management believes approximates
market.

During the year ended December 31, 1995, the Chairman of the Board of
Directors of Century of West Virginia and other Board members were employed by
Glencore AG. An allocation of Glencore AG expenses in the amount of $750 has
been included in the accompanying consolidated financial statements. These
expenses have been allocated by assessing incremental amounts of such expenses
not previously charged to the Company. Management believes that such expense
allocation is reasonable. In addition, pursuant to a consulting agreement,
Glencore Ltd. provided certain management services during 1995 to Century of
West Virginia at a charge of approximately $150.

Related Party Transactions -- Berkeley

A substantial portion of Berkeley's sales during the years ended December
31, 1997 and 1996 were to Glencore Ltd. Prior to 1996, Berkeley derived all of
its net sales from tolling agreements with Glencore Ltd. The conversion price
charged to Glencore Ltd., under these tolling agreements, was based on a
percentage of the prior quarter's daily average settlement price for aluminum
ingot on the LME. Berkeley also charged Glencore Ltd. an additional amount for
costs incurred relating to the production of "premium product," as defined in
the tolling agreements, and certain other related costs.

Effective January 1, 1996, and for the term of one year, the Company
entered into the Services and Marketing Agreement with Glencore Ltd. pursuant to
which Glencore Ltd. furnished training and marketing assistance in connection
with Century's ownership of the Mt. Holly Facility. In addition, prior to
January 1,

42
43
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1996, Glencore Ltd. provided funding for operations and various support services
to Berkeley and charged a management fee for providing such services. Management
fees charged to Berkeley were $120 for the year ended December 31, 1995.

Summary

A summary of the aforementioned related party transactions for the years
ended December 31, 1997, 1996 and 1995 is as follows:

1997 1996 1995
-------- -------- --------

Net Sales.................................. $105,521 $138,711 $137,260
Purchases.................................. 84,250 89,832 176,222
Management, consulting and training fees... -- 500 1,020

See Note 14 for a discussion of the Company's fixed-price commitments and
forward contracts with related parties.

16. EXPORT SALES

Export sales were 19%, 15% and 11% of the Company's net sales for the years
ended December 31, 1997, 1996 and 1995, respectively. These sales were
principally to customers in Canada and European countries.

17. SUPPLEMENTAL CASH FLOW INFORMATION

YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------ ------- -------

Cash paid for:
Interest:
Other..................................... $4,629 $ 2,694 $ 5,643
Affiliates................................ -- -- 509
Income taxes................................. 9,260 17,280 11,624
Cash received from income tax refunds.......... 159 448 11

Non-Cash Investing Activities

During the years ended December 31, 1997, 1996 and 1995, $1,292, $89 and
$218, respectively, of interest cost incurred in the construction of equipment
was capitalized.

Non-Cash Financing Activities

Corporate expenses of Glencore AG of $450 (net of income taxes) for the
year ended December 31, 1995 were allocated to the Company and recorded as
contributions to additional paid-in capital.

During the year ended December 31, 1995, the principal amount outstanding
under a credit facility of $40,000 was converted into additional paid-in
capital. (See Note 7.)

Also during the year ended December 31, 1995, as part of a restructuring of
holdings within the Glencore Group, Vialco became a subsidiary of Century of
West Virginia with assets of $60,000 together with $11,085 of liabilities. This
restructuring resulted in an increase of $48,915 in additional paid-in capital.
(See Note 12.)

43
44
CENTURY ALUMINUM COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

18. QUARTERLY INFORMATION (UNAUDITED)

Financial results by quarter for the years ended December 31, 1997 and 1996
are as follows:

GROSS NET
NET PROFIT INCOME INCOME (LOSS)
SALES (LOSS) (LOSS) PER SHARE
-------- ------- ------- -------------

1997:
1st Quarter.......................... $191,531 $ 7,919 $ 1,726 $ 0.09
2nd Quarter.......................... 191,477 11,115 2,783 0.14
3rd Quarter.......................... 169,709 (1,628) (3,203) (0.16)
4th Quarter.......................... 168,271 4,858 (238) (0.01)
1996:
1st Quarter.......................... $181,404 $17,421 $ 9,179 $ 0.40
2nd Quarter.......................... 166,040 14,841 6,390 0.32
3rd Quarter.......................... 156,590 2,331 (1,490) (0.07)
4th Quarter.......................... 184,845 11,130 2,425 0.12

44
45

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the captions "1. ELECTION OF DIRECTORS" and
Section 16(a) Beneficial Ownership Reporting Compliance" to be included in the
Company's definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 4, 1998 and to be filed pursuant to Regulation
14A within 120 days after the close of the fiscal year covered by this report on
Form 10-K, is incorporated herein by reference. The information regarding
Executive Officers of the Registrant is included in Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The (i) information set forth under the caption "Board and Committee
Meetings; Directors' Compensation" and (ii) information set forth under the
captions "Executive Compensation", "Employment Agreements", "Severance
Compensation Arrangements", "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions and Relationships" all to be included
in the Company's definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 4, 1998 and to be filed pursuant to Regulation
14A within 120 days after the close of the fiscal year covered by this report on
Form 10-K, is incorporated herein by reference. Notwithstanding the foregoing,
(i) the information set forth in said Proxy Statement under the caption "Report
of the Compensation Committee" and (ii) the information set forth under the
caption "Performance Graph" in said Proxy Statement, is NOT incorporated by
reference herein or in any other filing of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" to be included in the Company's definitive
Proxy Statement relating to the Annual Meeting of Stockholders to be held on May
4, 1998 and to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year covered by this report on Form 10-K, is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Transactions and
Relationships" to be included in the Company's definitive Proxy Statement
relating to the Annual Meeting of Stockholders to be held on May 4, 1998 and to
be filed pursuant to Regulation 14A within 120 days after the close of the
fiscal year covered by this report on Form 10-K, is incorporated herein by
reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) LIST OF FINANCIAL STATEMENTS

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, 1997 and 1996.

Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.

45
46

Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995.

Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.

Notes to the Consolidated Financial Statements.

(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES

Independent Auditors' Report.

Schedule I -- Condensed Financial Information of Registrant as of and for
the years ended December 31, 1997, 1996 and 1995.

Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995.

(a)(3) LIST OF EXHIBITS

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------

3.1 Restated Certificate of Incorporation of Registrant.
3.2 Amended and Restated Bylaws of Registrant.
4.1 Form of Stock Certificate.
10.1 Alumina Supply Agreement between Glencore Ltd. and
Ravenswood Aluminum Corporation, dated September 13, 1993,
as amended September 23, 1993.
10.2 Alumina Supply Agreement between Alcoa Alumina & Chemicals,
L.L.C., Alcoa of Australia, Ltd. and Ravenswood Aluminum
Corporation, dated July 24, 1995.
10.3 Power Agreement between Kaiser Aluminum & Chemical
Corporation and Ohio Power Company, dated June 18, 1968, as
amended December 20, 1985.
10.4 Agreement between Ravenswood Aluminum Corporation and United
Steel Workers of America AFL-CIO, Local 5668, dated November
30, 1994.
10.5 Agreement between Ravenswood Aluminum Corporation and United
Steel Workers of America AFL-CIO, Local 5668, dated June 12,
1992.
10.6 Form of Employment Agreement between Century Aluminum
Company and Craig A. Davis.
10.7 Form of Employment Agreement between Century Aluminum
Company and Gerald A. Meyers.
10.8 Form of Employment Agreement between Century Aluminum
Company and Gerald J. Kitchen.
10.9 Form of Employment Agreement between Century Aluminum
Company and David W. Beckley.
10.10 Form of Employment Agreement between Century Aluminum
Company and Steven R. Sedberry.
10.11 Form of Severance Agreement between Century Aluminum Company
and Craig A. Davis.
10.12 Form of Severance Agreement between Century Aluminum Company
and Gerald A. Meyers.
10.13 Form of Severance Agreement between Century Aluminum Company
and Gerald J. Kitchen.
10.14 Form of Severance Agreement between Century Aluminum Company
and David W. Beckley.
10.15 Form of Severance Agreement between Century Aluminum Company
and Steven R. Sedberry.
10.16 1996 Stock Incentive Plan.
10.17 Non-Employee Directors Stock Option Plan.
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.

46
47

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------

10.20 Ravenswood Environmental Services Agreement between Kaiser
Aluminum & Chemical Corporation and Ravenswood Aluminum
Corporation, dated as of February 7, 1989.
10.21 Services Agreement between Glencore Ltd. and Ravenswood
Aluminum Corporation, dated as of July 21, 1992.
10.22 Form of Tax Sharing Agreement.
10.23 Form of Disaffiliation Agreement.
10.24 Form of Services and Marketing Agreement between Glencore
Ltd. and Century Aluminum Company.
10.25 Toll Conversion Agreement between Berkeley Aluminum, Inc.
and Glencore Ltd., dated as of January 1, 1994.
10.26 Loan and Security Agreement among various financial
institutions, BankAmerica Business Credit, Inc., as agent,
Ravenswood Aluminum Corporation and Berkeley Aluminum, Inc.,
dated as of January 30, 1996.
10.27 Security Agreement, made by Century Aluminum Company in
favor of BankAmerica Business Credit, Inc. dated as of
January 30, 1996.
10.28 Guaranty by Century Aluminum Company in favor of BankAmerica
Business Credit, Inc. dated as of January 30, 1996.
10.29 Agreement among the Pension Benefit Guaranty Corporation,
Century Aluminum Company, Ravenswood Aluminum Corporation,
Berkeley Aluminum, Inc., Ravenswood Receivables Corporation,
Ravenswood International Sales Corp., Virgin Islands Alumina
Corporation, Glencore Holdings AG, Glencore International
AG, Glencore AG, Vialco Holdings Ltd., Glencore Marketing
Inc., Pickands Mather Sales, Inc., Berkeley Finance
Corporation, Adam Maritime Corp., Glencore Canada, Inc. and
Clarendon Coal, Inc., dated as of January 23, 1996.
10.30 Intercreditor Agreement between the Pension Benefit Guaranty
Corporation and BankAmerica Business Credit, Inc., dated as
of January 30, 1996.
10.31 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.
10.32 Limited Term Firm Power Supply Agreement between Ravenswood
Aluminum Corporation and Ohio Power Company dated as of June
28, 1996.
10.33 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.
*11.1 Calculation of Earnings (Loss) per Common Share and Common
Share Equivalent.
21.1 List of Subsidiaries.
*23.1 Consent of Deloitte & Touche LLP.

- ---------------
* Filed herewith

(b) REPORTS ON FORM 8-K: NONE

47
48

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 25, 1998

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 25, 1998
- ------------------------------------------------ Officer
Craig A. Davis

/s/ WILLIAM R. HAMPSHIRE Vice Chairman March 25, 1998
- ------------------------------------------------
William R. Hampshire

/s/ GERALD A. MEYERS President, Chief Operating Officer March 25, 1998
- ------------------------------------------------ and Director
Gerald A. Meyers

/s/ DAVID W. BECKLEY Executive Vice President and Chief March 25, 1998
- ------------------------------------------------ Financial Officer (Principal
David W. Beckley Financial Officer and Principal
Accounting Officer)

/s/ ROMAN A. BNINSKI Director March 25, 1998
- ------------------------------------------------
Roman A. Bninski

/s/ JOHN C. FONTAINE Director March 25, 1998
- ------------------------------------------------
John C. Fontaine

/s/ WILLY R. STROTHOTTE Director March 25, 1998
- ------------------------------------------------
Willy R. Strothotte

48
49

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, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, and have
issued our report thereon dated February 13, 1998 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 financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

DELOITTE AND TOUCHE LLP

Pittsburgh, Pennsylvania
February 13, 1998

49
50

CENTURY ALUMINUM COMPANY

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

DECEMBER 31,
--------------------
1997 1996
-------- --------

ASSETS
Property, plant and equipment -- net........................ $ 1,214 $ --
Investments in wholly-owned subsidiaries.................... 170,546 169,478
-------- --------
Total............................................. $171,760 $169,478
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Due to subsidiaries......................................... $ 8,214 $ 3,000
Contingencies and commitments (Note 2)
Shareholders' equity
Common Stock.............................................. 200 200
Additional paid-in capital................................ 161,953 161,953
Retained earnings......................................... 1,393 4,325
-------- --------
Total shareholders' equity............................. 163,546 166,478
-------- --------
Total............................................. $171,760 $169,478
======== ========

See notes to condensed financial information
50
51

CENTURY ALUMINUM COMPANY

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------ ------- -------

Equity in income from continuing operations of wholly-owned
subsidiaries.............................................. $1,068 $16,240 $53,507
Equity in income from discontinued operations of
wholly-owned subsidiaries................................. -- 264 5,773
------ ------- -------
Net income.................................................. $1,068 $16,504 $59,280
====== ======= =======
Basic and diluted earnings per common share
Income from continuing operations......................... $ 0.05 $ 0.78 $ 2.31
Income from discontinued operations....................... -- 0.01 0.25
------ ------- -------
Net income................................................ $ 0.05 $ 0.79 $ 2.56
====== ======= =======

See notes to condensed financial information
51
52

CENTURY ALUMINUM COMPANY

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- -------- --------

NET CASH FROM OPERATING ACTIVITIES
Net income................................................ $ 1,068 $ 16,504 $ 59,280
Equity in undistributed net income of subsidiaries........ (1,068) (16,504) (59,280)
------- -------- --------
Net cash provided by operating activities................... -- -- --
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (1,275) -- --
------- -------- --------
Net cash used in investing activities....................... (1,275) -- --
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from subsidiaries.............................. 5,275 3,000 --
Dividends paid............................................ (4,000) (3,000) --
------- -------- --------
Net cash provided by financing activities................... 1,275 -- --
------- -------- --------
Net increase/(decrease) in cash............................. -- -- --
Beginning cash.............................................. -- -- --
------- -------- --------
ENDING CASH................................................. $ -- $ -- $ --
======= ======== ========

See notes to condensed financial information
52
53

CENTURY ALUMINUM COMPANY

NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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
(loss) 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").

2. CONTINGENCIES AND COMMITMENTS

For disclosure of contingencies and commitments, see Notes 4, 13 and 14 to
the Consolidated Financial Statements.

3. SHAREHOLDERS' EQUITY

For disclosure of information concerning shareholders' equity, see Note 7
to the Consolidated Financial Statements.

53
54

CENTURY ALUMINUM COMPANY

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END
OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
---------- ---------- ---------- ----------

Year ended December 31, 1995:
Allowance for doubtful trade accounts receivable.... $ 400 $ 300 $-- $ 700
Year ended December 31, 1996:
Allowance for doubtful trade accounts receivable.... $ 700 $1,000 $-- $1,700
Year ended December 31, 1997:
Allowance for doubtful trade accounts receivable.... $1,700 $ 570 $-- $2,270

54
55
EXHIBIT INDEX
-------------

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------

3.1 Restated Certificate of Incorporation of Registrant.
3.2 Amended and Restated Bylaws of Registrant.
4.1 Form of Stock Certificate.
10.1 Alumina Supply Agreement between Glencore Ltd. and
Ravenswood Aluminum Corporation, dated September 13, 1993,
as amended September 23, 1993.
10.2 Alumina Supply Agreement between Alcoa Alumina & Chemicals,
L.L.C., Alcoa of Australia, Ltd. and Ravenswood Aluminum
Corporation, dated July 24, 1995.
10.3 Power Agreement between Kaiser Aluminum & Chemical
Corporation and Ohio Power Company, dated June 18, 1968, as
amended December 20, 1985.
10.4 Agreement between Ravenswood Aluminum Corporation and United
Steel Workers of America AFL-CIO, Local 5668, dated November
30, 1994.
10.5 Agreement between Ravenswood Aluminum Corporation and United
Steel Workers of America AFL-CIO, Local 5668, dated June 12,
1992.
10.6 Form of Employment Agreement between Century Aluminum
Company and Craig A. Davis.
10.7 Form of Employment Agreement between Century Aluminum
Company and Gerald A. Meyers.
10.8 Form of Employment Agreement between Century Aluminum
Company and Gerald J. Kitchen.
10.9 Form of Employment Agreement between Century Aluminum
Company and David W. Beckley.
10.10 Form of Employment Agreement between Century Aluminum
Company and Steven R. Sedberry.
10.11 Form of Severance Agreement between Century Aluminum Company
and Craig A. Davis.
10.12 Form of Severance Agreement between Century Aluminum Company
and Gerald A. Meyers.
10.13 Form of Severance Agreement between Century Aluminum Company
and Gerald J. Kitchen.
10.14 Form of Severance Agreement between Century Aluminum Company
and David W. Beckley.
10.15 Form of Severance Agreement between Century Aluminum Company
and Steven R. Sedberry.
10.16 1996 Stock Incentive Plan.
10.17 Non-Employee Directors Stock Option Plan.
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.

56
EXHIBIT INDEX
-------------

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------

10.20 Ravenswood Environmental Services Agreement between Kaiser
Aluminum & Chemical Corporation and Ravenswood Aluminum
Corporation, dated as of February 7, 1989.
10.21 Services Agreement between Glencore Ltd. and Ravenswood
Aluminum Corporation, dated as of July 21, 1992.
10.22 Form of Tax Sharing Agreement.
10.23 Form of Disaffiliation Agreement.
10.24 Form of Services and Marketing Agreement between Glencore
Ltd. and Century Aluminum Company.
10.25 Toll Conversion Agreement between Berkeley Aluminum, Inc.
and Glencore Ltd., dated as of January 1, 1994.
10.26 Loan and Security Agreement among various financial
institutions, BankAmerica Business Credit, Inc., as agent,
Ravenswood Aluminum Corporation and Berkeley Aluminum, Inc.,
dated as of January 30, 1996.
10.27 Security Agreement, made by Century Aluminum Company in
favor of BankAmerica Business Credit, Inc. dated as of
January 30, 1996.
10.28 Guaranty by Century Aluminum Company in favor of BankAmerica
Business Credit, Inc. dated as of January 30, 1996.
10.29 Agreement among the Pension Benefit Guaranty Corporation,
Century Aluminum Company, Ravenswood Aluminum Corporation,
Berkeley Aluminum, Inc., Ravenswood Receivables Corporation,
Ravenswood International Sales Corp., Virgin Islands Alumina
Corporation, Glencore Holdings AG, Glencore International
AG, Glencore AG, Vialco Holdings Ltd., Glencore Marketing
Inc., Pickands Mather Sales, Inc., Berkeley Finance
Corporation, Adam Maritime Corp., Glencore Canada, Inc. and
Clarendon Coal, Inc., dated as of January 23, 1996.
10.30 Intercreditor Agreement between the Pension Benefit Guaranty
Corporation and BankAmerica Business Credit, Inc., dated as
of January 30, 1996.
10.31 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.
10.32 Limited Term Firm Power Supply Agreement between Ravenswood
Aluminum Corporation and Ohio Power Company dated as of June
28, 1996.
10.33 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.
*11.1 Calculation of Earnings (Loss) per Common Share and Common
Share Equivalent.
21.1 List of Subsidiaries.
*23.1 Consent of Deloitte & Touche LLP.

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* Filed herewith