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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-19657
GOLDEN NORTHWEST ALUMINUM, INC.
(Exact name of registrant as specified in its charter)
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OREGON 93-1249606
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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3313 WEST SECOND STREET
THE DALLES, OREGON 97058
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (541) 296-6161
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SECURITIES REGISTERED PURSUANT TO SECTION
12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:
None
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 27, 2000 the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was $0. Solely for
purposes of this calculation, the registrant has treated its Board of Directors
and executive officers as affiliates.
As of March 27, 2000, the number of shares of the registrant's Common
Stock outstanding was 1,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Not applicable.
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This annual report on Form 10-K also constitutes an annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 for the following
subsidiaries of Golden Northwest Aluminum, Inc.:
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State of I.R.S. Employer
Commission file incorporation or Identification
Company number organization Number
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Goldendale Holding Company 333-72245-04 Delaware 91-1785763
Goldendale Aluminum Company 333-72245-05 Delaware 91-1380241
Northwest Aluminum Company 333-72245-02 Oregon 93-0905834
Northwest Aluminum Specialties, Inc. 333-72245-01 Oregon 93-1019176
Northwest Aluminum Technologies, LLC 333-72245-03 Washington 93-1196863
</TABLE>
The address of the principal executive offices for each of these entities is
3313 West Second Street, The Dalles, Oregon 97058 and their telephone number is
(541) 296-6161.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders.
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GOLDEN NORTHWEST ALUMINUM, INC.
TABLE OF CONTENTS
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ITEM PAGE
NO. NO.
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PART I
1. Business......................................................................................... 1
2. Properties.......................................................................................11
3. Legal Proceedings................................................................................11
4. Submission of Matters to a Vote of Security Holders..............................................11
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............................12
6. Selected Financial Data..........................................................................12
7. Management's Discussion and Analysis of Financial Condition......................................13
7(a). Quantitative and Qualitative Disclosures about Market Risk.......................................20
8. Financial Statements and Supplemental Data.......................................................20
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............21
PART III
10. Directors and Executive Officers of the Registrant...............................................22
11. Executive Compensation...........................................................................24
12. Security Ownership of Certain Beneficial Owners and Management...................................25
13. Certain Relationships and Related Transactions...................................................25
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................27
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PART I
ITEM 1. BUSINESS
Our company was incorporated in 1998, and, through its three primary
operating subsidiaries, Goldendale Aluminum Company, Northwest Aluminum Company
and Northwest Aluminum Specialties, Inc., is a leading producer of primary
aluminum and selected specialty engineered high quality value-added aluminum
products. Our revenues come from two main sources: fees received from tolling
alumina into aluminum and sales of value-added aluminum products. At our two
facilities on the Columbia River east of Portland, Oregon, we operate two
primary aluminum smelters with combined production capacity of 250,000 metric
tons, making us one of the five largest primary aluminum producers in the United
States. We produce approximately two-thirds of our primary aluminum under a
tolling agreement with Hydro Aluminum Louisville, Inc., a large international
industrial and trading company. In conjunction with our smelter operations, we
operate three casthouses that produce a range of value-added aluminum products,
including our proprietary line of direct-cast, small diameter, alloyed billet
products.
We sell value-added billet and related products directly to the extrusion
and direct forge industries for further processing into final products such as
fire extinguishers, automobile air bag canisters, golf club heads, bicycle
frames and a variety of automotive and aircraft parts. We believe our cost
competitive position, strategic relationships, investment in new smelting and
casting technologies and mix of higher-margin, value-added products are key
competitive advantages and have been primary determinants of our historical
profitability.
We believe we rank among the lower cost aluminum producers in the United
States. We attribute our historical profitability to a number of factors
including access to and innovative procurement of low-cost hydroelectric power,
technical innovation at the plant level, good labor relations and low levels of
corporate overhead.
OPERATIONS
We conduct our business and derive revenues through two principal business
activities: the production of primary aluminum under a tolling contract and the
production of value-added specialty aluminum products under tolling contracts
and for direct sales. All of our business is conducted under one segment as
defined by Statement of Financial Accounting Standards No. 131.
PRODUCTION OF PRIMARY ALUMINUM
Our subsidiaries operate two aluminum smelters in The Dalles, Oregon and
Goldendale, Washington. The smelters have the capacity to produce approximately
250,000 metric tons of primary aluminum per year. A metric ton is equal to
2,204.6 pounds. These smelters consist of 826 vertical pin Soderberg technology
reduction cells organized into five pot lines. The smelters use advanced
conservation technology, computer control procedures and environmental control
equipment to enhance their efficiency. Capital investment in the facilities by
us and the smelters' previous owners over the life of the facilities,
competitive wage rates, access to low cost hydroelectric power, low overhead and
tolling agreements that have historically insured full smelter utilization have
also contributed to the smelters' efficiency. The efficiency of the smelters
allows us to maintain a competitive cost position relative to other industry
participants, many of which are significantly larger than we are.
SMELTING METHODS. Smelting, which involves the reduction of alumina to
aluminum ingot, is an electrolytic process. Raw alumina is dissolved in an
electrolytic bath in large cells, or pots, which are insulated with brick and
lined with carbon. The cell lining acts as the negative cathode, and a carbon
block, which is partially immersed in the electrolytic bath serves as a positive
anode. The carbon anode is composed of petroleum coke and coal tar pitch and is
consumed in the smelting process, as oxygen released from alumina in the
reduction process binds with the carbon to form carbon dioxide. Because of the
high cost of removing metallic impurities from aluminum, careful attention must
be given to avoiding impurity introduction by way of the raw materials used in
the anode manufacturing process. Petroleum coke and coal tar pitch are used as
the carbon and binder sources because of their relatively high purity. Gases and
particulate matter are collected in the hood around the lower rim of the anode
casing and are passed through the smelter's air and water purification systems.
Molten aluminum is drawn from the bottom of the cell, and, typically, poured
into molds as unalloyed metal, or sow, or routed into holding furnaces where
various alloying ingredients may be added before casting into plate, slab, logs
or ingot.
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The world's aluminum smelters are evenly split between two basic anode
technologies, Soderberg and pre-bake. The two processes differ only in the
fabrication and connection of the carbon anode. Most recently constructed
smelters use pre-bake technology, which has certain inherent advantages relative
to Soderberg technology and may permit primary aluminum production at a lower
cost, albeit at a higher initial investment.
Soderberg anodes are baked by utilizing waste heat from the smelting cell
and, as such, are referred to as self-baking. A steel casing or mold six to
eight meters by two meters containing the coke aggregate and coal tar pitch
mixture is mounted over the smelting cell and its contents bake as they progress
toward the electrolytic bath. The carbon mass is allowed to slip through the
casing at the rate of its oxidation in the electrolytic bath. In the vertical
spike version of the Soderberg cell, electrical contact is made by steel tipped
aluminum spikes entering from the top. They are pulled by a special tool and
reset as their tips approach the electrolytic bath surface due to consumption of
the anode. In the horizontal spike version of the Soderberg cell the
steel-aluminum spikes enter through the side of the casing instead of through
the top. They must be removed and reset as the anode is consumed.
Pre-bake anodes are formed by blending sized petroleum coke aggregate and
coal tar pitch, molding it into blocks complete with preformed electrical
connection sockets by hydraulic pressing or vibration forming, and firing in
oil- or gas-fired ceramic-lined ring furnace pits. A typical block is 70
centimeters wide, 125 centimeters long and 50 centimeters high. Electrical
contact and physical support is obtained through aluminum or copper rods welded
or bolted to steel stubs. The stubs are set in the anode sockets and molten cast
iron is poured around them to produce a strong joint with low electrical
resistance.
GOLDENDALE SMELTER. The smelter in Goldendale, Washington was built in
1971, making it the most recently constructed aluminum smelter in the Pacific
Northwest, and was expanded in 1981. The total annual production capacity of the
Goldendale smelter is 168,000 metric tons of primary aluminum output. The
Goldendale smelter employs vertical pin Soderberg technology and consists of 526
reduction cells organized into three pot lines. The Goldendale smelter has
undergone a number of technology upgrades during its lifetime. These upgrades
have resulted in a significant improvement in production efficiencies over the
years as measured by energy consumption, carbon consumption and cell life.
The Goldendale smelter was constructed from engineering plans based on
Norsk Hydro ASA's Karmoy, Norway facility, and as such is similar in terms of
layout, smelter design and operating processes. The Goldendale smelter was also
designed to operate in tandem with our smelter located in The Dalles, Oregon.
NORTHWEST SMELTER. Located across the Columbia River and approximately 35
miles west of the Goldendale smelter, our smelter in The Dalles produces primary
aluminum. Built in 1958, The Dalles smelter consists of 300 vertical pin
Soderberg reduction cells organized into two pot lines. The smelter's production
capacity is about 82,000 metric tons of primary aluminum per year.
We also operate a carbon plant at The Dalles facility. The plant produces
approximately 40,000 metric tons of carbon briquettes, which are consumed during
the alumina reduction process. We have surplus capacity in the plant and
recently have begun selling briquettes to a non-affiliated aluminum producer.
CELL RELINING. Each smelter's cells are grouped into series electrical
circuits varying from 150 to 186 cells. Each cell must be relined on average
every 2,300 to 2,600 days. When a cell is relined, it is removed from the
production process by electrically isolating the cell, allowing the electricity
to flow past the cell to the next cell in the circuit. The cell is allowed to
cool and the lower half of the cell, known as the cathode, is removed and taken
from the cell lines to our cell relining area. The residual cooled and hardened
electrolyte and aluminum and the spent pot liner, which consists of carbon
blocks and insulating brick, are removed from the steel cell casing. The steel
casing is then straightened and patched if necessary. The cell is then relined
with new insulating brick, carbon blocks and other material and supplies,
including ramming paste and collector bars. The total cell relining costs are
approximately $75,000 per cell. The number of cells relined each year varies
based on the quality of materials used, operating conditions and the number of
cells that have been relined over the years.
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THE HYDRO TOLLING AGREEMENT. Goldendale and Hydro Aluminum Louisville, Inc.
entered into a ten-year contract effective January 1, 1997. The Hydro tolling
agreement has been extended another five years, until December 2011.
Under the terms of the Hydro tolling agreement, Goldendale must use its
smelter exclusively to produce at least 157,000 metric tons of aluminum annually
from the alumina supplied to it by Hydro, and Hydro is required to supply
sufficient alumina to enable Goldendale to produce that amount of aluminum.
Hydro supplies the alumina at no cost to Goldendale, and at all times the
alumina and aluminum inventory is owned by Hydro. Goldendale bears the entire
cost of unloading and storing the alumina and transporting it to the smelter
from Goldendale's unloading facility. Hydro pays a tolling fee to Goldendale for
converting the alumina to aluminum based on a percentage of the price of
aluminum on the London Metal Exchange. Pursuant to its tolling agreement with
Hydro, Goldendale receives an additional tolling fee for casting the aluminum
into value-added "casthouse products" such as extrusion billet, foundry "T" or
sheet ingot. In addition, Goldendale shares premiums that Hydro is able to
realize on sales of value-added products in the market. Hydro is required to
place orders for at least 70,000 metric tons of value-added products each year.
The tolling agreement also specifies quality and efficiency requirements. If the
products or production schedules do not meet the required specifications, the
parties have agreed to work together to identify and correct the problem;
however, Hydro may terminate the agreement if Goldendale's production were to
continue to fall below the product or schedule specifications.
The Hydro agreement also requires Goldendale to use any additional smelter
capacity resulting from the installation of new point feeder technology under
the facilities investment program, discussed below, exclusively to produce
aluminum products for Hydro, subject to some maximum volumes. Hydro is required
to supply sufficient alumina to enable Goldendale to produce the additional
volume. However, Hydro's commitment to place orders for value-added products
remains at 70,000 metric tons and has not been increased to reflect the
additional casthouse capacity expected to result from the facilities investment
program. Hydro has informed us that it will utilize the additional casthouse
capacity. Hydro would like to receive more of the primary aluminum produced at
the Goldendale smelter in the form of billet rather than ingot. In contrast to
ingot, billet is a casthouse product. If Hydro's demand for billet does not use
the full capacity of the Goldendale casthouse, we anticipate using the excess
capacity to cast primary aluminum from the smelter at The Dalles into commodity
billet for other value-added customers.
THE GLENCORE TOLLING AGREEMENT. Northwest was a party to a tolling contract
with Glencore, Ltd. until the contract expired in December 1999. Under the
Glencore tolling agreement, Glencore provided alumina to Northwest for
conversion into primary aluminum. Glencore supplied enough alumina to support
the full production capacity of the Northwest smelter, and Northwest used its
best efforts to produce 82,000 metric tons of aluminum ingot and other finished
products for Glencore in exchange for a tolling fee based on a certain
percentage of the London Metal Exchange price for aluminum.
Due to the growth of its value-added operations, Northwest had increased
its purchases of primary aluminum from Glencore and others to such an extent
that it was purchasing more primary aluminum from Glencore and others than the
production capacity of the Northwest smelter. Glencore's tolling contract
allowed us to operate The Dalles smelter at full capacity while we had no
developed market for our smelter production. The success of our non-tolled
products, however, reduced the importance of this contract, and we did not renew
it when it expired in December 1999. We have, however, entered into an agreement
with Glencore to have Glencore supply the smelter at The Dalles with all of its
alumina requirements from October 1, 1999 to December 31, 2004 at what we
believe are favorable rates as compared to current market prices.
UNLOADING FACILITIES. We receive raw alumina at our Portland, Oregon
unloading facility. A ship channel maintained by the U.S. Army Corps of
Engineers serves the facility. Three steel silos are located on the property
with the capacity to store 42,000 metric tons of alumina. Alumina is delivered
to the facility by ship and is then transferred into silos for short-term
storage and delivered to our smelters by rail. The unloading facility has
sufficient capacity to handle our unloading and storage requirements.
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PRODUCTION OF VALUE-ADDED SPECIALTY ALUMINUM PRODUCTS
We operate a value-added production operation which blends primary
aluminum, produced at both our smelters or purchased from Hydro, Glencore and
other aluminum producers, with various alloys into a variety of value-added
products, including proprietary small diameter billet ("SDB") and related
products. Our SDB products are cast directly from molten aluminum in a process
that eliminates the expense associated with the extrusion process typically
required to manufacture SDB products. Our SDB products are frequently
manufactured to customer specifications, and, as such, can be priced to provide
us with enhanced margins relative to commodity aluminum products. Since
Northwest Aluminum Specialties began its value-added operations in the early
1990s, the business has grown to represent a significant percentage of our total
revenues. Our SDB products are typically forged or extruded by our customers
into end use forms which include fire extinguishers, automobile air bag
canisters, golf club heads, bicycle frames and a variety of automotive and
aircraft parts.
In late 1996, Specialties added a new billet machining operation that
allows us to manufacture SDB in any diameter between 2 inches and 5 inches,
within extremely tight engineering tolerances. Bar sawing capabilities were also
added that allow us to deliver cut billet "pucks" that meet customer
specifications. These new capabilities have led to additional business and
opportunities that we believe will allow us to continue to increase the size of
our value-added aluminum business and enhance the average premium received.
Our value-added standard extrusion billet and hot molten metal products
that are not produced under tolling arrangements are sold at the Midwest market
price, which includes a premium of $.03 to $.05 per pound over the London Metal
Exchange price, plus a premium of between $.06 and $.13 per pound. Our specialty
extrusion billet, hot closed die forging, cold impact forging and semi-solid
forging are sold at the Midwest market price plus a premium of between $.13 and
$.81 per pound.
FACILITIES INVESTMENT PROGRAM
Both we and previous owners of our facilities have periodically made major
investments in new plant and equipment. From 1978 to 1981, Martin Marietta
Corporation made a major investment in both smelters by implementing new anode
and cathode technology, modernizing electrical and environmental control systems
and adding the third cell line at the Goldendale smelter. In 1991 and 1997,
Northwest Aluminum Specialties added new casting capability.
We have undertaken the facilities investment program to expand capacity and
enhance operating efficiency. With the financial and technical support of Hydro,
we plan to expand the casthouse at Goldendale and upgrade the cell lines at
Goldendale and at The Dalles. We have borrowed $20.0 million from Hydro under
a note purchase agreement to partially finance the facilities investment
program. We intend to implement the facilities investment program
over the next five years, in two stages.
In the first stage, we plan to modernize the Goldendale casthouse and
complete a demonstration of its new cell line technology. The Goldendale
casthouse expansion is designed to increase the facility's capacity to produce
value-added billet from 13 million pounds per month to an initial capacity of 22
million pounds per month, with the option to expand capacity to over 30 million
pounds per month. The additional value-added production will be sold by Hydro
under the tolling agreement, with the same sharing of market premiums in excess
of costs. As discussed below, our share of any incremental earnings from the
facilities investment program will be used to repay the debt owed to Hydro.
Hydro has informed us that its own U.S. extrusion plants should be able to use a
significant portion of this additional capacity. The expansion is underway, and
should be substantially completed by the end of 2000. We expect the cost will be
approximately $13.5 million. Through December 1999, expenditures related to this
expansion totaled $8.5 million, which is consistent with our estimate of the
project's total cost.
The first stage will also include a 12 to 18-month demonstration of the
planned cell line improvements in a 34-cell section at Goldendale. Conversion of
this section and the demonstration are budgeted to cost $6.4 million. Cell
improvements include pointfeeders to control alumina additions, magnetic
compensation to stabilize cell operations, cathode redesign to optimize heat
balance, new computer controls and other related technologies. The technology
for the cell line improvements has been licensed from Hydro, which already has
implemented these changes at a
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similar smelter in Norway. Based upon Hydro's experience, we expect the
improvements to increase smelter production, reduce average unit costs of
production, increase production efficiencies and significantly reduce air
emissions. The improvements are underway, and should be substantially completed
by the end of 2000. We expect the cost will be approximately $6.4 million.
Through December 1999, expenditures related to this conversion totaled $2.9
million, which is consistent with our estimate of the project's total cost.
Results of this test phase obtained thus far are positive.
We plan to begin the second stage of converting the remaining cells at both
smelters when we complete the demonstration of our cell line upgrades and obtain
all necessary permits. The conversion can be performed cell by cell, with
minimal disruption of operations, and can be accelerated or slowed for market or
other reasons. We estimate that conversion of the remaining cells at both
smelters will cost approximately $55.0 million, and estimate that the cost of
conversion of a cell will be recovered in 3.5 years. Hydro has agreed, subject
to certain conditions, to provide an additional $10.0 million of subordinated
financing if we decide to convert the remaining cells at Goldendale. We expect
the remaining $45.0 million, and any additional costs of the facilities
investment program, will be funded through cash from operations and borrowings
under our revolving credit facility.
BATH RECLAIM FACILITY
In 1999, we completed a bath reclaim facility for $1.8 million that will
enable us to reclaim electrolytic material, or bath, alumina and aluminum from
recovered material from the basements of our smelter facilities. This reclaiming
will reduce our outside purchases of electrolytic material. Additionally, the
facility has excess capacity that can be utilized to service other aluminum
companies.
RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY
We have traditionally placed emphasis on innovation and research and
development. We have laboratory facilities dedicated to environmental
compliance, quality testing and research and development. We engage in several
research and development activities designed to improve earnings by increasing
value-added margins or reducing costs. Expenditures for activities designated as
research and development were $2,070,000 in 1999, $1,194,000 in 1998 and
$544,000 in 1997. We also have received grants from state and federal
governments for certain research and development activities.
Our research and development encompasses five broad initiatives:
- First, we undertake research and development to develop new alloys and
casting and homogenizing practices that improve the characteristics of
metal sold to customers. We endeavor to protect our proprietary
interest in our products and processes by filing patent applications
where appropriate and otherwise by seeking to protect them as trade
secrets. This research has resulted in several proprietary products and
an issued patent for a new alloy.
- Second, we have focused research in the area of semi-solid metalworking
("SSM"). SSM is intended to give automotive and other parts the
physical properties of forgings with the production cost of
die-castings. We have obtained a patent for the casting and
transformation of aluminum to produce SSM parts.
- Third, we have undertaken an initiative to further develop a process to
recycle Spent Pot Lining ("SPL"). We believe this process may allow SPL
to be recycled into several marketable products rather than being
treated and land filled at a significant cost. We have a patent on our
method of treating SPL from aluminum reduction cells and have
applications for other patents on SPL recycling.
- Fourth, our subsidiary, Northwest Aluminum Technologies, has acquired
and expects to develop a new technology to smelt aluminum in a low
temperature bath using inert metallic anodes and titanium diboride
cathodes. In our pursuit of this technology, we have acquired four
patents and intend to file additional patent applications. We also have
received three grants from the U.S. government to fund additional
research to develop new smelting technologies.
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- Fifth, we engage in several other research and development projects to
continuously improve our smelting and casting operations.
We have eight patents and two trademarks. We have set out a description and
the termination date of each in the following table. We also have a number of
patents pending.
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DESCRIPTION OF PATENT OR TRADEMARK TERMINATION DATE
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A patent for a method and apparatus for the electrolytic
reduction of alumina.......................................... October 25, 2014
A patent for the electrolytic reduction of alumina............ August 31, 2008
A patent for the electrolytic reduction of alumina............ February 13, 2010
A patent for a point feeder and a method for Soderberg aluminum
reduction cells............................................... October 4, 2010
A patent for non-consumable anode and lining for aluminum
electrolytic reduction cell................................... April 17, 2012
A patent for casting, thermal transformation and semi-solid
forming of aluminum alloys.................................... April 14, 2015
A patent for a high strength aluminum alloy................... September 12, 2014
A patent for a method of treating SPL from aluminum
reduction cells............................................... December 8, 2015
A trademark for "Direct Forge", the name under which Northwest
Aluminum Specialties markets its small diameter billet........ December 15, 2002; automatically renewed for
subsequent 10 year terms if still in use
A trademark for "Direct Form"................................. April 18, 2007; automatically renewed for
subsequent 10 year terms if still in use
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SALES AND MARKETING
Through their tolling agreements, Hydro and Glencore have been our largest
customers, accounting for 37% and 17% of our revenues in fiscal 1999 and 37% and
19% of our revenues in fiscal 1998. The Glencore tolling arrangement expired on
December 31, 1999, and will result in a substantial reduction in the amount of
revenue from Glencore. We directly sell value-added aluminum products to
approximately 100 extruders, forgers, casters, traders and other customers
throughout the United States and abroad. Northwest Aluminum Company's Vice
President of Sales and Marketing oversees a small sales and customer service
group that makes and supports these direct sales.
SUPPLIERS
The major raw materials we use are alumina, petroleum coke and coal tar
pitch, aluminum ingot, scrap aluminum and alloying elements and electricity. We
obtain our raw materials either through annual contracts or on the spot market.
Alumina consumed in the production of aluminum is supplied by Hydro for all
the alumina requirements of the smelter operations at Goldendale under the
tolling agreement. Glencore supplies all of the alumina requirements of the
smelter at The Dalles under a supply agreement lasting until December 31, 2004.
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The other raw materials involved in the reduction of alumina are petroleum
coke, coal tar pitch and carbon lining. Petroleum coke is used to make anodes
and carbon lining and is sourced locally from a large producer of quality coke,
which is one of several suppliers. Coal tar pitch is available from several
suppliers. Carbon lining, which acts as the cathode in the smelting cells, is
purchased from various suppliers.
We annually purchase aluminum to supplement our smelter production. Prior
to December 31, 1999, we were buying back from Glencore almost the entire 82,000
metric tons of our smelter production at The Dalles. Additionally, we were
purchasing approximately 45,000 metric tons from other producers, including
Hydro, at market prices in the form of primary ingot, primary molten metal and
scrap metal. Primary suppliers include Hydro, Vanalco and Alcoa. The other major
inputs in the making of aluminum products are alloying elements, such as
magnesium and silicon, which are provided by various suppliers.
POWER CONTRACTS
Because electricity is both necessary for the manufacturing of aluminum and
the single largest cost of making primary aluminum, the availability and pricing
of electricity and access to transmission is crucial to our operations.
Approximately 80% of all power produced or consumed in the Pacific Northwest is
delivered over the transmission system of the Bonneville Power Administration,
or BPA. Both The Dalles smelter and Goldendale smelter are connected directly to
the main high voltage transmission grid of BPA. Each plant has a 20-year
transmission agreement with BPA, expiring in April 2015, for transmission
capacity that we believe is sufficient to meet both plants' existing and
projected energy needs. These transmission agreements obligate BPA to offer
Goldendale Aluminum Company and Northwest Aluminum Company a new transmission
agreement upon the expiration of the current agreements. Moreover, the
transmission agreements also obligate BPA to act as agent for Goldendale and
Northwest to obtain transmission services over other transmission systems if
requested. With the exception of limited rights to restrict transmission service
in the event of certain threats to system stability, the transmission agreements
obligate BPA to provide Goldendale and Northwest with the same open access
transmission available to utilities and power companies under the rules of the
Federal Energy Regulatory Commission.
Goldendale and Northwest are buying energy from BPA under a five-year power
sale agreement through which approximately 60% of each plant's energy needs are
contractually secured at predetermined prices through September 30, 2001. The
published annual average rate for power from BPA is 2.2 cents per kilowatt-hour.
The power sale agreement allows us to schedule our purchases in different months
when power is priced at different rates in such a way that power purchased from
BPA has an actual rate that is lower than the published average rate. The
remaining 40% of Northwest's and Goldendale's energy requirements is obtained by
purchasing blocks of energy under periodic contracts from various suppliers,
including BPA, PacifiCorp, Enron, Illinova Energy, Duke Energy, Avista Energy,
the Avista Utilities and others. Recently, power costs have increased both
because we have been required to purchase more energy under our BPA contract and
because market prices for purchases of the remaining energy requirements have
increased.
For the period October 2001 through September 2006, BPA has proposed a new
policy to meet approximately 50% of our power needs rather than the 60% supplied
during the previous five years. The average cost of this BPA power after 2001
will be somewhat higher than the cost during the previous period. However, BPA
also may offer an option to vary the price of BPA power with the price of
aluminum. We are working with various power suppliers and resource developers to
arrange a supply of competitively priced power for the other half of our load
requirements not served by BPA.
Due to our transmission agreements and the smelters' geographical location
on an unconstrained segment of the main transmission network in the region, we
believe we will be able to obtain competitively priced power in the foreseeable
future. We do face the normal risks associated with the market price of energy,
however. Numerous short-term and long-term developments can affect power prices,
including worldwide demand for fossil fuels, changing environmental standards,
the overall economic activity in the United States and the Pacific Northwest,
weather temperature and precipitation. Due to the high percentage of
hydroelectric generation in the power supply of the Pacific Northwest, energy
prices in the region tend to be sensitive to drought conditions that reduce the
availability of low cost hydroelectric power supply. The hydroelectric system in
the Pacific Northwest, however, has significant flexibility and excess capacity
to meet spikes in demand or short-term thermal plant outages that have
7
<PAGE> 11
caused large price swings in other regions of the country. For the longer term,
we expect that the geographical proximity to the low-cost Western Canadian
natural gas supply and the operating flexibility and stability of the Federal
Columbia River Hydro System should keep the market price of electricity
attractive in the Pacific Northwest relative to the average market price of
power in the United States. In addition, we are exploring opportunities to
develop generating capability either on our own or in conjunction with BPA,
publicly owned local utilities or other resource developers.
HEDGING ACTIVITIES
Our revenues and earnings are sensitive to changes in the price of primary
aluminum and in the premiums for, and mix of, our value-added products. For
example, the tolling fees and premiums received by us are tied to the London
Metal Exchange price of aluminum.
Primary aluminum prices historically have been subject to significant
cyclical price fluctuations. The timing of changes in the market price of
aluminum largely are unpredictable. Aluminum prices historically have shown long
periods of average, or below average, prices followed by sudden, relatively
short periods of above average prices. These prices have historically fluctuated
widely and are affected by numerous factors beyond our control. Those factors
include the overall demand for, and worldwide supply of, primary aluminum, the
availability and price of competing commodities, international economic trends,
currency exchange rate fluctuations, expectations of inflation, actions of
commodity market participants, consumption and demand patterns and political
events in major producing countries. Over the twelve-year period between January
1, 1988 and December 31, 1999, the three month price of aluminum on the London
Metal Exchange has ranged between a low of approximately $0.47 per pound to a
high of approximately $1.26 per pound. During this period prices averaged $0.72
per pound.
We attempt to mitigate fluctuations in the price of commodity aluminum
through our strategy of minimizing the costs of production and maximizing the
margins of our value-added products. When we sell value-added products for
future delivery at a fixed price, we generally purchase metal or otherwise fix
the price of the commodity aluminum required in that period to support the sale.
From time to time, we may leave some quantities for some duration uncovered, or
acquire put or call options. This policy generally leaves us with a fixed margin
on our value-added sales and open prices for our future primary production that
will vary with London Metal Exchange aluminum prices. We do not actively hedge
our production.
BACKLOG
We generally receive the bulk of the orders for value-added specialty
aluminum products in the three months preceding the calendar year in which the
products are to be shipped to customers. This year, due to expectations of
future prices being lower, those customers did not make their commitments until
after December 31, 1999. As a result, our fixed price backlog at December 31,
1999 was $31.7 million, compared to $62.6 million at December 31, 1998. At March
22, 2000, our fixed price backlog was $62.4 million. For a variety of reasons,
including the timing of shipments and product mix, backlog may not be a reliable
measure of future sales for any succeeding period.
COMPETITION
Competition within the aluminum industry is intense. We compete with both
domestic and foreign producers of primary aluminum and with primarily domestic
producers of extrusion billet and other value-added products and with primarily
domestic producers of other products such as copper, steel, glass and plastic.
Many of our competitors have greater financial resources than we do, which may
adversely affect our ability to compete effectively.
Primary aluminum is a commodity with standard qualities. Competition
generally is based upon the ability to produce primary aluminum at a cost below
the market price, which generally is established through trading on the London
Metal Exchange. We also compete with various aluminum producers, casting
companies, extruders and other fabricators in the production of extrusion
billet, sheet ingot, small diameter ingot and other value-added products. In the
extrusion billet market, we compete primarily with Alcan and Alumax, which was
recently acquired by Alcoa. Northwest Aluminum Specialties' major competition in
the small diameter billet segment comes from Alcoa, Kaiser, Pimalco, a large,
efficient extruder and subsidiary of Alcoa, Newman and Allgoods, which are
8
<PAGE> 12
both punched plate producers. Competition in the sale of these value-added
products generally is based upon price, quality, availability, service and other
factors. We concentrate on the sale of value-added products in which we believe
we have production expertise, cost, quality, geographic and other competitive
advantages.
ENVIRONMENTAL AND HEALTH MATTERS
We are subject to federal, state and local environmental laws. From time to
time, these environmental laws are amended and new ones are adopted. These laws
regulate, among other things, air emissions and water discharges; the use,
generation, storage, treatment, transportation and disposal of solid and
hazardous materials and wastes; and the release of hazardous or toxic substances
or other contaminants into the environment. In addition, we are subject to
various federal, state and local workplace health and safety laws and
regulations. The environmental and health laws are administered by the U.S.
Environmental Protection Agency, and various other federal, state and local
agencies.
To operate our business in compliance with environmental and health laws,
we must obtain and maintain in effect permits for each of our facilities for a
variety of operations. These permits include without limitation permits for
discharges of wastewater, emission of air pollutants and management of hazardous
wastes. As a result, we sometimes are required to make expenditures for
pollution control equipment or for other purposes related to our permits and
compliance with the environmental and health laws. We have been fined or
penalized for breaches or alleged breaches of the environmental and health laws
and subjected to claims and litigation brought by federal, state or local
agencies and by private parties seeking remedial or other enforcement action
under the environmental and health laws or damages related to injuries or
alleged injuries to health or to the environment. The Dalles smelter, the
Goldendale smelter and the Portland unloading facility were subject to an
environmental compliance assessment by an independent environmental consultant
in 1996 that was updated in the summer of 1998. In both cases, we hired and paid
the consultant. These assessments were intended to evaluate our compliance with
the environmental laws regulating discharges of wastewater, emission of air
pollutants and the management of hazardous wastes. These assessments identified
no condition of non-compliance that we believe would have a material adverse
effect on our financial condition or results of operations, nor are we aware of
any such material condition.
Our manufacturing facilities have been in operation for several decades,
and these facilities have used substances and generated and disposed of wastes
that are or may be considered hazardous. For example, these facilities have in
the past stored or disposed of wastewater treatment sludge in on-site surface
impoundments such as ponds and lagoons and have handled spent pot liner and
disposed of spent pot liner and other wastes in on-site surface impoundments.
Martin Marietta Corporation, a prior owner of The Dalles smelter, conducted
an investigation of soil and groundwater at the smelter and implemented clean-up
measures at the smelter site, including the removal of hazardous substances from
groundwater and certain areas of the site and the encapsulation of other areas
where hazardous substances were disposed or released. Martin Marietta performed
this work under the supervision of the U.S. Environmental Protection Agency. In
1996, Martin Marietta completed the investigations and clean-up measures
required by the EPA at The Dalles smelter site. Although the purpose of the
Martin Marietta investigation was to identify all areas at the smelter where
hazardous substances had been disposed or released, some affected areas may not
have been identified or the clean-up measures may not perform as expected in the
future.
Hazardous substances have also been released at the Goldendale facility,
and the site was listed in the EPA's Comprehensive Environmental Response,
Compensation, and Liability Information System database in 1980. We expect
expenditures will be necessary at the Goldendale smelter to investigate and
clean up releases of hazardous substances disposed or released at the Goldendale
smelter. We have requested the State of Washington Department of Ecology to
approve a plan to close an on-site surface impoundment at the Goldendale
facility by 2005-2006. We expect to receive a response from the State of
Washington. As of December 31, 1999, the estimated cost of the surface
impoundment closure and post-closure actions was over $1.8 million. We have
established a trust fund of approximately $587,000 as of December 31, 1999, to
help pay these costs, and we have procured insurance coverage to provide funds
to the State of Washington for closure if we default. The actual closure costs
may exceed our estimate. Under a contract with the former owners of the
Goldendale smelter, the former owners have agreed to reimburse Goldendale
Aluminum Company for certain anticipated expenditures. We do not assure you the
former
9
<PAGE> 13
owners of the Goldendale smelter will contribute their contractually allocated
share of the costs necessary to investigate and cleanup hazardous substances
disposed or released at the Goldendale smelter site or to obtain regulatory
closure of surface impoundments at the site.
Due to continuing environmental regulations regarding spent pot liner
disposal, over the past few years we have experienced substantial increases in
costs associated with the disposal of SPL from our smelters. We presently
dispose of SPL under a contract with a chemical waste treatment company, which
expires in December 31, 2000, and which provides for increased treatment costs
as the contract continues. We are in the process of negotiating a new contract
with the same company. EPA is presently writing a new SPL treatment and disposal
regulation which is expected to be published in second quarter of 2000, and has
called for proposals from aluminum producers for alternative methods of
disposing spent pot liner. We continue to evaluate and develop our patented
process designed to recycle SPL into marketable products which we plan to submit
to the EPA for approval. We also expect several other producers to make
proposals to the EPA. We cannot predict, however, whether our process, or any
other proposed process, will be approved by the EPA; whether any such process,
if approved, will be cost efficient; or what additional costs of disposal of
spent pot liner, if any, we may have in the absence of EPA approval of an
available, cost efficient disposal process.
(1) An environmental condition that we do not know about could exist as to
one or more of our properties and could have an adverse effect on our
results of operations or financial condition.
(2) Future environmental or health laws could have an adverse effect on our
results of operation or financial condition.
EMPLOYEES
As of December 31, 1999, we employed 1,238 workers, 581 of which are
members of Local 8147 and 423 of which are members of Local 9170 of the United
Steelworkers of America. Goldendale Aluminum Company is signatory to a
collective bargaining agreement with the USW for the period May 24, 1996 through
May 31, 2001. Northwest Aluminum Company is a signatory to a collective
bargaining agreement with the USW for the period July 1, 1996 through June 30,
2001.
Both labor agreements provide for a 4% wage increase each year of the
contract. During the contract period there is a no strike/no lockout agreement.
We provide profit sharing programs in addition to the base compensation for all
employees, and a fully paid medical, dental and vision health care plan. We have
a 401(k) plan but no defined benefit plan.
We believe we have a good relationship with the union and an employee
involvement process that encourages creativity, productivity and positive
employer-employee relations.
FORWARD-LOOKING STATEMENTS
This Form 10-K includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 relating to our goals, plans and expectations regarding:
the facilities investment program, the ability of spent pot liner to be recycled
into marketable products, the development of new smelting technology by
Northwest Aluminum Specialties, the Year 2000 Issue, and capital expenditures.
Risk factors related to these forward looking statements are discussed in Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations -Forward-Looking Statements."
10
<PAGE> 14
ITEM 2. PROPERTIES
We own all of our facilities. The following table shows (1) each facility,
(2) its square footage, (3) its annual production capacity and (4) its use.
<TABLE>
<CAPTION>
FACILITIES
SQUARE ANNUAL
FACILITY FOOTAGE CAPACITY OPERATIONS
-------- ------- -------- ----------
<S> <C> <C> <C> <C>
GOLDENDALE
Smelter 1,209,730 168,000 mt Alumina reduction
Casthouse Included in above 168,000 mt Produce sow, billet, sheet
Unloading Facility 7.9 acres 42,000 mt
(Portland) shipments
Paste Plant 37,711 85,000 mt Carbon briquette
production
Laboratory 18,995 Quality control, R & D
Real Property 6,473 acres
NORTHWEST
Smelter 636,000 82,000 mt Alumina reduction
Casthouse 122,000 99,800 mt Produce sow, billet, ingot
Paste Plant 108,000 85,000 mt Carbon briquette
production
Real Property 390 acres
SPECIALTIES
Casthouse 160,000 Up to 54,500 mt Value-added billet
depending on
product mix
Sawing/Turning 100,000 Saw: Semi-fabrication
130,000 mt
Turning:
1,000,000 logs
</TABLE>
We believe these facilities are adequate to meet our current needs. We are
expanding or upgrading some of our facilities as a result of the facilities
investment program. Most of our facilities are subject to mortgages and other
claims held by our creditors to secure our 12% first mortgage notes and our
indebtedness to Hydro. See Item 1, "Business -- Facilities Investment Program."
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings arising
from our normal business activities. We believe these legal proceedings,
individually or combined, will not have a material adverse effect on our
financial condition, results of operations or cash flows.
In December 1999, Goldendale settled a dispute with the Internal Revenue
Service relating to proposed adjustments in its taxable income for prior years.
In August 1999, Northwest settled a similar dispute with the IRS. Goldendale and
Northwest have agreed to capitalize certain expenditures for prior years. As a
result, we paid a dividend of $1.9 million to our shareholder for payment of
these taxes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
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<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for our common stock. There
is one holder of our common stock.
We are a subchapter S corporation and pay dividends to our sole
shareholder. In 1998 and 1999, we paid cash dividends of $0 and $1.9 million to
our sole shareholder.
With certain exceptions, we will not, and will not permit our subsidiaries
to, create or otherwise allow to exist any consensual restrictions on the
ability of any subsidiaries to pay dividends or make any other distributions on
their capital stock or pay any indebtedness owed to us or any of our other
subsidiaries or to make loans or advances or transfer any of their assets to us
or any of our other subsidiaries.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below includes the
accounts of Northwest Aluminum Company, Northwest Aluminum Technologies and
Northwest Aluminum Specialties for all periods presented. It also includes the
accounts of Goldendale Holding Company and Goldendale Aluminum Company from May
22, 1996, the date Goldendale was acquired by Brett Wilcox, our sole
shareholder. This data should be read in conjunction with the consolidated
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained elsewhere in this
document.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------
SEPT. 3, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.............................. $ 289,693 $ 373,038 $ 497,872 $ 470,850 $ 444,174
Cost of revenues...................... 256,211 329,739 436,511 440,732 429,784
General and administrative expenses... 8,293 9,746 17,115 18,119 16,672
Interest expense...................... (948) (9,454) (16,723) (14,180) (21,977)
Other income (expense), net........... (545) 1,442 4,246 1,889 603
Income (loss) before income taxes..... 23,696 25,541 31,769 (292) (23,656)
Income tax expense (benefit).......... -- 6,636 13,274 3,009 (3,745)
Net income (loss)..................... 23,696 18,905 18,495 (3,301) (19,911)
Net income (loss) per share of common
Stock............................... 23,696 16,686 14,847 (8,501) (23,559)
Ratio of earnings to fixed charges.... 26.0x 2.8x 2.1x -- --(1)
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 1,066 $ 6,345 $ 1,251 $ 37,633 $ 1,929
Working capital....................... 43,512 61,908 36,398 79,292 52,238
Total assets.......................... 113,656 350,815 347,011 364,634 370,631
Total long-term debt.................. 3,000 185,441 134,941 192,955 199,294
Goldendale Holding Company Preferred
Stock............................... 29,663 29,663 29,663
Total shareholders' equity............ 80,325 103,615 115,680 77,516 52,081
OTHER DATA:
EBITDA................................ $ 32,900 $ 47,137 $ 63,315 $ 32,370 $ 21,290
Dividend per common share............. 4,000 67,587 2,932 -- 1,876
</TABLE>
- ---------------------
(1) For the years ended December 31, 1998 and 1999, earnings were insufficient
to cover fixed charges. The earnings deficiency was $2,390 and $27,880 in 1998
ans 1999, respectively.
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<PAGE> 16
EBITDA represents operating income before deductions for depreciation and
amortization. EBITDA has been presented because we believe it is commonly used
by investors to analyze operating performance and to determine a company's
ability to take on additional indebtedness or service indebtedness. EBITDA
should not be considered in isolation or as a substitute for net income, cash
flow from operations or any other measure of income or cash flow that is
prepared as generally accepted accounting principles require, or as a measure of
a company's profitability or liquidity. In addition, our definition of EBITDA
may not be identical to similarly entitled measures used by other companies. See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements included elsewhere in
this document.
For purposes of the computation of the ratio of earnings to fixed charges,
fixed charges consist of interest expense, amortization of deferred financing
costs and dividends accrued on the Goldendale preferred stock. Earnings consist
of income before income taxes plus fixed charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to reading this section, you should read the consolidated
financial statements and related notes that begin on page F-1. That section
contains all of our detailed financial information including our results of
operations.
BASIS OF PRESENTATION
We were incorporated in the state of Oregon in June 1998 for the purposes
of becoming the holding company of Northwest Aluminum Company, Northwest
Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC and Goldendale
Holding Company and its wholly owned subsidiary, Goldendale Aluminum Company.
For purposes of this section only, the term "Northwest" refers to Northwest
Aluminum Company and Northwest Aluminum Specialties, Inc., the term "Goldendale"
refers to Goldendale Holding Company and Goldendale Aluminum Company and the
term "Technologies" refers to Northwest Aluminum Technologies, LLC. We, along
with Goldendale and Technologies, report on a December 31 fiscal year basis.
Northwest reports on a September 30 fiscal year basis. Included in intercompany
receivable at December 31, 1999 is $13.1 million representing the portion of
intercompany advances that do not eliminate due to the differing year-ends. All
other significant intercompany accounts and transactions have been eliminated.
We do not believe seasonal or other factors materially affect the consolidation
of these differing fiscal periods.
OVERVIEW
Our revenues have historically come from two primary sources:
(1) fees received from smelting alumina into aluminum and casting that
aluminum into primary and value-added aluminum products under tolling
contracts with Hydro and Glencore, and
(2) the sale of non-tolled value-added aluminum products to other
customers.
Revenue from fees for the conversion of alumina and processing of aluminum under
tolling arrangements is recognized upon completion of the tolling process. Under
the tolling arrangements, alumina suppliers deliver their alumina to us. The
alumina is converted to aluminum in reduction cells by putting it in liquid form
by dissolving it in an "electrolyte" solution and then passing electric current
through the electrolyte to separate the alumina into its two parts, aluminum and
oxygen. This process is continuous and is nearly instantaneous as the alumina is
dissolved in the electrolyte. The molten aluminum is withdrawn from the cells
and cast or formed into finished products. Revenue from the sale of non-tolled
value-added aluminum products is recognized upon shipment to the customer.
Because our tolling fees are a percentage of prices of aluminum on the
London Metal Exchange, the amount of revenue from tolling activities varies
depending on market aluminum prices, especially LME prices and gross smelter
production volumes. The tolling fees are based on prior three-month average LME
prices and not current market aluminum prices. Additional revenue for tolled
value-
13
<PAGE> 17
added products is dependent on the volume of value-added production and the cost
of production versus the dollar amount of pricing premiums. The amount of
revenue from non-tolled value-added sales varies depending on market aluminum
prices, demand for our value-added products and the pricing premiums we are able
to realize for these products. Our revenues from non-tolled value-added products
may not be as strongly affected by lower LME prices as is the case with tolling
fees because of increased demand for value-added products at lower prices.
The aluminum industry is highly cyclical, with market prices fluctuating
widely based on global supply and demand factors, most of which are beyond our
control. As shown below, for 1999, the average price per pound of aluminum on
the London Metal Exchange was approximately the same as for 1998, which was
lower than the average price in any of the three previous years. The average
three-month LME prices per pound of aluminum over the last five years were as
follows:
<TABLE>
<CAPTION>
PRICE PER
YEAR ENDED DECEMBER 31, POUND
----------------------- ---------
<S> <C>
1995...............................................$0.83
1996...............................................$0.70
1997...............................................$0.74
1998...............................................$0.63
1999...............................................$0.63
</TABLE>
The timing and magnitude of an increase or decrease in aluminum prices is
uncertain. As of December 31, 1999, the three-month LME price per pound of
aluminum was $0.75, and more recently LME prices have fluctuated around $0.73
per pound. Accordingly, we believe our cash flow and earnings in the near term
will be somewhat higher than amounts reported for comparable prior periods.
Our cash flow and earnings are highly sensitive to aluminum prices because
production costs are largely fixed. At low market aluminum prices, we are able
to reduce some variable costs, but most of the production costs of primary
aluminum are constant in the short term (alumina, labor, carbon, power), and
therefore declines in market prices will cause declines in earnings. Conversely,
increased market aluminum prices will cause increases in earnings. For these
reasons we strive to maintain full plant utilization, which reduces the average
cost per pound of aluminum.
We do not actively hedge our production. To reduce our reliance on
market-priced primary aluminum and to improve overall profitability, we have
pursued a strategy of increasing both our "tolled" and "non-tolled" value-added
production through specialty casting and processing operations. Through these
operations, we are able to realize premiums over market LME prices, the amount
of which varies with the degree of value-added content of the product and
uniqueness of the product in the marketplace. Our volume of value-added
production has increased significantly over the past decade relative to the
volume of our primary production. Our continued investment in value-added
production operations is designed to further increase our value-added production
capabilities. As a consequence of this strategy, the volume of non-tolled
value-added production at Northwest has grown from 153.7 million pounds in 1993
to 245.3 million pounds in 1999. As a result of this growth, we purchase at
market prices more primary aluminum for further processing by Northwest into
non-tolled value-added products than we produce for Glencore under the tolling
contract. The Glencore tolling contract allowed us to operate our smelter at The
Dalles at full capacity while we were developing value-added products. The
success of our non-tolled products, however, reduced the importance of this
contract, and it was not renewed in December 1999. The effect of this
non-renewal will be to eliminate the revenue and gross margin we derived from
tolling aluminum for Glencore. This may be more than offset by an increase in
gross margin from the sale of non-tolled products, because the underlying cost
for primary aluminum will be our own production cost rather than the market
price. We do not assure you, however, that we will be able to realize any such
increased gross margin.
THE BUSINESS COMBINATION
On December 18, 1998, Brett Wilcox contributed to Golden Northwest
Aluminum, Inc. his membership interest in Technologies and all of the
outstanding shares of common stock of Northwest and Goldendale. This business
combination is treated for accounting purposes as a combination of entities
under common control in a manner similar to a pooling of interests. The business
combination has not had and we do not expect it to have a significant impact on
14
<PAGE> 18
our financial position, results of operations or cash flows. In accordance with
generally accepted accounting principles, however, the amount recorded as
Goldendale preferred stock has been reclassified and recorded as a minority
interest of our company.
RESULTS OF OPERATIONS
The following table sets forth the consolidated statement of income data as
a percentage of revenues for 1997, 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenues....................................................... 100.0% 100.0% 100.0%
Cost of revenues............................................... 87.7 93.6 96.8
----- ----- -----
Gross margin................................................... 12.3 6.4 3.2
General and administrative expenses............................ 3.4 3.8 3.7
----- ----- -----
Operating income (loss)........................................ 8.9 2.6 (0.5)
Interest expense............................................... (3.4) (3.0) (4.9)
Other income, net.............................................. 0.9 0.4 0.1
----- ----- -----
Net other expenses............................................. (2.5) (2.6) (4.8)
----- ----- -----
Income before income taxes..................................... 6.4 0.0 (5.3)
Income tax expense (benefit)................................... 2.7 0.7 (0.8)
----- ----- -----
Income (loss) before extraordinary item........................ 3.7 (0.7) (4.5)
Extraordinary item............................................. 0.0 (0.3) 0.0
----- ----- -----
Net income (loss).............................................. 3.7% (1.0)% (4.5)%
===== ===== =====
</TABLE>
1999 COMPARED TO 1998
Primary and value-added aluminum produced under tolling contracts increased
slightly from 526.3 million pounds in 1998 to 527.9 million pounds in 1999.
Shipments of non-tolled value-added aluminum products were 270.5 million pounds
and 268.1 million pounds for 1998 and 1999, respectively, a decrease of less
than 1%.
Revenues decreased from $470.9 million in 1998 to $444.2 million in 1999, a
decrease of $26.7 million, or 5.7%. Revenues from tolling contracts decreased
9.3% from $266.3 million in 1998 to $241.6 million in 1999, primarily due to the
decrease in average effective LME aluminum prices from $.67 per pound in 1998 to
$.60 per pound in 1999. Sales on non-tolled value-added products decreased
slightly from $204.6 million in 1998 to $202.6 million in 1999, due to the
slight decrease in shipments from 1998 to 1999. Tolling revenues earned in 1998
and 1999 under the Hydro and Glencore tolling contracts were $178.1 million and
$166.6 million, and $88.2 million and $75.0 million, respectively.
Cost of revenues decreased from $440.7 million in 1998 to $429.8 million in
1998, a decrease of $10.9 million, or 2.5%. The cost of revenues decreased due
to the decrease in the effective market aluminum prices in 1999 and reduced
power costs from the liquidation of a power contract for $3.5 million.
Gross margin decreased from $30.1 million in 1998 to $14.4 million in 1999,
a decrease of 52.5%. As a percentage of revenues, gross margin declined from
6.4% to 3.2%. Gross margin declined due primarily to the decrease in revenues of
$26.7 million, offset by a decrease in cost of revenues of $10.9 million.
General and administrative expenses decreased from $18.1 million in 1998 to
$16.7 million in 1999, primarily due to the $1.5 million write-off of a
long-term trade receivable in 1998. General and administrative expenses for 1999
were slightly less than those of 1997, which were $17.1 million. As a percentage
of revenues, general and administrative expenses decreased from 3.8% in 1998 to
3.7% in 1999.
Interest expense increased from $14.2 million in 1998 to $22.0 million in
1999, or 54.9%, primarily as a result of the first mortgage notes that have a
substantially greater interest rate than our prior borrowings and because of
15
<PAGE> 19
increased indebtedness. Our debt load during 1999 included the 12% first
mortgage notes, the Hydro note, and beginning in the fourth quarter, borrowings
against our revolving credit facility.
Income tax expense decreased from $3.0 million in 1998 to an income tax
benefit of $3.7 million in 1999, primarily as a result of Goldendale's loss
before income taxes of $13.0 million.
As a result of the foregoing factors, we reported a net loss of $19.9
million in 1999 versus a net loss of $4.9 million in 1998.
1998 COMPARED TO 1997
Primary and value-added aluminum produced under tolling contracts decreased
less than 1%, from 530.4 million pounds in 1997 to 526.3 million pounds in 1998.
Shipments of non-tolled value-added aluminum products were 263.9 million pounds
and 270.5 million pounds for 1997 and 1998, respectively. The increase in
non-tolled value-added products resulted from an increase in shipments of
value-added billet produced at Northwest.
Revenues decreased from $497.9 million in 1997 to $470.9 million in 1998, a
decrease of 5.4%. Revenues from tolling contracts decreased 8.2% from $290.2
million in 1997 to $266.3 million in 1998, primarily due to the decrease in
market aluminum prices in 1998. Sales of non-tolled value-added products
decreased slightly from $207.7 million in 1997 to $204.6 million in 1998, due to
the decrease in market aluminum prices in 1998, but offset by the increase in
shipments of those products. Tolling revenues earned in 1997 and 1998 under the
Glencore and Hydro tolling contracts were $178.1 million and $201.6 million, and
$88.2 million and $88.6 million , respectively.
Gross margin decreased from $61.4 million in 1997 to $30.1 million in 1998,
a decrease of 51.0%. As a percentage of revenues, gross margin declined from
12.3% to 6.4%. Gross margin declined due primarily to the decreased market
prices of aluminum. In addition, power costs increased as a result of
contractual terms in the power contract with the BPA, which increased the amount
of power required to be purchased at predetermined prices from BPA. Power costs
in 1998 have been at rates we expect to continue through 2001.
General and administrative expenses increased slightly from $17.1 million
in 1997 to $18.1 million in 1998. As a percentage of revenues, general and
administrative expenses increased from 3.4% to 3.8%. The increase resulted
primarily from the $1.5 million write-off of a long-term trade receivable. This
write-off related to a long-term trade receivable from a long-standing customer
that experienced liquidity problems. Sales of aluminum to this customer were
discontinued when the account aged beyond reason. However, we continue to
utilize this customer for access to the Texas market through their marketing,
warehouse and delivery services. Attempts in 1998 to obtain a secured interest
in the real properties of this customer proved unsuccessful. The account was
written down to $1.5 million, the amount perceived to be collectable based on a
thorough review of the customer's financial condition. We routinely perform
evaluations of the financial condition of this and other customers as part of
our normal credit process. This coupled with a relatively small number of
customers, with whom we are in continuous contact, enables us to minimize our
exposure to credit risk.
Interest expense decreased from $16.7 million in 1997 to $14.2 million in
1998, or 15.0%, primarily as a result of the lower average level of debt
outstanding in 1998. In December 1998, we completed an offering of $150 million
of 12% first mortgage notes. Additionally, we borrowed $20 million under a note
purchase agreement with Hydro. As a result of these borrowings, we anticipate a
significant increase in interest expense in 1999. We used some of the proceeds
from the first mortgage notes to retire our previous credit facilities with
BankBoston. As a result of the debt extinguishment in 1998, we incurred an
extraordinary loss of $1.6 million, which represented the unamortized balance of
deferred finance costs associated with the retired debt.
Income tax expense decreased from $13.3 million in 1997 to $3.0 million in
1998, or 77.4%, primarily as result of a decrease in Goldendale's income before
income taxes from $31.6 million in 1998 to $3.9 million in 1999.
As a result of the foregoing factors, we reported a net loss of $4.9
million in 1998 versus net income of $18.5 million in 1997.
16
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
Historically, our cash and capital requirements have been satisfied through
cash generated from operating activities and borrowings under our primary credit
facilities. Before December 21, 1998, Goldendale and Northwest operated under
independent credit facilities which were scheduled to mature in 2001 and
consisted of total borrowings at December 21, 1998 of $125.2 million under term
loans and revolving credit facilities. See Note 5 to the consolidated financial
statements. We repaid these credit facilities with proceeds from the sale of our
12% first mortgage notes.
Our new credit facility with Fleet Capital (previously BankBoston) is a
$75.0 million senior secured revolving credit facility collateralized by all of
the inventory, accounts receivable and other rights to payment of our
subsidiaries. Availability under the revolving line of credit is controlled by a
borrowing base formula based on eligible receivables and inventory, and there
must always be at least $15 million available for borrowing at any given time.
Based on this formula, we had net availability of approximately $66.4 million
under the revolving line of credit at December 31, 1999, against which we had
borrowed $25.1 million.
Our liquidity and capital needs relate primarily to payment of principal
and interest on borrowings, capital expenditures, including our facilities
investment program, and distributions to our sole shareholder to pay income
taxes. Subject to reasonable market aluminum prices, we will require
approximately $9.9 million in 2000 for the facilities investment program. The
first stage of the facilities investment program consisting of an expansion of
the Goldendale casthouse and a 34-cell demonstration of new cell line technology
should be substantially completed by the end of 2000. We have borrowed $20.0
million from Hydro under a note purchase agreement to partially finance this
facilities investment program. Our liquidity and capital needs also relate to
working capital and other general corporate requirements, including the
incremental working capital needs anticipated in connection with the termination
of the Glencore tolling agreement in December 1999. Additionally, the Goldendale
preferred stock became redeemable at our discretion after December 31, 1998. We
anticipate that the funds necessary to redeem the Goldendale preferred stock
would be drawn from our revolving credit facility with Fleet Capital. The
initial redemption price for the Goldendale preferred stock will be $30.4
million plus any accrued but unpaid dividends, which totaled $13.2 million at
December 31, 1999. Furthermore, we are subject to a number of contingencies and
uncertainties.
Our statement of cash flows for the periods indicated is summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1998 1999
--------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Net cash provided by (used in) operating activities................$ 56,092 $ 28,738 $(25,426)
Net cash used in investing activities.............................. (7,091) (18,718) (32,609)
Net cash provided by (used in) financing activities................ (54,095) 26,362 22,331
Increase (decrease) in cash and cash equivalents................... (5,094) 36,382 (35,704)
</TABLE>
Net cash provided by (used in) operating activities was $56.1 million,
$28.7 million and $(25.4) million for 1997, 1998 and 1999. The net cash used in
operating activities during 1999 of $25.4 million was primarily attributable to
cash provided by our net loss, as adjusted for non-cash charges, of $3.9
million, and $4.9 million attributable to an increase in accounts payable,
offset by cash used in operating activities of $34.2 million, attributable to
increases in accounts receivable, inventories, intercompany receivable and other
assets and a decrease in accrued expenses. The increase in accounts receivable,
inventories and accounts payable were primarily due to the increase in market
aluminum prices in December 1999. The increase in intercompany receivable was
primarily due to the net borrowings of Northwest during the fourth quarter of
1999 in connection with its transition to a non-tolling operation.
The net cash provided by operating activities during 1998 of $28.7 million
was primarily attributable to our net loss, as adjusted for non-cash charges and
a decrease in accounts receivable. The decrease in accounts receivable was
primarily due to the decrease in market aluminum prices in 1998. The net cash
provided by operating activities during 1997 was primarily attributable to net
income, as adjusted for non-cash charges, of $43.1 million, and an increase in
accounts payable and accrued expenses of $26.6 million, offset by an increase in
inventories of $9.5
17
<PAGE> 21
million. The increase in inventories and accounts payable was due to a temporary
modification of the Glencore metal repurchase terms which allowed us to extend
the timing of payments due Glencore.
Net cash used in investing activities was $32.6 million in 1999, compared
to net cash used in investing activities of $18.7 million in 1998 and $7.1
million in 1997. Cash used in investing activities in 1999 was primarily
attributable to capital expenditures of $33.1 million, of which $11.4 million
relates to the facilities investment program. Cash used in investing activities
in 1998 was primarily attributable to capital expenditures of $19.0 million.
Cash used in investing activities in 1997 primarily resulted from proceeds of
$12.8 million received by us through the sale of certain of our power generation
assets, offset by capital expenditures of $14.3 million and combined advances to
our shareholder and a related company of $5.6 million.
Net cash provided by financing activities was $22.3 million in 1999,
compared to net cash provided by financing activities of $26.3 million in 1998,
and net cash used in financing activities of $54.1 million in 1997. Net cash
provided from financing activities in 1999 was primarily attributable to net
borrowings of $25.3 million under our credit facility and $1.9 million paid in
dividends. Net cash provided from financing activities in 1998 was primarily
attributable to $38.9 million of net proceeds from the first mortgage notes,
offset by $12.6 million in net repayments on our credit facilities and deferred
compensation notes. Net cash used in financing activities in 1997 was primarily
attributable to $50.5 million in net repayments on our credit facility and $2.9
million paid in dividends.
We believe cash flow from operations, available borrowings under our
revolving credit facility and under our note purchase agreement with Hydro and
cash on hand will provide adequate funds for our foreseeable working capital
needs, planned capital expenditures and debt service and other obligations
through 2001.
Our ability to fund operations, make planned capital expenditures, such as
our facilities investment program, make principal and interest payments on the
notes, and remain in compliance with all of the financial covenants under our
debt agreements will be dependent on our future operating performance. Our
future operating performance is dependent on a number of factors, including
aluminum prices, many of which are beyond our control. These factors include
prevailing economic conditions and financial, competitive, regulatory and other
factors affecting our business and operations, and may be dependent on the
availability of borrowings under our revolving credit facility or other
borrowings. We do not assure you our cash flow from operations, together with
other sources of liquidity, will be adequate
- to make required payments of principal and interest on the notes and
our other debt;
- to finance anticipated capital expenditures;
- to fund working capital requirements; or
- to fund the possible redemption of all outstanding shares of the
Goldendale preferred stock.
If we do not have sufficient available resources to repay any of our
indebtedness when it becomes due and payable, we may need to refinance the
indebtedness. We do not assure you refinancing will be available or available on
reasonable terms.
SEASONALITY AND INFLATION
Our results of operations can be affected by seasonal factors, such as
substantial increases in the cost of electricity in the fall and winter. We do
not believe inflation has had a material effect on the consolidated financial
statements for the periods presented.
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<PAGE> 22
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. We are currently analyzing the financial impact,
if any, the adoption of SFAS No. 133 will have on our consolidated financial
statements.
YEAR 2000 COMPLIANCE
We retained outside experts to review our year 2000 readiness and make
recommendations on year 2000 compliance issues. Our major business systems were
reviewed and tested for year 2000 compliance. All critical business systems are
year 2000 compliant with the implementation of a SAP R/3 enterprise resource
planning system. The business systems included are sales, accounting,
purchasing, production, inventory management and plant maintenance. We completed
100% of the testing of our remaining information technology systems, including
process system, as well as the non-information technology systems for year 2000
compliance. An audit by outside experts confirmed our year 2000 readiness.
We made inquiries of our customers and suppliers to determine the
potential effect of their year 2000 readiness on our operations. We contacted
all vendors and suppliers and believe that most are compliant. All vendors
identified as critical are either compliant or alternate vendors have been
identified. One critical raw material, electricity, is sole sourced from the
Bonneville Power Administration for delivery and cannot be otherwise obtained.
BPA has assured us that it is year 2000 compliant; however BPA does not
guarantee an interruption-free supply. We also made inquiries of our customers
and found that all critical customers were addressing the year 2000 issue.
To prepare for year 2000 issues and upgrade computer systems, we have
spent approximately $6.0 million. This is not solely to resolve potential year
2000 problems, but also to upgrade and further integrate our business and
process systems.
Although as of March 27, 2000 we have experienced no material technical
problems related to the year 2000, there can be no assurance that we will not
discover year 2000 compliance problems in our systems that will require
substantial revisions or replacements. In addition there can be no assurance
that governmental agencies, utility companies, suppliers, customers or others
outside our control will be year 2000 compliant. The failure by these entities
to be year 2000 compliant could have a material adverse effect on our business,
results of operation and financial condition.
FORWARD-LOOKING STATEMENTS
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements appear in a number of places in this section and
elsewhere in this document such as in Item 1, "Business". Such statements can be
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans," or "anticipates" or
comparable terminology, or by discussions of strategy. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may vary materially from those in the forward-looking statements as a
result of various factors. These factors include the following:
- Our revenues and earnings are heavily affected by the price of primary
aluminum.
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<PAGE> 23
- Our substantial indebtedness could adversely affect our financial
health and prevent us from fulfilling our obligations under our first
mortgage notes.
- Despite our current indebtedness levels, we and our subsidiaries may
still be able to borrow more money.
- To service our indebtedness, we will require a significant amount of
cash. Our ability to generate cash depends on many factors beyond our
control.
- Our obligation to repay the first mortgage notes is subordinate to
other lenders' rights to any collateral securing the lenders' loans to
us. Proceeds from the sale of the collateral will be used to pay those
lenders before they are used to repay the first mortgage notes.
- The terms of our indebtedness place several restrictions on our
ability to operate our business that could result in our inability to
repay the notes.
- Federal and state environmental laws may decrease the value of the
collateral securing the first mortgage notes and may result in our
lenders being liable for environmental clean-up costs at our facility.
- Our smelters are based on a technology which is generally not used in
the design of newer smelters and our continued competitiveness depends
on our ability to operate efficiently.
- Large increases in the cost of electricity could have a material
adverse effect on us.
- We have been insulated from changes in the price of alumina because of
our tolling agreements with Hydro and Glencore. The expiration of the
Glencore agreement, and the future loss of the Hydro agreement could
subject us to the risks associated with buying raw materials on the
open market.
- Our management is dependent on certain key personnel.
- Our results could be materially affected to the extent we have not
addressed any year 2000 computer issues.
- Our workforce and the workforce of certain of our customers consist of
union employees. A strike could adversely effect our results.
Other factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, developments in technology,
new or modified statutory or regulatory requirements, and changing prices and
market conditions. This section and our registration statement on Form S-4
(Commission File No. 333-72245) identify other factors that could cause such
differences. No assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-looking
statements.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We manage interest rate risk through the strategic use of fixed and
variable interest rate debt and, to a limited extent, interest rate derivatives.
At December 31, 1999, our derivative instrument consisted of an interest rate
swap agreement which expires in 2003 and effectively fixes our interest rate at
6.4% on a notional principal amount of $20.0 million on our floating rate
long-term debt. The agreement requires quarterly cash settlements for interest
rate fluctuation outside of the fixed rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and supplementary data required by this item are
included in this Report on Form 10-K commencing on page F-1.
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<PAGE> 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 15, 1998, we engaged BDO Seidman, LLP as our independent public
accountants. BDO's engagement was approved by our board of directors. Under this
engagement, BDO audited our consolidated financial statements for the year ended
December 31, 1997, which consolidated financial statements are included in this
document. Prior to this engagement, we had not consulted with BDO on issues
relating to our accounting principles or the type of audit opinion to be issued
for our financial statements.
Perkins & Company, P.C. were the prior auditors and audited the combined
financial statements of Northwest Aluminum Company and Northwest Aluminum
Specialties, Inc. for the year ended September 3, 1995. Perkins resigned on May
22, 1998, and referred us to BDO Seidman. Perkins is a member of the BDO Seidman
Alliance. The report of Perkins on those financial statements did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope, or accounting principles. In connection with the
audit by Perkins for the year ended September 3, 1995, there was no disagreement
between us and Perkins on any matter, accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which, if not
resolved to the satisfaction of Perkins, would have caused them to make
reference to the matter in their report.
Arthur Andersen LLP had previously audited Goldendale Aluminum Company's
financial statements as of December 31, 1996 and 1997. In connection with the
audit by Arthur Andersen for these periods, there was no disagreement between us
and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which, if not
resolved to the satisfaction of Arthur Andersen would have caused them to make
reference to the matter in their report.
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<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information about our directors, executive
officers and certain other key employees as of the date of this document.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
Brett E. Wilcox............................ 46 Chairman, President and Director
Allen Barkley.............................. 44 Vice President and General Manager--Northwest
William R. Reid............................ 51 Chief Financial Officer--Golden Northwest Aluminum, Inc.
and Northwest
Daniel J. Gnall............................ 42 Vice President--Sales and Marketing--Northwest
Muhsin (Mac) Seyhanli...................... 55 Vice President and General Manager--Golden Northwest
Aluminum, Inc. and Goldendale
Gerald Miller.............................. 58 Vice President, General Counsel and Secretary--Golden
Northwest Aluminum, Inc. and Goldendale
Jessie Casswell............................ 50 Chief Financial Officer--Goldendale and Technologies
A. Ray Roberts............................. 58 President--Technologies
Stephen E. Babson.......................... 49 Director
David Bolender............................. 67 Director
Mark O. Hatfield........................... 77 Director
Michael G. Psaros.......................... 32 Director
</TABLE>
Brett E. Wilcox has served as our President since our inception in June
1998. Mr. Wilcox is also the President of Northwest Aluminum Company, which he
founded in 1986, and since 1996 has served as the President of Goldendale
Aluminum Company. Before founding Northwest in 1986, Mr. Wilcox was the
Executive Director of Direct Service Industries, a trade association of ten
large aluminum and other energy-intensive companies that purchase electricity
from the Bonneville Power Administration. Before 1986 Mr. Wilcox was an attorney
with Preston and Gates in Seattle, Washington, concentrating in energy and
general business matters. Mr. Wilcox is chairman of the Oregon Economic
Development Commission, Vice Chair of the Oregon Progress Board and active in
various civic and business organizations.
Allen Barkley joined Northwest in June 1995 as Production Engineering
Manager and became Vice President and General Manager in October 1996. Before
joining Northwest, Mr. Barkley spent 18 years at a primary aluminum smelter
facility in Columbia Falls, Montana where he served in a variety of capacities,
including production, engineering, maintenance and public affairs.
William R. Reid joined Northwest in 1986, became its Controller in 1993 and
was appointed Chief Financial Officer of Northwest in 1996 and of Golden
Northwest Aluminum in August 1998. Before joining Northwest, Mr. Reid was a
senior auditor with Touche Ross & Co.
Daniel J. Gnall joined Northwest in August 1991 as a metal trader, and in
1992 became Vice President -- Sales and Marketing responsible for metal
purchasing and sales. Before joining Northwest, Mr. Gnall was an account
executive with Martin Marietta Corporation and worked for Cassmet International,
Inc., a metals trading company where he served as its General Manager in charge
of physical operations and non-ferrous metal purchasing and sales.
Muhsin (Mac) Seyhanli became Vice President and General Manager of Golden
Northwest Aluminum in August 1998. He was one of the founders of Columbia
Aluminum Company, the predecessor of Goldendale, and since 1994 has been the
general manager for all operations at Goldendale, becoming its Vice President
and General Manager in 1996. Before his current position, Mr. Seyhanli was a
cell line manager for both Columbia and Commonwealth Aluminum. Mr. Seyhanli has
over 29 years of experience in the aluminum industry.
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<PAGE> 26
Gerald Miller became Vice President, General Counsel and Secretary of
Golden Northwest Aluminum in August 1998. He joined Columbia Aluminum Company in
1989 as General Counsel and Corporate Secretary. In 1996, Mr. Miller was named
to the additional post of Vice President -- Energy and Government Affairs of
Goldendale. Before joining Goldendale, Mr. Miller was a trial lawyer in private
practice in the state of Washington. Mr. Miller is a member of the Board of
Directors of the State of Washington Economic Development Finance Authority.
Jessie Casswell has been the Chief Financial Officer of Goldendale since
1998 and the Controller since 1984. She has served as Chief Financial Officer of
Technologies since 1999. From 1972 to 1984, Ms. Casswell served as the
Controller of Northwest. Ms. Casswell is also a member of the Executive
Committee of the Goldendale profit sharing plan and is the Chairperson of the
Trustees of the profit sharing plan.
A. Ray Roberts joined Northwest in 1992 as Operations Manager and was
responsible for smelter operations. In 1997, Mr. Roberts was named President of
Northwest Aluminum Technologies. In his over 28 years of experience in the
aluminum industry and before joining Northwest, Mr. Roberts has worked for
several smelting facilities in various engineering and managerial capacities,
including production, marketing manager, technology development and liaison to
government.
Stephen E. Babson became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Mr. Babson is the
Chairman and a partner in the Portland office of Stoel Rives LLP, which acts as
our counsel, since 1984. Mr. Babson is also a director of Roseburg Forest
Products Co. and Pensiontracker.com, Inc., and serves on the advisory boards of
several Pacific Northwest based technology companies. He is the general partner
of Babson Capital Partners, LP, a private investment fund, and the secretary and
director of the Oregon Symphony Association.
David Bolender became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Since 1992, Mr. Bolender
has served as Chairman of the Board of Electro Scientific Industries, Inc., a
manufacturer of machine tools for the electronics industry. In May 1998, Mr.
Bolender became Chief Executive Officer and Chairman of the Board of Protocol
Systems, a manufacturer of medical vital sign monitoring instrumentation. From
1982 to 1991, Mr. Bolender was President of Pacific Power and Light Company and
PacifiCorp Electric Operations Group. Before joining PacifiCorp in 1982, Mr.
Bolender spent 12 years with Westinghouse Electric Corporation, where he managed
the construction and operation of power plants around the world. He is a member
of the boards of directors of Benson Industries and Micro Monitors.
Mark O. Hatfield became a director of Golden Northwest Aluminum and
Goldendale in 1999. Since 1997, he has served as an administrative consultant to
the Lasker Foundation. From 1967 to 1997, Mr. Hatfield served in the United
States Senate as senator from the state of Oregon. From 1959 to 1967, he served
as Governor of the state of Oregon. Mr. Hatfield serves on the board of
directors of Lattice Semiconductor Corporation, a developer of high-performance
programmable logic devices.
Michael G. Psaros became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Since 1991, Mr. Psaros
has been a Principal of Keilin & Co. LLC, a New York investment bank. In 1998,
Mr. Psaros became a founding Principal of KPS (Keilin, Psaros, Shapiro) Special
Situations Fund, L.P., a private equity fund focused on investing in
underperforming, distressed and troubled companies. Before joining Keilin and
founding KPS, Mr. Psaros worked in the investment banking department of Bear,
Stearns & Co. Inc. Mr. Psaros was originally nominated to Goldendale's board by
the President of the United Steelworkers of America.
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<PAGE> 27
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In the last fiscal year, our board of directors utilized the services of
Messrs. Babson, Bolender, Hatfield and Psaros, our four outside directors, as a
compensation committee. With the advice of the compensation committee, Brett
Wilcox made the compensation decisions for executive officers.
EXECUTIVE COMPENSATION
Compensation Summary. The following table sets forth compensation
information for the President and our other six most highly compensated
executives, each of whose total annual compensation exceeded $100,000 in 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Other Annual
Salary Bonus Compensation
-------- -------- ------------
<S> <C> <C> <C>
Brett E. Wilcox, Chairman, President and
Director
1999...................... $603,581 $532 $0
1998...................... $601,806 $903,001 $0
Muhsin (Mac) Seyhanli, Vice President
and General Manager - Golden
Northwest Aluminum, Inc. and
Goldendale
1999...................... $150,000 $100,573 $0
1998...................... $150,000 $253,380 $0
Gerald Miller, Vice President, General
Counsel and Secretary - Golden
Northwest Aluminum, Inc. and
Goldendale
1999...................... $120,000 $50,869 $211,043
1998...................... $120,000 $49,101 $211,043
Jessie Casswell, Chief Financial Officer -
Goldendale and Technologies
1999...................... $92,800 $50,989 $211,043
1998...................... $88,615 $68,718 $211,043
Allen Barkley, Vice President and General
Manager - Northwest
1999...................... $108,810 $1,316 $0
1998...................... $106,950 $100,000 $0
Daniel J. Gnall, Vice President - Sales and
Marketing - Northwest
1999...................... $108,810 $1,316 $0
1998...................... $106,950 $100,000 $0
William R. Reid, Chief Financial Officer -
Golden Northwest Aluminum, Inc. and
Northwest
1999...................... $108,810 $1,316 $0
1998...................... $106,950 $100,000 $0
</TABLE>
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<PAGE> 28
The salaries of the above-named executive officers will be the same in
fiscal 2000. Any increases in bonuses or other annual compensation will be
dependent upon operating results and performance in fiscal 2000.
In connection with the acquisition of Goldendale, we entered into deferred
compensation agreements with certain employees in exchange for the employees
waiving their rights under stock-based compensation and other employment
agreements which existed at the time. Payments made under those agreements are
included above under Other Annual Compensation.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our articles of incorporation eliminate, to the fullest extent permitted by
Oregon law, liability of our directors for monetary damages for conduct as a
director. Although liability for monetary damages has been eliminated, equitable
remedies such as injunctive relief or rescission remain available. In addition,
a director is not relieved of his responsibilities under any other law,
including the federal securities laws.
Our articles of incorporation require us to reimburse the directors for any
liabilities and related expenses arising from our operations to the fullest
extent not prohibited by law. We believe that the limitation of liability
provisions in our articles of incorporation may enhance our ability to attract
and retain qualified individuals to serve as directors.
DIRECTORS' COMPENSATION
Directors who are not our employees receive a fee of $5,000 per board
meeting attended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 30, 2000, 1,000 shares of common stock were outstanding, held
of record by Brett E. Wilcox.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We sell semi-solid metalworking and other value-added products to Hot Metal
Technologies, Inc. and Hot Metal Moldings, Inc. under annual purchase orders.
Hot Metal Technologies and Hot Metal Moldings, suppliers of automotive parts,
are each wholly owned by Brett Wilcox, our President and sole shareholder. Our
sales to these companies under these purchase orders totaled approximately $3.6
million for the year ended December 31, 1998 and approximately $3.3 million for
the year ended December 31, 1999. The terms of these sales were comparable to
similar sales to non-affiliates. We also made advances to Hot Metal Technologies
and Hot Metal Moldings during the years ended December 31, 1998 and 1999 by way
of payroll and benefits expenses paid by Northwest Aluminum Company for
Northwest employees on loan to these companies. On December 31, 1997, $4.0
million of the total amount then owed by Hot Metal Technologies and Hot Metal
Moldings to us for accounts receivable and advances was converted to a note
receivable. The note bears interest at 9.25% per year and is payable in
quarterly installments beginning April 1, 1998 through January 2002. As of
December 31, 1999, a combined total of approximately $4.0 million was owed by
these companies to us, consisting of approximately $2.7 million on the note
receivable and accounts receivable of approximately $1.3 million. The highest
amount of total indebtedness of Hot Metal Technologies and Hot Metal Moldings to
us since January 1, 1997 was $6.5 million.
In 1998, the federal government made a grant of $750,000 to Hot Metal
Technologies as contractor, and Northwest Aluminum Specialties as subcontractor,
for semi-solid metalworking research.
In 1999, we paid $1.9 million to Mr. Wilcox to pay taxes owed by him as a
result of Internal Revenue Service adjustments for taxes owed for earlier
periods for Northwest, who files as a Subchapter S corporation. In 1997,
Northwest Aluminum Company paid $4.9 million to Mr. Wilcox to pay taxes owed by
him as a result of Northwest's status as a Subchapter S corporation. The amount
paid was in excess of actual tax liabilities and, of this amount, $2.9 million
was recorded as a dividend. The remaining $2.0 million is recorded as a
receivable on our combined balance sheet and is outstanding. No interest is
payable upon the receivable.
25
<PAGE> 29
Mr. Wilcox has entered into an agreement with Northwest, Northwest Aluminum
Specialties and us under which we have agreed not to file any amended income tax
return or change any election or accounting method without the consent of Mr.
Wilcox if the filing or change would increase any tax liability of Mr. Wilcox.
In addition, the companies have agreed to reimburse Mr. Wilcox for any
adjustment for taxes owed for earlier periods, including interest on any such
payments, and for certain other fees and costs relating to periods before
December 18, 1998.
Under a voting agreement effective May 17, 1996, Mr. Wilcox must cause
Goldendale Holding Company to vote the shares of Goldendale Aluminum Company
common stock held by it to ensure that
(1) the Goldendale Aluminum Company board of directors consists of not
more than five directors;
(2) not less than one director is a nominee designated by the President of
the United Steel Workers of America; and
(3) not less than two directors are nominees of Mr. Wilcox who have no
significant continuing business relationship with Mr. Wilcox or any
entity controlled by him.
The voting agreement will remain in force so long as the USW represents the
collective bargaining unit of the Goldendale facility, except that clauses (1)
and (3) of the preceding sentence will continue only until the termination of
the initial term of the Collective Bargaining Agreement dated April 7, 1996
between Goldendale Aluminum Company and the USW.
26
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. FINANCIAL STATEMENTS Page in this Report.
--------------------
<S> <C> <C>
Report of Independent Certified Public Accountants................. F-2
Balance Sheets..................................................... F-3
Statements of Operations........................................... F-4
Statements of Shareholders' Equity................................. F-5
Statements of Cash Flows........................................... F-6
Summary of Significant Accounting Policies......................... F-7
Notes to Combined Financial Statements............................. F-12
2. FINANCIAL STATEMENT SCHEDULES:
NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC.
Report of Independent Certified Public Accountants.........................S-2
Combined Balance Sheets....................................................S-3
Combined Statements of Operations..........................................S-4
Combined Statements of Shareholder's Equity................................S-5
Combined Statements of Cash Flows..........................................S-6
Summary of Significant Accounting Policies.................................S-7
Notes to Combined Financial Statements ....................................S-10
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
Report of Independent Certified Public Accountants.........................S-15
Consolidated Balance Sheets................................................S-16
Consolidated Statements of Operations......................................S-17
Consolidated Statements of Shareholders' Equity ...........................S-18
Consolidated Statements of Cash Flows......................................S-19
Summary of Significant Accounting Policies.................................S-20
Notes to Consolidated Financial Statements ................................S-24
</TABLE>
27
<PAGE> 31
3. EXHIBITS:
(a) The exhibits listed below are filed as part of this report
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
3.1 Articles of Incorporation of Registrant. Incorporated by reference
to Exhibit 3.1 to our Registration Statement on Form S-4, as
amended (Registration No. 333-72245).
3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to
our Registration Statement on Form S-4, as amended (Registration
No. 333-72245).
4.1 Indenture, dated as of December 21, 1998, between Registrant, as
Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum
Company, Northwest Aluminum Technologies, LLC, Goldendale Holding
Company, and Goldendale Aluminum Company, as Guarantors, and U.S.
Trust Company, N.A., as Trustee. Incorporated by reference to
Exhibit 4.1 to our Registration Statement on Form S-4, as amended
(Registration No. 333-72245).
4.2 Credit Agreement, dated December 21, 1998, among the Financial
Institutions named therein, BancBoston, N.A., as Administrative
Agent, U.S. Bank National Association, as Documentation Agent,
Northwest Aluminum Company, Northwest Aluminum Specialties, Inc.,
Goldendale Aluminum Company, and Northwest Aluminum Technologies,
as amended by the Agreement and Amendment No. 1, dated as of
January 21, 1999. Incorporated by reference to Exhibit 4.2 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245).
4.3 Registration Rights Agreement, dated as of December 21, 1998, by
and among the Registrant, the Subsidiary Guarantors party to this
Agreement; and BancBoston Robertson Stephens Inc., and Libra
Investments, Inc. Incorporated by reference to Exhibit 4.3 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245).
4.4 Certificate of Incorporation of Goldendale Holding Company.
Incorporated by reference to Exhibit 4.4 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22,
1996, between Hydro Aluminum Louisville, Inc., and Goldendale
Aluminum Company. Incorporated by reference to Exhibit 10.1 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245). (Confidential treatment of portions of this document
has been granted by order of the Commission. The information
omitted from this exhibit has been filed with the Commission.)
10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum,
dated December 21, 1998. Incorporated by reference to Exhibit 10.2
to our Registration Statement on Form S-4, as amended (Registration
No. 333-72245).
10.3 Tax Indemnification Agreement, dated as of December 21, 1998,
between Registrant, Northwest Aluminum Company, Northwest Aluminum
Specialties, Inc., and Brett E. Wilcox. Incorporated by reference
to Exhibit 10.8 to our Registration Statement on Form S-4, as
amended (Registration No. 333-72245).
10.4 General Transmission Agreement, dated April 7, 1995, executed by
the United States of America Department of Energy acting by and
through the Bonneville Power Administration and Northwest Aluminum
Company. Incorporated by reference to Exhibit 10.9 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245).
10.5 Power Sale Agreement, dated September 28, 1995, between the United
States of America Department of Energy acting by and through the
Bonneville Power Administration and Northwest Aluminum Company.
Incorporated by reference to Exhibit 10.10 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.6 Voting Agreement dated May 17, 1996, by Brett Wilcox for the
benefit of the United Steelworkers of America, Local 8147.
Incorporated by reference to Exhibit 10.11 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
</TABLE>
28
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
10.7 General Transmission Agreement, dated May 4, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Columbia Aluminum Company.
Incorporated by reference to Exhibit 10.12 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.8 Power Sales Agreement, dated September 18, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Columbia Aluminum Company.
Incorporated by reference to Exhibit 10.13 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.9 Cancelable Swap Agreement dated January 21, 1999, between
Goldendale Aluminum Company and BankBoston, N.A. Incorporated by
reference to Exhibit 10.14 to our Registration Statement on Form
S-4, as amended (Registration No. 333-72245).
10.10 Alumina Supply Agreement dated October 15, 1999 by Glencore Ltd.
and Northwest Aluminum Company. (Confidential treatment of portions
of this document has been requested. The information omitted from
this exhibit has been filed with the Commission.)
10.11 Phantom Stock Termination Agreement dated August 1, 1996 between Goldendale Aluminum Company and Jessie
Casswell.*
12.1 Statements re Computation of Ratios.
21.1 Subsidiaries of the Registrant.
24.1 Powers of Attorney (included on signature pages of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------------------
* Management contract or compensatory arrangement.
(b) Reports on Form 8
Not applicable.
29
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Golden Northwest Aluminum, Inc., and the
Co-Registrants named below, have duly caused this Report to be signed on their
behalf by the undersigned, thereunto duly authorized, in The Dalles, Oregon, on
March 28, 1999.
GOLDEN NORTHWEST ALUMINUM, INC.
Brett E. Wilcox
By:_________________________________________
Brett E. Wilcox
President and Chairman of the Board
CO-REGISTRANTS
GOLDENDALE HOLDING COMPANY
GOLDENDALE ALUMINUM COMPANY
NORTHWEST ALUMINUM COMPANY
NORTHWEST ALUMINUM SPECIALTIES, INC.
Brett Wilcox
By__________________________________________
Brett Wilcox
President
NORTHWEST ALUMINUM TECHNOLOGIES, L.L.C.
William R. Reid
By__________________________________________
William R. Reid
Vice President
<PAGE> 34
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Brett E. Wilcox and William R.
Reid his attorney-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendments to this Report, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on March 28, 1999 on
behalf of the Registrant and in the capacities indicated:
REGISTRANT OFFICERS AND DIRECTORS
Signature Title
- -------------------------- ---------------------------------------------
Brett E. Wilcox
- -------------------------- President, Chairman of the Board and Director
Brett E. Wilcox (Principal Executive Officer)
William R. Reid
- -------------------------- Chief Financial Officer
William R. Reid (Principal Financial Officer and Principal
Accounting Officer)
Stephen E. Babson
- -------------------------- Director
Stephen E. Babson
- -------------------------- Director
David Bolender
Mark O. Hatfield
- -------------------------- Director
Mark O. Hatfield
Michael G. Psaros
- -------------------------- Director
Michael G. Psaros
CO-REGISTRANT OFFICERS AND DIRECTORS
Signature Title
- -------------------------- ---------------------------------------------
GOLDENDALE HOLDING COMPANY
Brett E. Wilcox
- -------------------------- President and Director
Brett E. Wilcox (Principal Executive Officer)
Jessie Casswell
- -------------------------- Chief Financial Officer
Jessie Casswell (Principal Financial Officer and Principal
Accounting Officer)
<PAGE> 35
NORTHWEST ALUMINUM COMPANY
NORTHWEST ALUMINUM SPECIALTIES, INC.
Brett E. Wilcox
- -------------------------- President and Director
Brett E. Wilcox (Principal Executive Officer)
William R. Reid
- -------------------------- Chief Financial Officer
William R. Reid (Principal Financial Officer and Principal
Accounting Officer)
GOLDENDALE ALUMINUM COMPANY
Brett E. Wilcox
- -------------------------- President and Chairman of the Board
Brett E. Wilcox (Principal Executive Officer and Principal
Financial Officer and Principal Accounting
Officer)
Stephen E. Babson
- -------------------------- Director
Stephen E. Babson
- -------------------------- Director
David Bolender
Mark O. Hatrield
- -------------------------- Director
Mark O. Hatfield
Michael G. Psaros
- -------------------------- Director
Michael G. Psaros
NORTHWEST ALUMINUM TECHNOLOGIES, L.L.C.
A. Ray Roberts
- -------------------------- President
A. Ray Roberts (Principal Executive Officer)
Jessie Casswell
- -------------------------- Chief Financial Officer
Jessie Casswell (Principal Financial Officer and Principal
Accounting Officer)
Brett E. Wilcox
- -------------------------- Director
Brett E. Wilcox
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1998
and 1999......................................................................... F-4
Consolidated Statements of Shareholder's Equity for the years ended December 31,
1997, 1998 and 1999.............................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999......................................................................... F-6
Summary of Significant Accounting Policies........................................... F-7
Notes to Consolidated Financial Statements........................................... F-12
</TABLE>
F-1
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Golden Northwest Aluminum, Inc. and Subsidiaries
The Dalles, Oregon
We have audited the accompanying consolidated balance sheets of Golden
Northwest Aluminum, Inc. and Subsidiaries as of December 31, 1998 and 1999 and
the related consolidated statements of operations, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Golden
Northwest Aluminum, Inc. and Subsidiaries as of December 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Spokane, Washington
March 22, 2000
F-2
<PAGE> 38
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (Note 4)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 37,633 $ 1,929
Trade accounts receivable, less allowance for doubtful accounts of $100
(Note 13)................................................................. 48,164 54,752
Current portion of receivable due from related company (Note 12)............. 2,126 2,639
Inventories (Note 1)......................................................... 55,083 65,618
Intercompany receivable...................................................... - 13,106
Prepaid expenses............................................................. 786 666
Income taxes refundable (Note 9)............................................. - 3,121
----------- -----------
Total current assets................................................ 143,792 141,831
----------- -----------
Property, plant and equipment, net (Note 2)....................................... 117,761 132,961
Goodwill, net of accumulated amortization of $9,494 and $14,241 (Note 9)......... 88,140 81,348
Advances to shareholder........................................................... 2,000 2,000
Receivable due from related company, less current portion (Note 12)............... 2,826 1,824
Other assets, net (Notes 3 and 13)................................................ 10,115 10,667
----------- -----------
$ 364,634 $ 370,631
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt (Note 4).................................. $ - $ 25,279
Trade accounts payable...................................................... 41,035 45,925
Accrued expenses (Note 7)................................................... 19,598 16,806
Deferred income taxes (Note 9).............................................. 1,670 1,583
Income taxes payable ....................................................... 2,197 -
----------- -----------
Total current liabilities.......................................... 64,500 89,593
----------- -----------
Long-term debt, less current portion (Note 4)............................... 170,000 170,000
Deferred income taxes (Note 9).............................................. 9,965 13,644
Deferred compensation notes payable (Note 6)................................ 1,734 662
Other long-term liabilities (Note 8)........................................ 1,741 1,825
Dividends payable (Note 10)................................................. 9,515 13,163
----------- -----------
Total liabilities.................................................. 257,455 288,887
----------- -----------
Commitments and Contingencies (Notes 5, 6, 8 and 9)
Preferred stock of subsidiary (Note 10).......................................... 29,663 29,663
Shareholder's Equity:
Common stock, $0.10 par value; 350,000 shares authorized; 1,000 shares
issued and outstanding................................................... - -
Additional paid-in capital.................................................. 65,504 63,628
Retained earnings (accumulated deficit)..................................... 12,012 (11,547)
----------- -----------
Total shareholder's equity......................................... 77,516 52,081
----------- -----------
$ 364,634 $ 370,631
=========== ===========
</TABLE>
See accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-3
<PAGE> 39
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999
-------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues (Notes 5 and 12)...................................... $ 497,872 $ 470,850 $ 444,174
Cost of revenues............................................... 436,511 440,732 429,784
-------------- ------------- -------------
Gross margin................................................... 61,361 30,118 14,390
General and administrative expenses............................ 17,115 18,119 16,672
-------------- ------------- -------------
Operating income (loss)........................................ 44,246 11,999 (2,282)
-------------- ------------- -------------
Other income (expense):
Interest expense (Note 4)................................... (16,723) (14,180) (21,977)
Other income, net........................................... 4,246 1,889 603
-------------- ------------- -------------
Net other expense.............................................. (12,477) (12,291) (21,374)
-------------- ------------- -------------
Income (loss) before income taxes.............................. 31,769 (292) (23,656)
Income tax expense (benefit) (Note 9).......................... 13,274 3,009 (3,745)
-------------- ------------- -------------
Income (loss) before extraordinary item........................ 18,495 (3,301) (19,911)
Extraordinary item - loss on extinguishment of debt
(net of income tax benefit of $513) (Note 4)................ - (1,552) -
-------------- ------------- -------------
Net income (loss) $ 18,495 $ (4,853) $ (19,911)
============== ============= =============
Income (loss) before extraordinary item........................ $ 18,495 $ (3,301) $ (19,911)
Dividends accrued on preferred stock of subsidiary............. (3,648) (3,648) (3,648)
-------------- ------------- -------------
Income (loss) available to common shareholder.................. 14,847 (6,949) (23,559)
Extraordinary item............................................. - (1,552) -
-------------- ------------- -------------
Net income (loss) available to common shareholder.............. $ 14,847 $ (8,501) $ (23,559)
============== ============= =============
Earnings (loss) per share - basic and diluted:
Income (loss) before extraordinary item........................ $ 14,847 $ (6,949) $ (23,559)
Extraordinary item............................................. - (1,552) -
-------------- ------------- -------------
Net income (loss) per share of common stock.................... $ 14,847 $ (8,501) $ (23,559)
============== ============= =============
Weighted average shares of common stock outstanding............ 1,000 1,000 1,000
============== ============= =============
</TABLE>
See accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-4
<PAGE> 40
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
--------------------------- PAID-IN (ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
----------- ------------ ------------ ------------ -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ............... 1,000 $ - $ 65,354 $ 8,598 $ 73,952
Cash contributed to capital............... - - 150 - 150
Dividends accrued on preferred stock...... - - - (3,648) (3,648)
Dividends paid on common stock............ - - - (2,932) (2,932)
Net income................................ - - - 18,495 18,495
----------- ------------ ------------ ------------ -------------
Balance at December 31, 1997.............. 1,000 - 65,504 20,513 86,017
Dividends accrued on preferred stock...... - - - (3,648) (3,648)
Net loss.................................. - - - (4,853) (4,853)
----------- ------------ ------------ ------------ -------------
Balance at December 31, 1998.............. 1,000 - 65,504 12,012 77,516
Dividends accrued on preferred stock ..... - - - (3,648) (3,648)
Dividends paid on common stock ........... - - (1,876) - (1,876)
Net loss.................................. - - - (19,911) (19,911)
----------- ------------ ------------ ------------ -------------
Balance at December 31, 1999.............. 1,000 $ - $ 63,628 $ (11,547) $ 52,081
=========== ============ ============ ============ =============
</TABLE>
See accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-5
<PAGE> 41
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999
-------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ 18,495 $ (4,853) $ (19,911)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization............................ 19,069 20,371 23,572
Loss (gain) on disposal of assets........................ (2,600) (38) 197
Provision for bad debts.................................. - 1,500 -
Extraordinary loss....................................... - 2,065 -
Deferred income taxes.................................... 8,136 487 4,376
Change in assets and liabilities, net of effect of
acquisition:
Trade accounts receivable............................ (1,372) 13,198 (6,588)
Inventories.......................................... (9,503) 5,809 (10,535)
Prepaid expenses..................................... 150 (259) 120
Other assets......................................... 2,850 527 (1,676)
Trade accounts payable............................... 22,914 (6,878) 4,890
Accrued expenses..................................... 3,641 (2,739) (1,113)
Intercompany payable................................. - 418 (13,524)
Income taxes refundable.............................. (4,886) (955) (5,318)
Other liabilities.................................... (802) 85 84
-------------- ------------- -------------
Net cash provided by (used in) operating activities........... 56,092 28,738 (25,426)
-------------- ------------- -------------
Cash flows from investing activities:
Proceeds from disposal of assets........................... 12,821 1,210 -
Acquisition of property, plant and equipment............... (14,281) (19,010) (33,098)
Advances to shareholder.................................... (2,000) - -
Net payments from (advances to) related company............ (3,631) (918) 489
-------------- ------------- -------------
Net cash used in investing activities......................... (7,091) (18,718) (32,609)
-------------- ------------- -------------
Cash flows from financing activities:
Borrowings under revolving credit facilities............... 319,219 300,772 57,000
Repayments under revolving credit facilities............... (326,793) (299,762) (31,721)
Contribution of capital.................................... 150 - -
Principal repayments of term loan facilities............... (42,926) (11,904) -
Proceeds from long-term borrowings......................... - 45,953 -
Deferred finance costs..................................... - (7,035) -
Principal payments on deferred compensation notes.......... (813) (1,662) (1,072)
Dividends paid (2,932) - (1,876)
-------------- ------------- -------------
Net cash provided by (used in) financing activities........... (54,095) 26,362 22,331
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents.......... (5,094) 36,382 (35,704)
Cash and cash equivalents, beginning of year.................. 6,345 1,251 37,633
-------------- ------------- -------------
Cash and cash equivalents, end of year........................ $ 1,251 $ 37,633 $ 1,929
============== ============= =============
Supplemental Disclosures of Cash Flow Information (Note 11)
</TABLE>
See accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-6
<PAGE> 42
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
OPERATIONS, PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The operations of Golden Northwest Aluminum, Inc. ("Golden" or the
"Company") consist primarily of the smelting conversion of alumina to aluminum
under tolling arrangements with alumina suppliers, processing of aluminum into
primary products, and the sale of those products within one business segment.
The operations are located in the Pacific Northwest on the Columbia River.
The Company was incorporated in the state of Oregon on June 3, 1998 for the
purposes of becoming the holding company of Northwest Aluminum Company,
Northwest Aluminum Specialties, Inc., (collectively "Northwest"), Goldendale
Holding Company and its wholly owned subsidiary, Goldendale Aluminum Company
(collectively "Goldendale") and Northwest Aluminum Technologies, LLC
("Technologies"). The sole shareholder of the Company also owned all of the
outstanding shares of common stock of Northwest, Goldendale and Technologies. On
December 18, 1998, the sole shareholder of Golden contributed all of the issued
and outstanding shares of common stock of Northwest, Goldendale and Technologies
to the Company. The transaction was accounted for as a merger of entities under
common control in a manner similar to a pooling of interests. Accordingly, the
financial statements give retroactive effect to this transaction. The
consolidated financial statements include the accounts of Northwest, Goldendale
and Technologies.
The Company, Goldendale and Technologies report on a December 31 year
basis; Northwest reports on a September 30 fiscal year basis. Included in
current assets at December 31, 1999 is $13,106 and included in accrued expenses
at December 31, 1998 is $418, representing the portion of intercompany advances
which do not eliminate due to the differing year ends. All other significant
intercompany accounts and transactions have been eliminated.
Consolidated and separate results of Northwest, Goldendale and Technologies
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Northwest ................................................. $ 296,271 $ 293,596 $ 275,928
Goldendale................................................. 201,601 177,254 168,246
------------ ------------ ------------
$ 497,872 $ 470,850 $ 444,174
============ ============ ============
Net income (loss):
Northwest.................................................. $ 367 $ (3,483) $ (8,278)
Goldendale................................................. 18,290 (111) (9,220)
Technologies............................................... (162 ) (336) (551)
Consolidating adjustments.................................. - (923) (1,862)
------------ ------------ ------------
$ 18,495 $ (4,853) $ (19,911)
============ ============ ============
</TABLE>
F-7
<PAGE> 43
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
REVENUE RECOGNITION
Revenues for the conversion of alumina and processing of aluminum under
tolling arrangements are recognized upon completion of the tolling process.
Under the tolling arrangements, alumina suppliers deliver their alumina to the
Company. The alumina is converted to aluminum in reduction cells by putting it
in liquid form by dissolving it in an "electrolyte" solution and then passing
electric current through the "electrolyte" to separate the alumina into its two
parts, aluminum and oxygen. This process is continuous and is nearly
instantaneous as the alumina is dissolved in the "electrolyte". Revenues from
the processing and sale of aluminum products are recognized upon shipment.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the weighted-average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment including cell relining costs are stated at
cost, less accumulated depreciation. For financial reporting purposes, the costs
of plant and equipment are depreciated over the estimated useful lives of the
assets, which range from three to forty years, using the straight-line method.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value
of net assets acquired and is being amortized on a straight-line basis over
twenty years. The Company periodically evaluates the recoverability of goodwill.
The measurement of possible impairment is based primarily on the Company's
ability to recover the unamortized balance of the goodwill from expected future
operating cash flows on an undiscounted basis.
ASSET IMPAIRMENT
The Company evaluates its long-lived assets for financial impairment, and
continues to evaluate them as events or changes in circumstances indicate that
the carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values.
INTEREST COSTS
The Company follows the policy of capitalizing interest as a component of
the cost of property, plant and equipment constructed for its own use. Interest
costs of $0, $44 and $576 were capitalized during the year ended December 31,
1997, 1998 and 1999, respectively.
F-8
<PAGE> 44
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
INCOME TAXES
Both the Company and its Northwest subsidiary have elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company, including its Northwest subsidiary, does not pay
federal or state corporate income taxes on its taxable income. Instead, the
Company's shareholder is liable for individual federal and state income taxes on
its taxable income. It is the Company's intention to pay dividends to the
shareholder in an amount no less than the sum of these federal and state income
taxes.
The Company's other subsidiary, Goldendale, accounts for income taxes
under the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 uses the liability method so
that deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws and tax rates. Deferred
income tax expense or benefit is based on the changes in the financial statement
basis versus the tax basis in Goldendale's assets or liabilities from period to
period.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Those estimates and assumptions 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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist of cash and cash equivalents and trade
accounts receivable. The Company places its cash and cash equivalents with
various high quality financial institutions; these deposits may exceed federally
insured limits at various times throughout the year. Northwest sells its
products to various customers involved in the manufacturing of aluminum products
located throughout the United States. Credit risk arising from these receivables
is controlled through credit approval, credit limit and monitoring procedures.
Receivables due from the Company's two primary tolling customers comprise 39%
and 41% of the Company's total trade accounts receivable at December 31, 1998
and 1999, respectively.
F-9
<PAGE> 45
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
The fair values of financial instruments have been determined through
information obtained from quoted market sources and management estimates. It is
management's belief that financial instruments held by the Company approximate
fair market value. The Company does not hold or issue financial instruments or
derivative financial instruments for trading purposes.
Goldendale has entered into an interest rate swap agreement for purposes
of minimizing exposure to interest rate risk. The differential between the
floating interest rate and the fixed interest rate, which is to be paid or
received, is recognized in interest expense as the floating interest rate
changes over the life of the agreement.
RESEARCH AND DEVELOPMENT COSTS
Expenditures associated with research and development for existing product
process improvements are expensed as incurred. These costs amounted to $544,
$1,194 and $2,070 during the years ended December 31, 1997, 1998 and 1999,
respectively. Depreciation on equipment used for research and development
amounted to $0, $0 and $47 during the periods ended December 31, 1997, 1998 and
1999.
CASH AND CASH EQUIVALENTS
For purposes of balance sheet classification and the statements of cash
flows, the Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
ENVIRONMENTAL MATTERS
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures that extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Company records a liability for an environmental matter when it
is probable and can be reasonably estimated. The liability is adjusted as
further information develops or circumstances change. The Company's estimated
liability is reduced to reflect the anticipated participation of other
potentially responsible parties in those instances where it is probable that
such parties are legally responsible and financially capable of paying their
respective shares of the relevant costs. The estimated liability of the Company
is not discounted or reduced for possible recoveries from insurance carriers
DEBT ISSUE COSTS
Costs and fees incurred to obtain financing are capitalized and amortized
over the term of the related debt.
F-10
<PAGE> 46
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
RECLASSIFICATIONS
Certain reclassifications of 1997 and 1998 amounts have been made to
confirm to classifications used in 1999.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company is currently analyzing the financial
impact (if any) the adoption of SFAS No. 133 will have on its consolidated
financial statements.
EARNINGS (LOSS) PER SHARE
Basic earnings per share includes no dilution and is calculated by
dividing income (loss) available to common shareholders after preferred stock
dividends accrued, by the average number of shares actually outstanding during
the period. Diluted earnings per share reflects the potential dilution of
securities (such as stock options, warrants and securities convertible into
common stock) that could share in the earnings of an entity. The Company has no
dilutive securities as of December 31, 1999.
F-11
<PAGE> 47
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------- ------------
<S> <C> <C>
Purchased metals and tolling in process............. $ 33,047 $ 42,880
Supplies and alloys ................................ 12,558 13,619
Carbon plant materials.............................. 5,793 5,414
Alumina............................................. 3,685 3,705
------------- ------------
$ 55,083 $ 65,618
============= ============
</TABLE>
2. PROPERTY, PLANT AND EQUIPMENT AND RESTATEMENT
PROPERTY, PLANT AND EQUIPMENT CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------ -------------
<S> <C> <C>
Land and improvements $ 7,378 $ 8,419
Machinery and equipment............................. 124,797 148,950
Buildings and improvements.......................... 38,298 40,117
Capital projects in process......................... 8,435 12,133
------------ ------------
178,908 209,619
Less accumulated depreciation....................... 61,147 76,658
------------ ------------
$ 117,761 $ 132,961
============ ============
</TABLE>
During 1998, in connection with the preparation of its financial statements
to be used in the registration of debt securities discussed in Note 4, the
Company changed its method of accounting for cell relining costs from expensing
such costs as incurred to capitalizing and amortizing these costs over future
periods. As a result of relining the cells with improved materials, the useful
life of the individual cells has increased. In addition, the cell relining
activity and related expenditures vary each year. The Company believes that the
new method improves the matching of revenues and costs as technological
improvements have extended the estimated period of economic benefit realized
from cell relining. The change has been applied by retroactively restating the
accompanying consolidated financial statements. The effect of this change was to
increase net income by $2,067 for the year ended December 31, 1997.
F-12
<PAGE> 48
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
------------ -----------
<S> <C> <C>
Long-term trade receivable, less allowance for $ 814 $ 1,572
doubtful accounts of $900..........................
Debt issue costs, net of accumulated amortization
of $50 and $1,078.................................. 6,985 6,522
Restricted cash....................................... 1,300 1,844
Power project assets held for sale.................... 543 543
Other 473 186
------------ -----------
$ 10,115 $ 10,667
============ ===========
</TABLE>
Restricted cash consists of cash held in trust and committed for
environmental cleanup and workers compensation self-insurance as required by the
State of Washington. These monies will be disbursed at a future date as required
by the state.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
First mortgage notes.................................. $ 150,000 $ 150,000
Subordinated credit agreement......................... 20,000 20,000
Revolving credit facility ............................ - 25,279
------------ ------------
Long-term debt........................................ 170,000 195,279
Less current portion.................................. - 25,279
------------ ------------
Long-term debt less current portion................... $ 170,000 $ 170,000
============ ============
</TABLE>
In December 1998, the Company issued $150 million of 12% first mortgage
notes due on December 15, 2006. Interest is payable semi-annually on June 15 and
December 15, commencing June 15, 1999. Payment of the notes is guaranteed by all
of the Company's subsidiaries. The debt is collateralized by substantially all
of the real property, plant and equipment of the Company's subsidiaries and by a
pledge of all of the issued and outstanding capital stock of the Company's
subsidiaries. On or after December 15, 2002 the notes are redeemable at the
option of the Company at specified redemption prices. There are no sinking fund
requirements. The indenture agreement limits principal payments on subordinated
debt, dividends or shareholder distributions, and investments in subsidiaries.
In connection with the issuance of the notes, each of the Company's direct and
indirect wholly-owned subsidiaries has jointly and severally guaranteed the
notes on a full and unconditional basis.
F-13
<PAGE> 49
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
In December 1998, the Company entered into a $75 million bank revolving
credit facility, which matures on December 20, 2003 and is collateralized by
inventory, accounts receivable and related intangibles, including a security
interest in the Company's tolling agreement. As specified in the credit
agreement, borrowings under the credit facility bear interest at a floating base
rate plus from 0.50% to 1.00% (9.25% at December 31, 1999) or the LIBOR rate
plus from 2.00% to 2.50% (8.75% at December 31, 1999). The additional margin is
dependent upon the consolidated ratio of earnings before interest, income
taxes, depreciation and amortization to interest expense. The credit facility
provides for the payment of a commitment fee of 0.50% per annum based on the
unused portion of the credit facility. The credit agreement contains
restrictive covenants, including a minimum net worth requirement, a minimum
excess availability requirement and limitations on capital expenditures,
dividends, additional indebtedness, mergers and other business combinations,
assets sales, encumbrances, investments and transactions with affiliates.
The Company was in compliance with these convenants at December 31, 1999.
Also in December 1998, the Company entered into a subordinated credit
agreement with Norsk Hydro USA, Inc. pursuant to which $20 million was advanced.
The debt bears interest at LIBOR plus two percent (7.88% at December 31, 1999)
and is due in December 2005. The debt is secured by a second lien and a pledge
on the collateral securing the first mortgage notes and is guaranteed by the
Company's subsidiaries. Except for the collateral security, the guarantees by
the Company are subordinate to the indebtedness under the bank revolving credit
facility. The credit agreement provides for additional borrowings of $10 million
on or prior to December 31, 2001.
On January 25, 1999 the Company terminated at no cost its existing interest
rate swap agreements and entered into a new swap agreement that expires in 2003.
The fixed interest rate paid on the new swap is 6.4% and covers $20 million of
notional principal amount of floating rate (LIBOR) indebtedness of the Company.
Although the Company is exposed to credit loss on the interest rate swap in the
event of nonperformance by the counterparties, the Company estimates the
likelihood of such nonperformance to be remote. At December 31, 1998 and 1999,
the fair value of the interest rate swaps was approximately $92 and $1,029,
respectively, which reflects the estimated amount that the Company would pay to
terminate the contracts.
5. ALUMINA TOLLING CONVERSION AGREEMENTS
Both Goldendale and Northwest had agreements with alumina suppliers for the
conversion of alumina to aluminum for a tolling charge under which the entire
production capacity of the smelting facilities is dedicated to the tolling of
its supplier's alumina. The supplier is obligated to supply, without charge,
alumina sufficient to meet the requirements for full operation. The tolling fees
set forth in the contracts are a percentage of the price of aluminum quoted on
the London Metal Exchange. Goldendale's agreement continues through December
31, 2006, and Northwest's agreement terminated on December 31, 1999. These two
tolling customers accounted for 18% and 40% of the Company's consolidated
revenues in 1997, 19% and 37% of the Company's consolidated revenue in 1998, and
17% and 37% of the Company's consolidated revenue in 1999.
F-14
<PAGE> 50
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
In connection with the expiration of Northwest's tolling arrangement, the
Company executed an alumina supply agreement with Glencore. This new agreement
states that Glencore will supply alumina to meet all of Northwest's current
alumina requirements through the year ended December 31, 2004.
6. EMPLOYEE BENEFIT PLANS
Profit Sharing Bonus Plans
Northwest has entered into agreements, which continue through 2001, with
the United Steelworkers of America, AFL-CIO, to pay annually as additional
compensation 20% of the combined net income of Northwest, as adjusted in
accordance with the agreements. Northwest's total additional compensation
bonuses under these agreements amounted to approximately $1,300, $829 and $298
during the years ended December 31, 1997, 1998 and 1999, respectively.
Goldendale has a profit sharing plan for its hourly and salaried employees.
All Goldendale employees are eligible participants in this plan upon completion
of a probationary period. The plan provides for payments equal to a percentage
of Goldendale's profits, as defined. These amounts are to be distributed to
eligible participants on or before March 31 following Goldendale's year-end. For
the years ended December 31, 1997, 1998 and 1999, Goldendale recorded
approximately $1,900, $380 and $389, respectively, of expense related to this
plan.
Retirement Benefit Plans
Northwest has a defined contribution 401(k) profit sharing plan (the "401k
Plan") covering substantially all Northwest employees under which employees may
elect to defer pay subject to statutory limits. Northwest is committed to
contribute the greater of $.25 per eligible hour worked or 5% of the combined
adjusted net income of Northwest. Northwest may also make discretionary
contributions to the 401k Plan. Total required and discretionary contributions
by Northwest to the 401(k) Plan amounted to approximately $560, $341 and $304
during the years ended December 31, 1997, 1998 and 1999, respectively.
Goldendale has a 401(k) profit sharing plan under which employees may elect
to defer pay, subject to statutory limits; Goldendale also makes matching
contributions for nonbargaining on the basis of percentages specified in the
plan and discretionary contributions as determined on an annual basis.
Goldendale also maintained a separate profit sharing retirement plan (the "DC
Plan") which provided retirement benefits for substantially all of its
employees. Goldendale is committed to contribute the greater of 5% of net income
or $.25 per eligible hour worked. During 1999, the separate profit sharing
retirement plan was merged into the 401(k) profit sharing plan. For the periods
ended December 31, 1997, 1998 and 1999, Goldendale recorded approximately $730,
$290 and $514 of expense for plan contributions.
Deferred Compensation Notes Payable
In connection with the acquisition of Goldendale in 1996, the Company
entered into deferred compensation agreements with certain employees in exchange
for the employees waiving their rights
F-15
<PAGE> 51
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
under stock-based compensation and other employment agreements which existed at
that date. The liability is payable in monthly installments of approximately
$115, including interest at 8.75%, through 2001.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Bonuses.............................................. $ 5,023 $ 4,275
Salaries and related expenses........................ 3,782 3,956
Interest............................................. 4,538 3,163
Intercompany payable................................. 418 -
Other 5,837 5,412
------------ ------------
$ 19,598 $ 16,806
============ ============
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Company is also
engaged in various legal proceedings incidental to its normal business
activities. The Company's management does not believe that the ultimate
resolution of these investigations, claims and legal proceedings will have a
material effect on its financial position, results of operations or cash flows.
The Company has agreed to be contingently liable for the debts of a
customer amounting to $1,336 at December 31, 1999.
During 1999, the Company contracted for the design and construction of a
bath reclaim facility at Goldendale. In connection therewith, a dispute has
arisen over contract change orders to an engineering and construction contract.
The Company has proposed a settlement in the amount of $411, which has been
accrued in the financial statements for 1999. If the settlement offer is not
accepted, the ultimate cost to the Company may exceed this accrual.
As of December 31, 1998 and 1999, the Company had a liability of
approximately $1,741 and $1,825 respectively, for estimated environmental
remediation activities. The Company's estimate of this liability is based on a
remediation study conducted by independent engineering consultants. The total
cost of remediation is estimated at $2.5 million; however, under a court decree
the Company is only responsible for approximately one-half of the total. The
remaining cost is the responsibility of prior owners. No accrual has been
provided for the Northwest facility as the Company is unaware of any current
condition which would give rise to remedial action.
F-16
<PAGE> 52
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The Company has entered into various agreements for the purchase of power,
alumina and aluminum. Future estimated minimum payments under these
noncancelable agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------- ------------
<S> <C>
2000 $ 83,990
2001 90,209
2002 31,429
2003 31,429
2004 31,429
2005 7,857
------------
$ 276,343
============
</TABLE>
9. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ----------
<S> <C> <C> <C>
Current............................. $ 10,204 $ 2,009 $ (7,338)
Deferred............................ 3,070 487 3,593
----------- ----------- -----------
Income tax expense (benefit)........ $ 13,274 $ 2,496 $ (3,745)
=========== =========== ===========
</TABLE>
The difference between the federal statutory tax rate and the effective
tax rate resulted from the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Federal statutory tax rate.......... 35.0 % 35.0 % (35.0)%
Loss from entities not subject to
income taxes...................... (3.1) (70.4) 15.8
Amortization of goodwill............ 5.3 (70.5) 7.0
Other items, net.................... 4.6 - (3.6)
----------- ---------- -----------
Effective tax rate.................. 41.8 % (105.9)% (15.8)%
=========== ========== ===========
</TABLE>
F-17
<PAGE> 53
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ -----------
<S> <C> <C>
Current:
Accrued expenses.................................... $ (1,811) $ (1,805)
Inventory........................................... 140 55
Other 1 167
------------ -----------
$ (1,670) $ (1,583)
============ ===========
Non-current:
Property, plant and equipment....................... $ (13,507) $ (16,286)
Power project assets................................ 404 404
Deferred compensation............................... 607 231
Other 2,531 2,007
------------ -----------
$ (9,965) $ (13,644)
============ ===========
</TABLE>
The Internal Revenue Service ("IRS") has audited the Company's income tax
returns and has proposed to change the Company's method of accounting for
certain expenditures that were deducted when incurred. The IRS has proposed to
capitalize and depreciate these expenditures over an estimated useful life. The
Company had previously recorded a liability associated with the proposed change
in accounting method that is effective for all tax years subsequent to 1989, of
approximately $11.5 million, which included interest of $4 million. In 1999, the
Company reached settlements with the IRS. As a result of the settlements,
goodwill and interest expense were reduced by approximately $2 million and $1
million, respectively, during 1999. The sole shareholder of the Company will
incur additional taxes and interest associated with this agreement. In December
1999, the Company made a dividend distribution of approximately $1.9 million to
reimburse the shareholder for such amounts.
Income taxes refundable include refund claims for net operating loss
carrybacks arising in the current year and claims arising in earlier years
amounting to approximately $9 million, offset by taxes payable as a result of
the IRS settlement and state income taxes of approximately $6 million. The cash
refund from the IRS will be reduced by accrued interest of $1.6 million.
10. PREFERRED STOCK OF SUBSIDIARY
Goldendale has authorized 150,000 shares of $.01 par value Series A
cumulative, nonconvertible preferred stock. At December 31, 1999 and 1998,
131,836.10 shares were issued and outstanding. The shares were issued in
connection with the acquisition of Goldendale in 1996 and are stated at their
per share fair value when issued of $225. The liquidation preference on the
preferred stock is $225 per share.
F-18
<PAGE> 54
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Terms of the Goldendale preferred stock provide for dividends accruing
quarterly and payable in cash as declared by the Board of Directors according to
the following schedule:
<TABLE>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------------
<S> <C>
Through 2001................................. $ 27.68/share
2002......................................... 29.93/share
2003......................................... 32.18/share
Thereafter................................... 34.43/share
</TABLE>
Commencing on January 1, 2002, the preferred shareholders have the option
of receiving additional shares of preferred stock in satisfaction of any
cumulative dividend in arrears that may exist at that time.
The Company may redeem any or all outstanding shares of Series A Preferred
Stock at the following redemption prices at any time after December 31, 1999:
<TABLE>
YEAR ENDING DECEMBER 31, AMOUNT
--------------------------------- --------------
<S> <C>
Through 2000................................. $ 228.38
2001......................................... 227.25
Thereafter................................... 225.00
</TABLE>
The shares of preferred stock and shares of common stock vote together as a
single class on all matters submitted to a vote of shareholders of Goldendale.
The holders of shares of preferred stock are entitled to one vote per share and
have full voting rights and power equal to those of the holders of common stock.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
Cash paid (received) during the period for:
Interest................................................. $ 14,346 $ 13,273 $ 21,779
Income taxes............................................. 10,545 2,900 (2,796)
Non-cash investing and financing activities:
Principal balance of debt refinanced..................... - 124,047 -
Acquisition contingency accrual:
Goodwill............................................... 2,699 - 2,045
Deferred income taxes.................................. 6,742 - 784
Accrued interest....................................... - - 1,261
Dividends accrued on preferred stock................... 3,648 3,648 3,648
</TABLE>
12. RELATED PARTY TRANSACTIONS
Sales to a company related by common ownership amounted to $3,613, $6,406,
and $5,766 for the years ended December 31, 1997, 1998 and 1999, respectively.
Receivable due from the related company includes the balance due from those
sales, together with cash advances, of which $4,000 was converted to a note
receivable on December 31, 1997. The note bears interest at 9.25% and is payable
in quarterly
F-19
<PAGE> 55
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
installments through January 2002. Purchases from this related company amounted
to $1,998 for the year ended December 31, 1999 of which $189 is included in
trade accounts payable at December 31, 1999. There were no purchases from this
related company in 1997 and 1998.
13. VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts activity was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year.............. $ 1,296 $ 1,000 $ 1,000
Charged to expense...................... - 1,500 -
Write-offs, net of recoveries........... (296) (1,500) -
---------- ----------- -----------
Balance, end of year.................... $ 1,000 $ 1,000 $ 1,000
========== =========== ===========
</TABLE>
F-20
<PAGE> 56
INDEX OF FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC.
Report of Independent Certified Public Accountants...................... S-2
Combined Balance Sheets................................................. S-3
Combined Statements of Operations....................................... S-4
Combined Statements of Shareholder's Equity............................. S-5
Combined Statements of Cash Flows....................................... S-6
Summary of Significant Accounting Policies.............................. S-7
Notes to Combined Financial Statements ................................. S-10
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
Report of Independent Certified Public Accountants...................... S-15
Consolidated Balance Sheets............................................. S-16
Consolidated Statements of Operations................................... S-17
Consolidated Statements of Shareholders' Equity......................... S-18
Consolidated Statements of Cash Flows................................... S-19
Summary of Significant Accounting Policies.............................. S-20
Notes to Consolidated Financial Statements.............................. S-24
</TABLE>
S-1
<PAGE> 57
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Northwest Aluminum Company
and Northwest Aluminum Specialties, Inc.
The Dalles, Oregon
We have audited the accompanying combined balance sheets of Northwest Aluminum
Company and Northwest Aluminum Specialties, Inc. as of September 30, 1998 and
1999, and the related combined statements of operations, shareholder's equity,
and cash flows for each of the three years in the period ended September 30,
1999. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined 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 audits to obtain
reasonable assurance about whether the combined 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, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Northwest Aluminum
Company and Northwest Aluminum Specialties, Inc. as of September 30, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999 in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Spokane, Washington
November 11, 1999
S-2
<PAGE> 58
NORTHWEST ALUMINUM COMPANY AND
NORTHWEST ALUMINUM SPECIALTIES, INC.
COMBINED BALANCE SHEETS
ASSETS (Note 4)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1998 1999
-------------- -------------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 614 $ 194
Trade accounts receivable, less allowance for doubtful accounts
of $100............................................................. 35,765 38,313
Current portion of receivable due from related company (Note 10)....... 2,126 2,639
Inventories (Notes 1 and 10)........................................... 35,146 41,267
Prepaid expenses....................................................... 363 500
-------------- -------------
Total current assets........................................................ 74,014 82,913
-------------- -------------
Property, plant and equipment, net (Notes 2 and 4).......................... 38,515 37,802
Advances to shareholder..................................................... 2,000 2,000
Receivable due from related company, less current portion (Note 10) 2,826 1,824
Other assets, net (Note 3).................................................. 1,413 1,572
-------------- -------------
$ 118,768 $ 126,111
============== =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Trade accounts payable (Note 10)........................................ $ 32,525 $ 33,415
Accrued expenses (Notes 7 and 10)....................................... 5,227 10,310
-------------- --------------
Total current liabilities......................................... 37,752 43,725
Long-term debt due to parent (Note 4)....................................... - 74,248
Long-term debt (Note 4)..................................................... 64,600 -
-------------- --------------
Total liabilities................................................. 102,352 117,973
-------------- --------------
Commitments and Contingencies (Notes 5, 6 and 8)
Shareholder's Equity:
Common stock, no par value; 2,000 shares authorized, 38
issued and outstanding............................................. 38
Additional paid-in capital.............................................. 20,736 20,736
Accumulated deficit..................................................... (4,358) (12,636)
-------------- --------------
Total shareholder's equity.................................................. 16,416 8,138
-------------- --------------
$ 118,768 $ 126,111
============== ==============
</TABLE>
S-3
<PAGE> 59
NORTHWEST ALUMINUM COMPANY AND
NORTHWEST ALUMINUM SPECIALTIES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1997 1998 1999
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues (Notes 5 and 10)........................................... $ 296,271 $ 294,698 $ 276,258
Cost of revenues (Note 10).......................................... 282,439 282,707 268,125
------------ ----------- -------------
Gross margin........................................................ 13,832 11,991 8,133
General and administrative expenses................................. 7,814 8,293 6,026
------------ ----------- -------------
Operating income.................................................... 6,018 3,698 2,107
------------ ----------- -------------
Other income (expense):.............................................
Interest expense (Notes 4 and 10)................................ (6,406) (7,463) (10,269)
Other income, net................................................ 755 282 433
------------ ----------- -------------
Other expense, net.................................................. (5,651) (7,181) (9,836)
------------ ----------- -------------
Net income (loss) before extraordinary item......................... 367 (3,483) (7,729)
Extraordinary item-loss on extinguishment of debt
(Note 4)....................................................... - - 549
------------ ------------ -------------
Net income (loss) .................................................. $ 367 $ (3,483) $ (8,278)
============ ============ =============
</TABLE>
S-4
<PAGE> 60
NORTHWEST ALUMINUM COMPANY AND
NORTHWEST ALUMINUM SPECIALTIES, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL EARNINGS SHARE-
---------------- PAID-IN (ACCUMULATED HOLDER'S
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------ ------ ---------- ----------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1996 ......... 2,000 $38 $20,736 $ 1,690 $ 22,464
Dividends paid on common stock ..... -- -- -- (2,932) (2,932)
Net income ......................... -- -- -- 367 367
----- --- ------- -------- --------
Balance at September 30, 1997 ...... 2,000 38 20,736 (875) 19,899
Net loss ........................... -- -- -- (3,483) (3,483)
----- --- ------- -------- --------
Balance at September 30, 1998 ...... 2,000 38 20,736 (4,358) 16,416
Net loss ........................... -- -- -- (8,278) (8,278)
----- --- ------- -------- --------
Balance at September 30, 1999 ...... 2,000 $38 $20,736 $(12,636) $ 8,138
===== === ======= ======== ========
</TABLE>
S-5
<PAGE> 61
NORTHWEST ALUMINUM COMPANY AND
NORTHWEST ALUMINUM SPECIALTIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1997 1998 1999
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ 367 $ (3,483) $ (8,278)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization ............................ 7,188 6,865 7,301
Loss (gain) on disposal of assets ........................ (382) 68 22
Provision for bad debts .................................. -- 1,500 --
Extraordinary loss ....................................... -- -- 549
Change in assets and liabilities:
Trade accounts receivable ............................ (14,595) 7,419 (2,548)
Inventories .......................................... (9,076) 4,925 (6,121)
Prepaid expenses ..................................... (65) (93) (137)
Other assets ......................................... 2,280 962 (758)
Trade accounts payable ............................... 23,976 (6,990) 890
Accrued expenses ..................................... (938) 446 5,487
--------- --------- --------
Net cash provided by (used in) operating activities ........... 8,755 11,619 (3,593)
--------- --------- --------
Cash flows from investing activities:
Proceeds from sale of assets ............................... 233 10 --
Acquisition of property, plant and equipment ............... (3,837) (7,655) (6,560)
Advances to shareholder .................................... (2,000) -- --
Receivable due from related company ........................ (3,631) (918) 489
--------- --------- --------
Net cash used in investing activities ......................... (9,235) (8,563) (6,071)
--------- --------- --------
Cash flows from financing activities:
Borrowings under revolving credit facilities ............... 169,438 191,166 31,733
Repayments under revolving credit facilities ............... (165,504) (189,702) (28,624)
Principal repayment of term loan facilities ................ (1,875) (4,404) (1,250)
Borrowings from parent ..................................... -- -- 9,440
Advances to parent ......................................... -- -- (2,055)
Dividends paid ............................................. (2,932) -- --
Loan fees paid ............................................. -- (50) --
--------- --------- --------
Net cash provided by (used in) financing activities ........... (873) (2,990) 9,244
--------- --------- --------
Net increase (decrease) in cash and cash equivalents .......... (1,353) 66 (420)
Cash and cash equivalents, beginning of year .................. 1,901 548 614
--------- --------- --------
Cash and cash equivalents, end of year ....................... $ 548 $ 614 $ 194
========= ========= ========
</TABLE>
Supplemental Disclosures of Cash Flow Information (Note 9)
S-6
<PAGE> 62
NORTHWEST ALUMINUM COMPANY AND
NORTHWEST ALUMINUM SPECIALTIES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in Thousands)
PRINCIPLES OF COMBINATION, BASIS OF PRESENTATION, AND OPERATIONS
The financial statements are presented on a combined basis as Northwest
Aluminum Company and Northwest Aluminum Specialties, Inc. (the "Companies") are
under common ownership and common management. All intercompany transactions have
been eliminated in combination. On December 18, 1998, the sole shareholder of
the Companies transferred all of the issued and outstanding shares of common
stock of the Companies to Golden Northwest Aluminum, Inc. (GNA), a company also
wholly-owned by the shareholder.
The operations of the Companies consist primarily of the smelting conversion
of alumina to aluminum under a tolling arrangement with an alumina supplier,
processing of aluminum into primary products, and the sale of those products
within one business segment. The operations are located in the Pacific Northwest
on the Columbia River. Approximately 80% of the Companies' labor force is
subject to collective bargaining agreements.
REVENUE RECOGNITION
Revenues for the conversion of alumina and processing of aluminum under
tolling arrangements are recognized upon completion of the tolling process.
Revenues from the sale of aluminum products are recognized upon shipment.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method, except for certain supply inventories that are
based upon the weighted average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. For financial reporting purposes, the costs of
plant and equipment are depreciated over the estimated useful lives of the
assets, which range from five to twenty-five years, using the straight-line
method.
ASSET IMPAIRMENT
The Companies evaluate their long-lived assets for financial impairment and
continue to evaluate them as events or changes in circumstances indicate that
the carrying amount of such assets may not be fully recoverable. The Companies
evaluate the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values.
S-7
<PAGE> 63
NORTHWEST ALUMINUM COMPANY AND
NORTHWEST ALUMINUM SPECIALTIES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in Thousands)
INTEREST COSTS
The Companies follow the policy of capitalizing interest as a component of
the cost of property, plant and equipment constructed for its own use. Interest
costs of $0, $147 and $76 were capitalized during the years ended September 30,
1997, 1998 and 1999.
INCOME TAXES
The Companies have elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. Under those provisions, the Companies do not pay
federal or state corporate income taxes on their taxable income. Instead, the
shareholder is liable for individual federal and state income taxes on the
Companies' taxable income. It is the Companies' intention to pay dividends to
the shareholder in an amount no less than the sum of these federal and state
income taxes.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions 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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Companies to a
concentration of credit risk consist of cash and cash equivalents and trade
accounts receivable. The Companies place their cash and cash equivalents with
various high quality financial institutions; these deposits may exceed federally
insured limits at various times throughout the year. The Companies sell their
products to various customers involved in the manufacturing of aluminum products
located throughout the United States. Credit risk arising from these receivables
is controlled through credit approval, credit limit and monitoring procedures.
Receivables due from the Companies' primary tolling customer comprised 18% and
17% of the Companies' total trade accounts receivable at September 30, 1998 and
1999, respectively.
FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
The fair values of financial instruments have been determined through
information obtained from quoted market sources and management estimates. It is
management's belief that financial instruments held by the Companies approximate
fair market value. The Companies do not hold or issue financial instruments or
derivative financial instruments for trading purposes.
S-8
<PAGE> 64
NORTHWEST ALUMINUM COMPANY AND
NORTHWEST ALUMINUM SPECIALTIES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in Thousands)
RESEARCH AND DEVELOPMENT COSTS
Expenditures associated with research and development for existing product
process improvements are expensed as incurred. These costs amounted to $85, $71
and $111 during the years ended September 30, 1997, 1998 and 1999, respectively.
CASH AND CASH EQUIVALENTS
For purposes of balance sheet classification and the statements of cash
flows, the Companies consider all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ENVIRONMENTAL MATTERS
The Companies expense environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures extend the life of the related
property or mitigate or prevent future environmental contamination are
capitalized. The Companies record a liability for an environmental matter when
it is probable and can be reasonably estimated.
DEBT ISSUE COSTS
Costs and fees incurred to obtain financing are capitalized and amortized
over the term of the related debt.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Companies are currently analyzing the
financial impact (if any) the adoption of SFAS No. 133 will have on their
combined financial statements.
S-9
<PAGE> 65
NORTHWEST ALUMINUM COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Purchased metals and tolling in process $27,343 $33,633
Supplies and alloys 4,943 5,795
Carbon plant materials 2,470 1,449
Alumina 390 390
------- -------
$35,146 $41,267
======= =======
</TABLE>
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Land and improvements $ 2,974 $ 2,974
Machinery and equipment 54,331 57,760
Buildings and improvements 21,180 21,273
Capital projects in process 3,286 4,241
------- -------
81,771 86,248
Less accumulated depreciation 43,256 48,446
------- -------
Property, plant and equipment, net $38,515 $37,802
======= =======
</TABLE>
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Long-term trade receivable, less allowance for
doubtful account of $900 $ 814 $1,572
Debt issue costs (net of accumulated
amortization of $520) 599 --
------ ------
$1,413 $1,572
====== ======
</TABLE>
S-10
<PAGE> 66
NORTHWEST ALUMINUM COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Revolving Credit Facility $47,129 $ --
Term Loan 17,471 --
------- -------
Long-term debt 64,600 --
Less current portion -- --
------- -------
Long-term debt less current portion $64,600 $ --
======= =======
</TABLE>
Amounts outstanding at September 30, 1998 under the Revolving Credit
Facility and Term Loan were repaid in December 1998 with the proceeds from the
first mortgage notes discussed below. In connection with the extinguishment of
its existing debt, the Companies recognized an extraordinary loss of $549 in
fiscal 1999.
On December 21, 1998, GNA issued $150 million of 12% first mortgage notes
due on December 15, 2006. Interest is payable semi-annually on June 15 and
December 15, commencing June 15, 1999. Payment of the notes is guaranteed by the
Companies and by other subsidiaries of GNA. The debt is collateralized by
substantially all of the real property, plant and equipment of the Companies and
by a pledge of all of the issued and outstanding capital stock of GNA. On or
after December 15, 2002 the notes are redeemable at the option of GNA at
specified redemption prices. There are no sinking fund requirements. The net
proceeds from the sale of the notes were used to repay all amounts then
outstanding under the Companies' then existing credit facility and term loan, to
fund capital expenditures and for working capital and other general corporate
purposes. The indenture agreement limits principal payments on subordinated
debt, dividends or shareholder distributions, and investments in subsidiaries.
On December 21, 1998, the Companies, together with GNA and its subsidiaries,
entered into a $75 million bank revolving credit facility, collateralized by
inventory, accounts receivable and related intangibles, including a security
interest in Northwest Aluminum Company's tolling agreement with Glencore, which
matures on December 31, 1999 (see Note 5). Borrowings under the credit facility
bear interest at a floating base rate specified in the credit agreement plus
0.50% to 1.00% (9.25% at December 31, 1999) or LIBOR plus 2.00% to 2.50%,
depending on the consolidated ratio of earnings before interest, income taxes
(8.75% at December, 1999), depreciation and amortization to interest expense.
The credit facility provides for the payment of a commitment fee of 0.50%
per annum based on the unused portion of the credit facility. The credit
agreement contains restrictive covenants, including a minimum net worth
requirement, a minimum excess availability requirement and limitations on
capital expenditures, dividends, additional indebtedness, mergers and other
business combinations, asset sales, encumbrances, investments and transactions
with affiliates.
Also on December 21, 1998, GNA entered into a subordinated credit agreement
for $20 million. The debt bears interest at LIBOR plus two percent (7.104% at
September 30, 1999) and is due in December 2005. The debt is secured by a second
lien and pledge on the collateral securing the first mortgage notes
S-11
<PAGE> 67
NORTHWEST ALUMINUM COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands)
and is guaranteed by the Companies and by other subsidiaries of GNA. Except for
the collateral security, the guarantees by the Companies are subordinate to the
indebtedness under the bank revolving credit facility. The credit agreement
provides for additional borrowings of $10 million on or prior to December 31,
2001.
The long-term debt due to parent represents the Companies' allocable share
of the proceeds from the first mortgage notes and is repayable to GNA under the
same terms and conditions as the first mortgage notes described above.
5. ALUMINA SUPPLY
Northwest Aluminum Company has an agreement with Glencore, Ltd. (Glencore),
which continues through December 31, 1999, for the conversion of alumina to
aluminum for a tolling charge under which the entire production capacity of the
smelting facility is dedicated to the tolling of its supplier's alumina. The
supplier is obligated to supply, without charge, alumina to meet the
requirements for full operation. The tolling fee set forth in the contract is a
percentage of the price of aluminum quoted on the London Metal Exchange. This
tolling customer accounted for 30%, 30% and 27% of the Companies combined
revenues in fiscal 1997, 1998 and 1999, respectively.
On October 15, 1999, Northwest Aluminum Company entered into a 5-year
agreement to purchase alumina from a supplier at a cost based on a percentage of
the price of aluminum quoted on the London Metal Exchange.
6. EMPLOYEE BENEFIT PLANS
PROFIT SHARING BONUS PLAN
The Companies have entered into a contractual agreement, which continues
through 2001, with the United Steelworkers of America, AFL-CIO, to pay annually
as additional compensation 20% of the combined net income of the Companies, as
adjusted in accordance with the agreement. The Companies total additional
compensation bonuses under this agreement amounted to approximately $1,300, $829
and $298 in fiscal 1997, 1998 and 1999, respectively.
RETIREMENT BENEFIT PLAN
The Companies have also established a defined contribution 401(k) profit
sharing plan (the "401(k) Plan") covering substantially all employees under
which employees may elect to defer pay subject to statutory limits. The
Companies are committed to contribute the greater of $.25 per eligible hour
worked or 5% of the combined adjusted net income of the Companies. The Companies
may also make discretionary contributions to the 401(k) Plan. Total required and
discretionary contributions by the Companies to the 401(k) Plan amounted
approximately to $560, $341 and $304 in fiscal 1997, 1998 and 1999,
respectively.
S-12
<PAGE> 68
NORTHWEST ALUMINUM COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands)
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Profit sharing and bonuses $ 1,351 $ 620
Salaries and related expenses 1,346 1,200
Interest (Note 10) 709 8,293
Other 1,821 197
------- -------
$ 5,227 $10,310
======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Internal Revenue Service ("IRS") has audited the Companies' income
tax returns and has proposed to change the Companies' method of accounting for
certain expenditures that were deducted when incurred. The IRS has proposed to
capitalize and depreciate these expenditures over an estimated useful life. The
Companies have reached an agreement with the IRS to capitalize certain
expenditures. The sole shareholder of the Companies will incur additional taxes
and interest associated with this agreement. The Companies intend to declare and
make a dividend distribution of approximately $1.9 million to reimburse the
shareholder for such amounts.
The Companies have agreed to be contingently liable for debts of a customer
amounting to $1,336 at September 30, 1999.
The Companies, in the regular course of business, are involved in
investigations and claims by various regulatory agencies. The Companies are
engaged in various legal proceedings incidental to its normal business
activities. The Companies management does not believe that the ultimate
resolution of these investigations, claims and legal proceedings will have a
material effect on its financial position, results of operations or cash flows.
The Companies have entered into various agreements for the purchase of
power, alumina, and aluminum. Future estimated minimum payments under these
non-cancelable agreements are as follows:
<TABLE>
<CAPTION>
Year ending September 30, Amount
------------------------- ------
<S> <C>
2000 $ 44,056
2001 46,533
2002 31,429
2003 31,429
2004 31,429
2005 7,857
---------
$ 192,733
=========
</TABLE>
S-13
<PAGE> 69
NORTHWEST ALUMINUM COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands)
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information is as follows
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------------
1997 1998 1999
------------ ------------ -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 6,536 $ 6,904 $ 2,670
============ ============ =======
Non-cash investing and financing activities:
Repayments of revolving credit
facilities with new debt $ -- $ -- $50,238
Repayment of term loan facilities
with new debt $ -- $ -- $16,221
</TABLE>
10. RELATED PARTY TRANSACTIONS
GNA, the parent of the Company, allocates substantially all of its costs to
its subsidiaries based on the ratio of each subsidiary's borrowings to the total
borrowings by all subsidiaries. For the year ended September 30, 1999, the
Company incurred $8,308 and $485 in interest charges and other expenses,
respectively, charged by GNA. Accrued expenses include $8,293 of interest
payable to GNA at September 30, 1999.
Sales to a company related by common ownership amounted to $3,613, $6,406
and $5,766 for the years ended September 30, 1997, 1998 and 1999, respectively.
The receivable due from related company includes the balance due from those
sales, together with cash advances, of which $4,000 was converted to a note
receivable on December 31, 1997. The note bears interest at 9.25% and is payable
in quarterly installments through January 2002. Purchases from this related
company amounted to $1,998 for the year ended September 30, 1999 of which $189
is included in trade accounts payable at September 30, 1999.
Sales to another company related by common ownership amounted to $348, $294
and $330, for the years ended September 30, 1997, 1998 and 1999, respectively.
Purchases from this related company amounted to $1,041, $1,181 and $1,573 for
the years ended September 30, 1997, 1998 and 1999, respectively. Trade accounts
payable includes balances due this company amounting to $10 and $900 at
September 30, 1998 and 1999, respectively.
S-14
<PAGE> 70
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Goldendale Holding Company and Subsidiary
Goldendale, Washington
We have audited the accompanying consolidated balance sheets of Goldendale
Holding Company and Subsidiary as of December 31, 1998 and 1999 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. 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 audits to obtain
reasonable assurance about whether the consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Goldendale
Holding Company and Subsidiary as of December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Spokane, Washington
March 10, 2000
S-15
<PAGE> 71
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS (Note 4)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
--------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 342 $ 244
Trade accounts receivable, net ................................................. 12,490 17,707
Inventories (Note 1) ........................................................... 19,937 24,351
Prepaid expenses ............................................................... 423 166
Income taxes refundable (Note 9) ............................................... -- 3,121
-------- --------
Total current assets .................................................. 33,192 45,589
-------- --------
Property, plant and equipment, net (Note 2) ......................................... 79,240 95,075
Goodwill, net of accumulated amortization
of $9,494 and $14,241 (Note 9) ................................................. 88,140 81,348
Other assets, net (Note 3) .......................................................... 2,105 2,387
-------- --------
$202,677 $224,399
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt due to parent (Note 4) ....................... $ -- $ 2,261
Trade accounts payable ......................................................... 7,819 13,184
Accrued expenses (Note 7) ...................................................... 14,335 13,277
Accrued expenses due to parent ................................................. -- 7,359
Income taxes payable (Note 9) .................................................. 2,197 --
Deferred income taxes (Note 9) ................................................. 1,670 1,583
-------- --------
Total current liabilities ............................................. 26,021 37,664
-------- --------
Long-term debt due to parent (Note 4) .......................................... 61,719 78,327
Deferred income taxes (Note 9) ................................................. 9,965 13,644
Deferred compensation notes payable (Note 6) ................................... 1,734 662
Other long-term liabilities (Note 8) ........................................... 1,741 1,825
Dividends payable (Note 10) .................................................... 9,515 13,163
-------- --------
Total liabilities ..................................................... 110,695 145,285
-------- --------
Commitments and Contingencies (Notes 5, 6, 8 and 9)
Shareholders' Equity (Note 10):
Preferred stock, cumulative, nonconvertible, $.01 par value; 150,000 shares
authorized, 131,836.10 issued and outstanding 29,663 29,663
Common stock, $.01 par value, 350,000 shares authorized,
197,688.82 issued and outstanding ............................................ 2 2
Additional paid-in capital ..................................................... 44,478 44,478
Retained earnings .............................................................. 17,839 4,971
-------- --------
Total shareholders' equity .......................................................... 91,982 79,114
-------- --------
$202,677 $224,399
======== ========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
S-16
<PAGE> 72
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues (Notes 5 and 12) ................................... $ 201,601 $ 177,456 $ 168,683
Cost of revenues ............................................ 154,072 159,329 163,290
--------- --------- ---------
Gross margin ................................................ 47,529 18,127 5,393
General and administrative expenses ......................... 9,301 9,776 10,504
--------- --------- ---------
Operating income (loss) ..................................... 38,228 8,351 (5,111)
--------- --------- ---------
Other income (expense):
Interest expense (Note 12) ............................... (10,317) (6,386) (8,938)
Other income, net ........................................ 3,653 1,886 1,084
--------- --------- ---------
Net other expense ........................................... (6,664) (4,500) (7,854)
--------- --------- ---------
Income (loss) before income taxes ........................... 31,564 3,851 (12,965)
Income tax expense (benefit) (Note 9) ....................... 13,274 3,009 (3,745)
--------- --------- ---------
Income (loss) before extraordinary item ..................... 18,290 842 (9,220)
Extraordinary item - loss on extinguishment of debt (net
of income tax benefit of $513)
(Note 4) ................................................... -- (953) --
--------- --------- ---------
Net income (loss) ........................................... $ 18,290 $ (111) $ (9,220)
========= ========= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
S-17
<PAGE> 73
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK STOCK ADDITIONAL
------------------------- --------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 .............. 131,836.1 $ 29,663 197,688.82 $ 2 $ 44,478
Dividends accrued on preferred stock .... -- -- -- -- --
Net loss ................................ -- -- -- -- --
----------- -------- ----------- -------- --------
Balance at December 31, 1998 ............ 131,836.1 29,663 197,688.82 2 44,478
Dividends accrued on preferred stock .... -- -- -- -- --
Net loss ................................ -- -- -- -- --
----------- -------- ----------- -------- --------
Balance at December 31, 1999 ............ 131,836.1 $ 29,663 $197,688.82 $ 2 $ 44,478
=========== ======== =========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
SHARE-
RETAINED HOLDERS'
EARNINGS EQUITY
<S> <C> <C>
Balance at January 1, 1998 .............. $ 21,598 $ 95,741
Dividends accrued on preferred stock .... (3,648) (3,648)
Net loss ................................ (111) (111)
-------- --------
Balance at December 31, 1998 ............ 17,839 91,982
Dividends accrued on preferred stock .... (3,648) (3,648)
Net loss ................................ (9,220) (9,220)
-------- --------
Balance at December 31, 1999 ............ $ 4,971 $ 79,114
======== ========
</TABLE>
S-18
<PAGE> 74
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ 18,290 $ (111) $ (9,220)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ...................... 11,877 13,448 15,197
Loss (gain) on disposal of assets .................. (2,218) (106) 175
Extraordinary loss ................................. -- 1,466 --
Deferred income taxes .............................. 1,394 487 4,376
Change in assets and liabilities:
Trade accounts receivable ...................... 13,223 5,588 (5,217)
Inventories .................................... (427) 884 (4,414)
Prepaid expenses ............................... 215 (166) 257
Other assets ................................... 570 (285) (282)
Trade accounts payable ......................... (1,062) (579) 5,365
Accrued expenses ............................... 7,278 (2,803) 203
Income taxes refundable ........................ (843) (955) (5,318)
Other liabilities .............................. (802) 85 84
--------- --------- ---------
Net cash provided by operating activities ............... 47,495 16,953 1,206
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of assets ......................... 12,588 1,200 --
Acquisition of property, plant and equipment ......... (10,444) (11,140) (26,460)
--------- --------- ---------
Net cash provided by (used in) investing activities ..... 2,144 (9,940) (26,460)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving credit facility ........... 149,781 107,747 --
Repayments under revolving credit facility ........... (161,289) (110,060) --
Principal repayments of term loan .................... (41,051) (7,500) --
Net borrowings from parent ........................... -- 4,131 26,228
Principal payments on deferred compensation notes .... (813) (1,662) (1,072)
--------- --------- ---------
Net cash provided by (used in) financing activities ..... (53,372) (7,344) 25,156
--------- --------- ---------
Net decrease in cash and cash equivalents ............... (3,733) (331) (98)
Cash and cash equivalents, beginning of year ............ 4,406 673 342
--------- --------- ---------
Cash and cash equivalents, end of year ................. $ 673 $ 342 $ 244
========= ========= =========
</TABLE>
Supplemental Disclosures of Cash Flow Information (Note 11)
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
S-19
<PAGE> 75
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
OPERATIONS, PRINCIPLES OF COMBINATION AND BASIS OF PRESENTATION
The operations of the Company consist primarily of the smelting conversion
of alumina to aluminum under a tolling arrangement with an alumina supplier. In
addition, the Company operates an alumina unloading facility. The Company
operates within one business segment. The operations are located in the Pacific
Northwest on the Columbia River.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Goldendale Aluminum Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Approximately 82% of the Companies' labor force is subject to collective
bargaining agreements.
REVENUE RECOGNITION
Revenues for the conversion of alumina and processing of aluminum under
tolling arrangements are recognized upon completion of the tolling process.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the weighted average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. For financial reporting purposes, the costs of
plant and equipment are depreciated over the estimated useful lives of the
assets, which range from three to thirty years, using the straight-line method.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized on a straight-line basis over twenty
years. The Company periodically evaluates the recoverability of goodwill. The
measurement of possible impairment is based primarily on the Company's ability
to recover the unamortized balance of the goodwill from expected future
operating cash flows on an undiscounted basis.
ASSET IMPAIRMENT
The Company evaluates its long-lived assets for financial impairment, and
continues to evaluate them as events or changes in circumstances indicate that
the carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values.
S-20
<PAGE> 76
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
SUMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 uses the liability method so that deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the provisions of
enacted tax laws and tax rates. Deferred income tax expense or benefit is based
on the changes in the financial statement bases versus the tax bases in assets
or liabilities from period to period.
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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and trade
accounts receivable. The Company places its cash and cash equivalents with
various high quality financial institutions; these deposits may exceed federally
insured limits at various times throughout the year. Receivables due from the
Company's primary tolling customer comprised 96% and 98% of the Company's total
trade accounts receivable at December 31, 1998 and 1999, respectively.
FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
The fair values of financial instruments have been determined through
information obtained from quoted market sources and management estimates. It is
management's belief that financial instruments held by the Company approximate
fair market value. The Company does not hold or issue financial instruments or
derivative financial instruments for trading purposes.
The Company has entered into an interest rate swap agreement for purposes
of minimizing exposure to interest rate risk. The differential between the
floating interest rate and the fixed interest rate which is to be paid or
received is recognized in interest expense as the floating interest rate changes
over the life of the agreement.
S-21
<PAGE> 77
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
SUMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
RESEARCH AND DEVELOPMENT COSTS
Expenditures associated with research and development for existing product
process improvements are expensed as incurred. These costs amounted to $297,
$789 and $1,516 during the periods ended December 31, 1997, 1998 and 1999,
respectively. Depreciation on equipment used for research and development
amounted to $0, $0 and $47 during the years ended December 31, 1997, 1998 and
1999.
CASH AND CASH EQUIVALENTS
For purposes of balance sheet classification and the statements of cash
flows, the Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ENVIRONMENTAL MATTERS
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures which extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Company records a liability for an environmental matter when it
is probable and can be reasonably estimated. The Company's estimated liability
is reduced to reflect the anticipated participation of other potentially
responsible parties in those instances where it is probable that such parties
are legally responsible and financially capable of paying their respective
shares of the relevant costs. The estimated liability of the Company is not
discounted or reduced for possible recoveries from insurance carriers.
DEBT ISSUE COSTS
Costs and fees incurred to obtain financing are capitalized and amortized
over the term of the related debt.
RECLASSIFICATIONS
Certain reclassifications of 1997 and 1998 amounts have been made to
conform to classifications used in 1999.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is
S-22
<PAGE> 78
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
SUMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
recognized as income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company is
currently analyzing the financial impact (if any) the adoption of SFAS No. 133
will have on its consolidated financial statements.
S-23
<PAGE> 79
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
------- -------
<S> <C> <C>
Tolling in process ............. $ 451 $ 3,451
Supplies and alloys ............ 7,615 7,824
Electrolyte materials .......... 5,253 5,796
Carbon plant materials ......... 3,323 3,965
Alumina ........................ 3,295 3,315
------- -------
$19,937 $24,351
======= =======
</TABLE>
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- --------
<S> <C> <C>
Land and improvements .................. $ 4,404 $ 5,445
Machinery and equipment ................ 70,450 91,092
Buildings and improvements ............. 17,118 18,844
Capital projects in process ............ 5,149 7,892
-------- --------
97,121 123,273
Less accumulated depreciation .......... 17,881 28,198
-------- --------
$ 79,240 $ 95,075
======== ========
</TABLE>
During 1998, in connection with the preparation of financial statements
to be used by its parent company in a registration of debt securities, the
Company changed its method of accounting for cell reline costs from expensing
such costs as incurred to deferring and amortizing these costs over future
periods. The Company believes that the new method is preferable since it
improves the matching of revenues and costs as technological improvements have
extended the estimated period of economic benefit realized from cell relining.
The change has been applied by retroactively restating the accompanying
consolidated financial statements. The effect of this change was to increase net
income by $3,339 for the year ended December 31, 1997 and decrease net loss by
$2,829 for the year ended December 31, 1998.
S-24
<PAGE> 80
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------ ------
<S> <C> <C>
Restricted cash ............................ $1,300 $1,844
Power project assets held for sale ......... 543 543
Other ...................................... 262 --
------ ------
$2,105 $2,387
====== ======
</TABLE>
Restricted cash consists of cash held in trust and committed for
environmental cleanup and workers compensation self-insurance as required by the
State of Washington. These monies will be disbursed at a future date as required
by the state.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
------- -------
<S> <C> <C>
Long-term debt due to parent ................ $61,719 $80,588
Less current portion ........................ -- 2,261
------- -------
Long-term debt less current portion ......... $61,719 $78,327
======= =======
</TABLE>
On December 18, 1998, the sole shareholder of the Company transferred all
of the issued and outstanding shares of common stock of the Company to Golden
Northwest Aluminum, Inc. (GNA), a company also wholly-owned by the shareholder.
On December 21, 1998, GNA issued $150 million of 12% first mortgage notes
due on December 15, 2006. Interest is payable semi-annually on June 15 and
December 15, commencing June 15, 1999. Payment of the notes is guaranteed by the
Company and by other subsidiaries of GNA. The debt is collateralized by
substantially all of the real property, plant and equipment of the Company and
by a pledge of all of the issued and outstanding capital stock of GNA. On or
after December 15, 2002 the notes are redeemable at the option of GNA at
specified redemption prices. There are no sinking fund requirements. The net
proceeds from the sale of the notes were used to repay all amounts then
outstanding under the Company's existing credit facility and term loans, to fund
capital expenditures and for working capital and other general corporate
purposes. In connection with the extinguishment of its existing debt, the
Company recognized an extraordinary loss, net of income taxes, of $953 in 1998.
The indenture agreement limits principal payments on subordinated debt,
dividends or shareholder distributions, and investments in subsidiaries.
On December 21, 1998, the Company, together with GNA and its subsidiaries,
entered into a $75 million bank revolving credit facility which matures on
December 20, 2003 and is collateralized by
S-25
<PAGE> 81
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
inventory, accounts receivable and related intangibles, including a security
interest in the Company's tolling agreement with Hydro. As specified in the
credit agreement, borrowings under the credit facility bear interest at a
floating base rate plus from 0.50% to 1.00% (9.25% at December 31, 1999)
or LIBOR plus from 2.00% to 2.50%, (8.75% at December 31, 1999) depending
on the consolidated ratio of earnings before interest, income taxes,
depreciation and amortization to interest expense. The credit facility
provides for the payment of a commitment fee of 0.50% per annum based on
the unused portion of the credit facility. The credit agreement
contains restrictive covenants, including a minimum net worth requirement,
a minimum excess availability requirement and limitations on capital
expenditures, dividends, additional indebtedness, mergers and other
business combinations, assets sales, encumbrances, investments and transactions
with affiliates.
Also on December 21, 1998, GNA entered into a subordinated credit agreement
for $20 million. The debt bears interest at LIBOR plus two percent (7.88% at
December 31, 1999) and is due in December 2005. The debt is secured by a second
lien and pledge on the collateral securing the first mortgage notes and is
guaranteed by the Company. Except for the collateral security, the guarantees by
the Company are subordinate to the indebtedness under the bank revolving credit
facility. The credit agreement provides for additional borrowings of $10 million
on or prior to December 31, 2001.
The long-term debt due to parent represents the Company's allocable
share of the proceeds from the first mortgage notes, a portion of the proceeds
from the subordinated credit agreement and the Company's net borrowings from the
$75 million bank revolving credit facility. This debt is repayable to GNA under
the same terms and conditions as the first mortgage notes, the subordinated
credit agreement and the bank revolving credit facility described above.
On January 25, 1999 the Company terminated at no cost its existing
interest rate swap agreement and entered into a new swap agreement that expires
in 2003. The fixed interest rate paid on the new swap is 6.4% and covers $20
million of notional principal amount of floating rate (LIBOR) indebtedness of
the Company. The fixed interest rate paid on the old interest rate swap was
6.83%, covering, at December 31, 1998, $40 million notional principal amount of
floating rate (Eurodollar) indebtedness. Although the Company is exposed to
credit loss on the interest rate swap in the event of nonperformance by the
counterparties, the Company estimates the likelihood of such nonperformance to
be remote. At December 31, 1999 and 1998, the fair value of the interest rate
swaps was approximately $92 and $761, respectively, which reflects the estimated
amount that the Company would pay to terminate the contracts.
5. ALUMINA TOLLING CONVERSION AGREEMENT
The Company has an agreement with an alumina supplier for the conversion
of alumina to aluminum for a tolling charge under which the entire production
capacity of the smelting facilities is dedicated to the tolling of the
supplier's alumina. The supplier is obligated to supply, without charge, alumina
sufficient to meet the requirements for full operation. The tolling fees set
forth in the contract are a percentage of the price of aluminum quoted on the
London Metal Exchange. The agreement continues through December 31, 2006. This
tolling customer accounted for 99% of the Company's consolidated revenue in
1997, 1998 and 1999.
S-26
<PAGE> 82
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. EMPLOYEE BENEFIT PLANS
Profit Sharing Bonus Plan
The Company has a profit sharing plan for its hourly and salaried
employees. All employees are eligible participants in this plan upon completion
of a probationary period. The plan provides for payments equal to a percentage
of profits, as defined. Allocation of the payments is based upon hours worked.
These amounts are to be distributed to eligible participants on or before March
31 following the Company's year-end. For the years ended December 31, 1997, 1998
and 1999, the Company recorded approximately $1,900, $380 and $0, respectively,
of expense related to this plan.
Retirement Benefit Plans
The Company has a 401(k) profit sharing plan under which employees may
elect to defer pay, subject to statutory limits; the Company also makes matching
contributions for nonbargaining on the basis of percentages specified in the
plan and discretionary contributions as determined on an annual basis. The
Company also maintained a separate profit sharing retirement plan (the "DC
Plan") which provided retirement benefits for substantially all of its
employees. Goldendale is committed to contribute the greater of 5% of net income
or $.25 per eligible hour worked. During 1999, the separate profit sharing
retirement plan was merged into the 401(k) profit sharing plan. For the years
ended December 31, 1997, 1998 and 1999, the Company recorded approximately $730,
$290 and $514 of expense for plan contributions.
Deferred Compensation Notes Payable
In connection with the acquisition of the Company in 1996, the Company
entered into deferred compensation agreements with certain employees in exchange
for the employees waiving their rights under stock-based compensation and other
employment agreements which existed at the acquisition date. The notes are
payable in monthly installments of approximately $115, including interest at
8.75%, through 2001.
S-27
<PAGE> 83
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
------- -------
<S> <C> <C>
Bonuses and employee benefits .......... $ 3,672 $ 3,655
Salaries and related expenses .......... 2,436 2,756
Interest payable ....................... 4,211 1,651
Other .................................. 4,016 5,215
------- -------
$14,335 $13,277
======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Company is engaged
in various legal proceedings incidental to its normal business activities. The
Company's management does not believe that the ultimate resolution of these
investigations, claims and legal proceedings will have a material effect on its
financial position, results of operations or cash flows.
During 1999, the Company contracted for the design and construction of a
bath reclaim facility. In connection therewith, a dispute has arisen over
contract change orders to an engineering and construction contract. The Company
has proposed a settlement in the amount of $411, which has been accrued in the
financial statements for 1999. If the settlement offer is not accepted, the
ultimate cost to the Company may exceed this accrual.
As of December 31, 1998 and 1999, the Company had a liability of
approximately $1,741 and $1,825, respectively, for estimated environmental
remediation activities. The Company's estimate of this liability is based on a
remediation study conducted by independent engineering consultants. The total
cost of remediation is estimated at $3 million; however, under a court decree
the Company is only responsible for approximately one-half of the total. The
remaining cost is the responsibility of prior owners.
The Company has entered into various agreements for the purchase of power
and aluminum. Future estimated minimum payments under these noncancelable
agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
<S> <C>
2000 .................................. $39,934
2001 .................................. 43,676
-------
$83,610
=======
</TABLE>
S-28
<PAGE> 84
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
9. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current .................... $10,204 $ 2,009 $(7,338)
Deferred ................... 3,070 487 3,593
------- ------- -------
Income tax expense ......... $13,274 $ 2,496 $(3,745)
======= ======= =======
</TABLE>
The difference between the federal statutory tax rate and the effective
tax rate resulted from the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Federal statutory tax rate ........ 35.0% 35.0% (35.0)%
Amortization of goodwill .......... 5.3 69.6 12.8
IRS audit settlement .............. -- -- (8.7)
Other items, net .................. 1.8 .1 2.0
------ ------ ------
Effective tax rate ................ 42.1% 104.7% (28.9)%
====== ====== ======
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
-------- --------
<S> <C> <C>
Current:
Accrued expenses $ (1,811) $ (1,805)
Inventory 140 55
Other 1 167
-------- --------
$ (1,670) $ (1,583)
======== ========
Noncurrent:
Property, plant and equipment $(13,507) $(16,286)
Power project assets 404 404
Deferred compensation notes 607 231
Other 2,531 2,007
-------- --------
$ (9,965) $(13,644)
======== ========
</TABLE>
The Internal Revenue Service ("IRS") has audited the Company's income tax
returns and has proposed to change the Company's method of accounting for
certain expenditures that were deducted
S-29
<PAGE> 85
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
when incurred. The IRS has proposed to capitalize and depreciate these
expenditures over an estimated useful life. The Company had previously recorded
a liability associated with the proposed change in accounting method that is
effective for all tax years subsequent to 1989, of approximately $11.5 million,
which included interest of $4 million. In December 1999, the Company reached a
settlement with the IRS. As a result of the settlement, goodwill and interest
expense were reduced by approximately $2 million and $1 million, respectively,
during 1999.
Income taxes refundable include refund claims for net operating loss
carrybacks arising in the current year and claims arising in earlier years
amounting to approximately $9 million, offset by taxes payable as a result of
the IRS settlement and state income taxes of approximately $6 million. The cash
refund from the IRS will be reduced by accrued interest of $1.6 million.
10. SHAREHOLDERS' EQUITY
Terms of the Company's preferred stock provide for dividends accruing
quarterly and payable in cash as declared by the Board of Directors according to
the following schedule:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ------------
<S> <C>
Through 2001 ............................. $27.68/share
2002 ............................. 29.93/share
2003 ............................. 32.18/share
Thereafter ............................... 34.43/share
</TABLE>
Commencing on January 1, 2002, the preferred shareholders have the option
of receiving additional shares of preferred stock in satisfaction of any
cumulative dividend in arrears that may exist at that time.
The Company may redeem any or all outstanding shares of Series A Preferred
Stock at the following redemption prices at any time after December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
<S> <C>
Through 2000 ............................. $ 228.38
2001 ............................. 227.25
Thereafter ............................... 225.00
</TABLE>
The shares of preferred stock and shares of common stock vote together
as a single class on all matters submitted to a vote of the shareholders of the
Company. The holders of shares of preferred stock are entitled to one vote per
share and have full voting rights and power equal to those of the holders of
common stock.
S-30
<PAGE> 86
GOLDENDALE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Cash paid (received) during the period for:
Interest ......................................... $ 7,810 $ 6,369 $ 3,345
Income taxes ..................................... 10,545 2,900 (2,796)
Non-cash investing and financing activities:
Debt refinanced with borrowings from parent ...... -- 57,588 --
Dividends accrued on preferred stock ............. 3,648 3,648 3,648
Acquisition contingency accrual:
Goodwill ..................................... 2,699 -- 2,045
Deferred income taxes ........................ 6,742 -- 784
Accrued interest ............................. -- -- 1,261
</TABLE>
12. RELATED PARTY TRANSACTIONS
GNA, the parent of the Company, allocates substantially all of its costs
to its subsidiaries based on the ratio of each subsidiary's borrowings to the
total borrowings by all subsidiaries. For the year ended December 31, 1999, the
Company incurred $9,978 in interest charges and other expenses charged by GNA.
Sales to a company related by common ownership amounted to $1,069, $1,102
and $1,750 for the years ended December 31, 1997, 1998 and 1999, respectively.
Purchases from this company amounted to $336, $202 and $561 for the years ended
December 31, 1997, 1998 and 1999, respectively.
S-31
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
3.1 Articles of Incorporation of Registrant. Incorporated by reference
to Exhibit 3.1 to our Registration Statement on Form S-4, as
amended (Registration No. 333-72245).
3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to
our Registration Statement on Form S-4, as amended (Registration
No. 333-72245).
4.1 Indenture, dated as of December 21, 1998, between Registrant, as
Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum
Company, Northwest Aluminum Technologies, LLC, Goldendale Holding
Company, and Goldendale Aluminum Company, as Guarantors, and U.S.
Trust Company, N.A., as Trustee. Incorporated by reference to
Exhibit 4.1 to our Registration Statement on Form S-4, as amended
(Registration No. 333-72245).
4.2 Credit Agreement, dated December 21, 1998, among the Financial
Institutions named therein, BancBoston, N.A., as Administrative
Agent, U.S. Bank National Association, as Documentation Agent,
Northwest Aluminum Company, Northwest Aluminum Specialties, Inc.,
Goldendale Aluminum Company, and Northwest Aluminum Technologies,
as amended by the Agreement and Amendment No. 1, dated as of
January 21, 1999. Incorporated by reference to Exhibit 4.2 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245).
4.3 Registration Rights Agreement, dated as of December 21, 1998, by
and among the Registrant, the Subsidiary Guarantors party to this
Agreement; and BancBoston Robertson Stephens Inc., and Libra
Investments, Inc. Incorporated by reference to Exhibit 4.3 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245).
4.4 Certificate of Incorporation of Goldendale Holding Company.
Incorporated by reference to Exhibit 4.4 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22,
1996, between Hydro Aluminum Louisville, Inc., and Goldendale
Aluminum Company. Incorporated by reference to Exhibit 10.1 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245). (Confidential treatment of portions of this document
has been granted by order of the Commission. The information
omitted from this exhibit has been filed with the Commission.)
10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum,
dated December 21, 1998. Incorporated by reference to Exhibit 10.2
to our Registration Statement on Form S-4, as amended (Registration
No. 333-72245).
10.3 Tax Indemnification Agreement, dated as of December 21, 1998,
between Registrant, Northwest Aluminum Company, Northwest Aluminum
Specialties, Inc., and Brett E. Wilcox. Incorporated by reference
to Exhibit 10.8 to our Registration Statement on Form S-4, as
amended (Registration No. 333-72245).
10.4 General Transmission Agreement, dated April 7, 1995, executed by
the United States of America Department of Energy acting by and
through the Bonneville Power Administration and Northwest Aluminum
Company. Incorporated by reference to Exhibit 10.9 to our
Registration Statement on Form S-4, as amended (Registration No.
333-72245).
10.5 Power Sale Agreement, dated September 28, 1995, between the United
States of America Department of Energy acting by and through the
Bonneville Power Administration and Northwest Aluminum Company.
Incorporated by reference to Exhibit 10.10 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10.6 Voting Agreement dated May 17, 1996, by Brett Wilcox for the
benefit of the United Steelworkers of America, Local 8147.
Incorporated by reference to Exhibit 10.11 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.7 General Transmission Agreement, dated May 4, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Columbia Aluminum Company.
Incorporated by reference to Exhibit 10.12 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.8 Power Sales Agreement, dated September 18, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Columbia Aluminum Company.
Incorporated by reference to Exhibit 10.13 to our Registration
Statement on Form S-4, as amended (Registration No. 333-72245).
10.9 Cancelable Swap Agreement dated January 21, 1999, between
Goldendale Aluminum Company and BankBoston, N.A. Incorporated by
reference to Exhibit 10.14 to our Registration Statement on Form
S-4, as amended (Registration No. 333-72245).
10.10 Alumina Supply Agreement dated October 15, 1999 by Glencore Ltd.
and Northwest Aluminum Company. (Confidential treatment of portions
of this document has been requested. The information omitted from
this exhibit has been filed with the Commission.)
10.11 Phantom Stock Termination Agreement dated August 1, 1996 between
Goldendale Aluminum Company and Jessie Casswell.*
12.1 Statements re Computation of Ratios.
21.1 Subsidiaries of the Registrant
24.1 Powers of Attorney (included on signature pages of the Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
* Management contract or compensatory arrangement.
<PAGE> 1
EXHIBIT 10.10
ALUMINA SUPPLY AGREEMENT
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
ASTERISKS (*) DENOTE SUCH OMISSIONS
THIS ALUMINA SUPPLY AGREEMENT (this "Agreement") is entered into as of this 15th
day of October, 1999, by GLENCORE LTD., a Swiss corporation and NORTHWEST
ALUMINUM COMPANY, a US corporation.
RECITALS
WHEREAS, the parties desire to sell and purchase alumina pursuant to the terms
provided herein.
NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINED TERMS. In this Agreement, the following words have the
following meanings:
- - "Alumina" means smelter grade alumina produced by A of A, Gove or other
mutually agreed origins.
- - "A of A" means the alumina refineries in Australia owned by Alcoa World
Alumina.
- - "Bill of Lading Date" means the date of completion of loading for the
particular shipment in question.
- - "Buyer" means Northwest Aluminum Company.
- - "CIF" means CIF as defined in Incoterms 1990, published by the International
Chamber of Commerce, Paris, France.
- - "The Dalles" means the aluminum smelter located at The Dalles, Oregon, USA.
- - "Dollars" or "$" means United States of America dollars.
- - "Gove" means the alumina refinery located in Gove, Australia.
- - "LME Price" means the London Metal Exchange Three Month Price as published by
Reuters on Page MTLE and subsequently published in Metal Bulletin averaged
over the applicable calendar quarter. In the event that LME prices are no
longer reported or Metal Bulletin discontinues publication and such prices are
no longer available, the parties will meet and agree upon a comparable
mechanism to determine the LME Price.
- - "MT" means metric tons of 1,000
kilograms each.
- - "Portland" means the Goldendale facility at the port of Portland, Oregon, USA.
<PAGE> 2
- - "Seller" means Glencore Ltd.
ARTICLE II
ALUMINA
SECTION 2.1. TERM. This Agreement commences November 1, 1999 and, unless
terminated earlier pursuant to the terms of this Agreement, ends 30 days after
delivery of the quantity specified.
SECTION 2.2. QUANTITY. Seller agrees to sell and Buyer agrees to purchase a
total of 827,000 MT of Alumina for The Dalles, commencing November 1, 1999 and
continuing until the quantity specified has been delivered under the following
estimated schedule:
<TABLE>
<CAPTION>
<S> <C>
November - December, 1999 27,000 MT
January - December, 2000 160,000 MT
January - December, 2001 160,000 MT
January - December, 2002 160,000 MT
January - December, 2003 160,000 MT
January - December, 2004 160,000 MT
</TABLE>
The amount of any individual shipment and any annual quantity is subject to a
tolerance of plus or minus five percent for shipping purposes.
SECTION 2.3. ORIGIN/QUALITY. The Alumina supplied under this Agreement will
comply with the standard specifications for Alumina produced by A of A at the
time of delivery. The Buyer agrees, however, that Seller may from time to time
supply Alumina from Gove, or other mutually agreed origins, which will comply
with the standard specifications for smelter grade alumina from the relevant
refinery at the time of delivery. Notwithstanding the above the Seller will
endeavor to supply A of A Alumina at all times. Except as expressly provided in
this Section, SELLER MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT
TO THE PRODUCT SOLD HEREUNDER AND, SPECIFICALLY, SELLER MAKES NO WARRANTY THAT
THE PRODUCT WILL BE MERCHANTABLE OR FIT FOR ANY PARTICULAR PURPOSE.
SECTION 2.4. PRICE. The price per MT of Alumina delivered CIF Portland supplied
under this contract will be ***% of the LME price.
40,000 MT of Alumina will be priced each quarter based on the LME price one
quarter prior to the applicable quarter irrespective of physical shipment, with
the exception of 4Q 1999 where only 27,000 MT will be priced. For example,
40,000 MT of Alumina for 4Q 2000 will be priced at the average LME for 3Q 2000.
2
<PAGE> 3
SECTION 2.5. PAYMENT. Payment shall be made in Dollars by wire transfer no later
than 30 days after the Bill of Lading Date.
SECTION 2.6. DELIVERY. Alumina will be delivered CIF Portland in suitable
vessels. Deliveries will be reasonably evenly spread throughout the year. The
exact schedule for each calendar year will be determined by mutual agreement of
the Buyer and Seller by September 30 of the prior year. The schedule for
November 1, 1999 through December 31, 2000 shall be mutually agreed by October
30, 1999.
SECTION 2.7 VESSEL/PORT RESTRICTIONS. Seller guarantees the following at the
unloading facility in Portland, Oregon:
Draft: 38 feet at mean low water
LOA: 650 feet
Beam: 110 feet
Holds: Open deck, free of beams, frames and self-trimming.
Discharge: 8,000 MT PDPR SHINC for demurrage/despatch calculation purposes.
Demurrage/Despatch: the Seller will invoice/credit the Buyer for any
demurrage/despatch that is incurred/earned on each vessel at the applicable
charter party terms. In chartering vessels, Seller understands that Buyer's
Portland unloading facility is limited to a discharge rate of 6,000 MT and will
endeavor to avoid/minimize demurrage.
ARTICLE III
GENERAL PROVISIONS
SECTION 3.1. WEIGHING. Cargo weights will be determined by an independent draft
survey at the port of origin and these weight determinations will be conclusive
for the final settlement for each cargo.
SECTION 3.2. LOADING TERMS AND CONDITIONS. The standard loading terms and
conditions for the load port at the time of loading will be applicable. Seller
will arrange, at its expense, for the vessels necessary to transport the
product. Seller will be responsible for payments to the operators of the vessels
and for all port or other charges incurred.
SECTION 3.3. TITLE, OWNERSHIP AND RISK OF LOSS. Per the provisions of Incoterms
relating to CIF, the Buyer shall have the right of possession and risk of loss
from the time the Alumina crosses the ship's rail while loading onto the vessel.
SECTION 3.4. LIMITATION OF LIABILITY. Seller's liability is limited to direct
losses suffered by Buyer. Seller is not liable for incidental or consequential
losses. In no event will Seller's liability for each shipment hereunder exceed
the value of such shipment.
3
<PAGE> 4
SECTION 3.5. DEFAULT OR BANKRUPTCY. In addition for any other rights provided
herein or by law, Seller may cancel this contract immediately for future
deliveries if Buyer fails to comply with its obligations hereunder, or becomes
bankrupt or makes an assignment, agreement or composition with its creditors or
suffers distress or process of execution to be levied on its property or goes
into liquidation.
SECTION 3.6. SAMPLING. Representative samples to determine the quality for each
shipment of material will be taken during the loading operation, according to
the standard methods being applied at the load port. Two equal portions of each
final sample will be placed in sealed containers and duly marked. One portion
shall be sent to Buyer, and the other retained at the load port. The material is
deemed to comply with the applicable specification of the relevant alumina
production facility, unless Buyer notifies Seller, within 30 days of receipt of
the material, that the material delivered does not conform to the applicable
specification and the nature of that non-conformity. Seller will then advise
Buyer, within 15 days, whether or not Seller agrees with the Buyer's analysis.
In case of disagreement between Seller and Buyer about the material's
conformity, the sample retained at the material load port will be analyzed by a
referee laboratory agreeable to Buyer and Seller. The result of the referee
analysis will be definitive and binding for both parties. The cost of such
analysis will be borne by the party whose results differ most from those given
by the mutually agreeable referee laboratory. If chemical impurities and/or
physical specifications exceed the applicable specification of the relevant
alumina production facility, the parties shall meet to reach an amicable
settlement to compensate the Buyer. If an amicable settlement cannot be reached,
the dispute shall be referred to arbitration.
SECTION 3.7. FORCE MAJEURE.
(a) Except as provided in this Section, neither party will be liable for failure
to comply with any term (other than those relating to payment obligations) of
this Agreement if hindered, delayed, or prevented, directly or indirectly, by
any circumstances outside its reasonable control, including but not limited to
war, conditions of war, acts of enemies, national emergency, sabotage,
revolution or other disorders; inadequate transportation facilities; inability
to secure raw materials, supplies, fuel or power; fire, flood, windstorm, or
other acts of God; strikes, lockouts or other labor disturbances; breakdown of
plants; orders or acts of any governmental agency or authority; or interference
by civil or military authority.
(b) The party invoking, this provision must give prompt written notice to the
other party after the occurrence of any such circumstances and must state the
probable extent to which it will be unable to perform or will be delayed in
performing its obligations hereunder. Such party must exercise due diligence to
eliminate or remedy any such circumstances which delay or interrupt its
performance; provided, however, that the settlement of strikes or other events
of labor unrest will be entirely within the discretion of the party having the
difficulty and that such party will not be required to settle such strikes or
labor unrest by acceding to the demands of the opposing party when such course
of action is deemed inadvisable in the discretion of the party having the
difficulty.
4
<PAGE> 5
(c) In the event of a force majeure affecting Seller, Buyer may elect to either:
(i) extend the term of this Agreement to the extent that Seller has invoked this
provision; or (ii) purchase from other suppliers quantities of Alumina which
Seller is or expects to be unable to deliver, and Seller shall not be liable to
Buyer for any cost, expense or loss whatsoever of Buyer arising out of any
purchase it may make from other suppliers. Buyer shall give Seller written
notice of such purchases, and they shall be deducted from the Annual Quantity.
(d) In the event of force majeure affecting Buyer, Seller may elect to either:
(i) extend the term of this Agreement to the extent that Buyer has invoked this
provision; or (ii) sell to other buyers quantities of Alumina which Buyer is or
expects to be unable to accept, and Buyer shall not be liable to Seller for any
cost, expense or loss whatsoever of Seller arising out of such sales. Seller
shall give Buyer written notice of such sales, and they shall be deducted from
the Annual Quantity.
SECTION 3.8. TERMINATION. This Agreement may be terminated prior to expiration
of its term: (a) by mutual agreement of the parties; (b) by either party, if
such party is not in default under this Agreement and the other party has
breached or failed to perform any of its material covenants and agreement and
such breach or failure continues for 30 days after notice thereof by the
non-defaulting party (or 10 days after notice thereof if such default is a
default of a payment obligation).
SECTION 3.9. NOTICES. All notices or communications required or permitted
hereunder must be in writing and will be deemed to have been duly given when
received or when transmitted by facsimile and confirmed by written receipt if
sent to the address and facsimile numbers below (or at such other address as a
party may subsequently designate to the other in writing by notice given in
accordance with this Section):
If to Buyer: Attention: Brett Wilcox, C.E.O.
Bill Reid, C.F.O.
Northwest Aluminum Company
3313 West 2nd Street
The Dalles, OR 97058
Facsimile Number: (541) 298-0800
If to Seller: Attention: Alumina Department
Glencore Ltd.
Three Stamford Plaza
301 Tresser Blvd.
Stamford, CT 06901-3244
Facsimile Number: (203) 353-2765
Certain notices, however, must be delivered by overnight or express courier or
in person to be effective. These notices are notices of default, cancellation or
termination under Sections 3.5 or 3.9; and arbitration under Section 3.15.
5
<PAGE> 6
SECTION 3.10. PRECEDENCE. In the event of any inconsistency between this
Agreement and the terms of any other document specific to the transaction or
delivery in question, the terms of this Agreement will govern.
SECTION 3.11. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction and which is not material in implementing
the intentions of the parties shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions or affecting the validity or enforceability of any
provision in any other jurisdiction.
SECTION 3.12. ASSIGNMENT. This Agreement is binding upon the parties and their
successors. No party may assign this Agreement or the rights and duties
hereunder without the prior written consent of the other party (and such consent
will not be unreasonably withheld), and any purported assignment without such
written consent will be null and void.
SECTION 3.13. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York, U.S.A., excluding those
relating to choice or conflicts of law and excluding the United Nations
Convention for the International Sale of Goods.
SECTION 3.14. ARBITRATION. Any dispute arising out of or relating to this
Agreement, including its validity, interpretation, application, scope,
enforceability, performance, breach, and termination, shall be resolved
exclusively and finally by arbitration, to the exclusion of the courts. Notice
of arbitration shall be deemed proper if made in accordance with Section 3.10 of
this Agreement. If the parties fail to agree in writing on the place where the
arbitration is to be conducted, such arbitration shall be held in New York, New
York, U.S.A. In any such arbitration, the parties hereby adopt the discovery
provisions of the United States Federal Rules of Civil Procedure so that each
party may obtain discovery of anything relevant to the dispute and not
privileged. Arbitration shall be conducted in English, pursuant to International
Chamber of Commerce ("ICC") Arbitration Rules in force at the time of the
arbitration, by a panel of three arbitrators who are fluent in the English
language and who are skilled in the legal and business aspects of the subject
matter of this Agreement. The arbitrators shall be appointed in accordance with
ICC Rules. Any monetary award made pursuant to such arbitration shall be
calculated and paid exclusively in U.S. dollars. Judgment upon the award
rendered may be entered in any court having jurisdiction or an application may
be made to any court for a judicial acceptance of the award and an order of
enforcement, as the case may be.
SECTION 3.15. WAIVER. No party will be deemed to have waived any right, power or
privilege under this Agreement unless such waiver is in writing and duly
executed by it. No failure or delay in exercising any right hereunder will be
deemed a waiver thereof by any party. No exercise or partial exercise of any
right, power or privilege will preclude any other or further exercise thereof or
of any other right, power or privilege.
6
<PAGE> 7
SECTION 3.16. ENTIRE AGREEMENT. This Agreement is the exclusive and complete
agreement between the parties with respect to the subject matter hereof, sets
forth their entire understanding and merges all prior and contemporaneous
writings, representations and understandings between the parties. This Agreement
may be amended only by another written agreement duly signed by the parties.
SECTION 3.19. POSSIBLE EXTENSION. The parties agree to meet during 2003 to
discuss a five-year extension or renewal of this Agreement upon mutually
satisfactory terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement.
NORTHWEST ALUMINUM CORPORATION
BRETT WILCOX
- -----------------------------------
By: Brett Wilcox, President
Date: October 19, 1999
GLENCORE LTD.
ANDREW BENTLEY
- -----------------------------------
By: Andrew Bentley
Date: October 15, 1999
7
<PAGE> 1
EXHIBIT 10.11
PHANTOM STOCK TERMINATION AGREEMENT
This Phantom Stock Termination Agreement ("Agreement") is made as of the
1st day of August, 1996, by and between Goldendale Aluminum Company (formerly
Columbia Aluminum Corporation) (the "Company"), and Jessie Casswell
("Optionholder").
RECITALS
A. The Company and Optionholder are parties to a Nonqualifed Phantom
Stock Agreement made May 24, 1991 and effective as of March 15, 1989, and any
and all amendments or modifications thereof (the "Phantom Stock Agreement").
B. The Company and Optionholder are parties to an Employment Agreement
made May 24, 1991 and effective as of March 15, 1989, and any and all amendments
or modifications thereof (the "Employment Agreement").
C. The Company and Optionholder are also parties to a Memorandum of
Agreement dated May 16, 1996 (the "Memorandum"), which is related to the
foregoing agreements.
D. The Company and Optionholder desire to terminate their respective
rights and obligations under the Phantom Stock Agreement, Section 12 of the
Employment Agreement (regarding antidilution) and the Memorandum, pursuant to
the terms set forth in this Agreement.
NOW, THEREFORE, the Company and Optionholder agree as follows:
1. Termination of Agreements. The Phantom Stock Agreement, Section 12 of
the Employment Agreement (regarding antidilution) and the Memorandum are hereby
terminated, and neither the Company nor Optionholder shall have any further
rights, obligations or liabilities pursuant to the Phantom Stock Agreement,
Section 12 of the Employment Agreement or the Memorandum.
2. Optionholder Compensation Adjustment. In consideration for this
Agreement, the Company shall, upon the execution and delivery of this Agreement,
increase the base compensation of the Optionholder by the amount of $8,177.04
per biweekly payroll period, for a period of five years beginning with the first
payroll period in August, 1996
3. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and contains all the agreements between them with respect to
the subject matter hereof. It also supersedes any and all other agreements or
contracts, either oral or written, between the parties with respect to the
subject matter hereof.
<PAGE> 2
4. Applicable Law. This Agreement shall be construed and enforced under
and in accordance with the laws of the state of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COLUMBIA ALUMINUM CORPORATION
By: BRETT WILCOX
--------------------------------
Title: President
-----------------------------
JESSIE CASSWELL
------------------------------------
Jessie Casswell
<PAGE> 1
EXHIBIT 12.1
Golden Northwest Aluminum Company
Statement of Ratio of Earnings to Fixed Charges
Year Ended December 31, 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
Fixed Charges:
<S> <C>
Interest expense $21,977
Capitalized interest 576
Preferred stock dividend requirement 3,648 (1)
-------------
Fixed charges $ 26,201
=============
Earnings:
Loss before income taxes $ (23,656)
Fixed charges 26,201
Interest capitalized (576)
Preferred stock dividend requirement (3,648)
-------------
$ (1,679)
=============
Deficiency of earnings to cover fixed charges $ 27,880
=============
</TABLE>
(1) No consideration given to tax effect due to tax benefit recognized in 1999.
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ---- ---------------
Goldendale Holding Company Delaware
Goldendale Aluminum Company Delaware
Northwest Aluminum Company Oregon
Northwest Aluminum Specialties, Inc. Oregon
Northwest Aluminum Technologies, LLC Washington
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE GOLDEN NORTHWEST
ALUMINUM, INC. FINANCIAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,929
<SECURITIES> 0
<RECEIVABLES> 54,752
<ALLOWANCES> 1,000
<INVENTORY> 65,618
<CURRENT-ASSETS> 141,831
<PP&E> 132,961
<DEPRECIATION> 0
<TOTAL-ASSETS> 370,631
<CURRENT-LIABILITIES> 89,593
<BONDS> 195,279
0
29,663
<COMMON> 0
<OTHER-SE> 63,628
<TOTAL-LIABILITY-AND-EQUITY> 370,631
<SALES> 444,174
<TOTAL-REVENUES> 444,174
<CGS> 429,784
<TOTAL-COSTS> 429,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 603
<INTEREST-EXPENSE> 21,977
<INCOME-PRETAX> (23,656)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
