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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0-27918
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CENTURY ALUMINUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3070826
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2511 GARDEN ROAD
BUILDING A, SUITE 200
MONTEREY, CALIFORNIA 93940
(ADDRESS OF REGISTRANT'S PRINCIPAL OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (831) 642-9300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $0.01 PAR VALUE PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 29, 2000, 20,202,538 shares of common stock of the
registrant were issued and outstanding. Based upon the NASDAQ closing price on
February 29, 2000, the aggregate market value of the common stock held by
non-affiliates of the registrant was $164,838,793.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the Annual Meeting of
Stockholders to be held on June 2, 2000 (to be filed pursuant to Regulation 14A
within 120 days after the close of the fiscal year covered by this report on
Form 10-K) are incorporated by reference into Part III of this Form 10-K.
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PART I.
FORWARD-LOOKING STATEMENTS -- CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995.
This annual report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Words such as "expects," "anticipates,"
"forecasts," "intends," "plans," "believes," "projects," and "estimates" and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements include, but are not limited to,
statements regarding new business and customers, contingencies, environmental
matters and liquidity under "Part I, Item 1 -- Business," "Part II, Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Part II, Item 8 -- Financial Statements and Supplementary
Data." These statements are not guarantees of future performance and involve
risks and uncertainties and are based on a number of assumptions that could
ultimately prove to be wrong. Actual results and outcomes may vary materially
from what is expressed or forecast in such statements. Among the factors that
could cause actual results to differ materially are: general economic and
business conditions; changes in demand for the Company's products and services
or the products of the Company's customers; fixed asset utilization;
competition; the risk of technological changes and the Company's competitors
developing more competitive technologies; the Company's dependence on certain
important customers; the availability and terms of needed capital; risks of loss
from environmental liabilities; and other risks detailed in this report. The
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS
Century Aluminum Company ("Century" or the "Company") is a leading North
American producer of primary aluminum. Century's principal subsidiary, Century
Aluminum of West Virginia, Inc. ("Century of West Virginia"), formerly known as
Ravenswood Aluminum Corporation, owns and operates a reduction facility,
strategically located on the Ohio River in Ravenswood, West Virginia. Century of
West Virginia, through its wholly owned subsidiary, Berkeley Aluminum Company
("Berkeley"), also owns a 26.67% undivided interest in a reduction facility in
Mt. Holly, South Carolina (the "Mt. Holly Facility"). Century's reduction
facilities have an aggregate annual capacity of approximately 500 million pounds
of primary aluminum. In 1999, Century produced 466 million pounds of primary
aluminum. The Company operates in one business segment.
On September 21, 1999, the Company completed the sale to Pechiney Rolled
Products, LLC, a Delaware limited liability company ("Pechiney"), of certain
assets and the assumption of certain liabilities of Century of West Virginia's
rolled products unit at Ravenswood, West Virginia (the "Rolling Business") and
all of the issued and outstanding shares of common stock of Century Cast Plate,
Inc. (together the "fabricating businesses"). The parties consummated the sale
pursuant to the Stock and Asset Purchase Agreement dated July 26, 1999 (the
"Purchase Agreement") by and among Century, Century of West Virginia and
Pechiney. The aggregate purchase price for the fabricating businesses was $248
million, subject to certain post-closing adjustments. The purchase price was
determined by arms-length negotiations between the parties. Century used a
portion of the purchase price to repay all of its outstanding bank indebtedness.
The Rolling Business assets that were sold include Century of West
Virginia's casting operation and the flat-rolled sheet aluminum business at the
Ravenswood, West Virginia facility. The Rolling Business, which had the
capability to produce up to 500 million pounds (227,000 metric tons) of rolled
aluminum products a year, provides premium sheet and plate products to the
aerospace and transportation markets, and produces brazing sheet used to
manufacture radiators for passenger cars and trucks. Century Cast Plate, Inc.
was an aluminum cast plate business located in Vernon, California that had the
capacity to produce approximately 15.0 million pounds of cast and machined
aluminum plate a year.
In connection with the Purchase Agreement, Century of West Virginia and
Pechiney entered into a Molten Aluminum Purchase Agreement dated as of September
21, 1999 (the "Metal Agreement"). Pursuant
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to the Metal Agreement, Pechiney has agreed to purchase, and Century of West
Virginia has agreed to provide, substantial quantities of molten aluminum
produced at Century of West Virginia's reduction facility in Ravenswood, West
Virginia at a price which is based on a quoted average market price as reported
for the month immediately preceding the month of delivery. In addition, Pechiney
has agreed to provide casting services to Century of West Virginia in connection
with the excess molten aluminum produced at Century of West Virginia's reduction
facility which is not purchased by Pechiney under the Metal Agreement.
Century of West Virginia's reduction facility produces primary aluminum in
molten and ingot form. Molten metal is delivered to the casting operation sold
by the Company to Pechiney. Ingot produced by Century of West Virginia is
primarily delivered to customers other than Pechiney. Through its interest in
the Mt. Holly Facility, Century produces primary aluminum products in the form
of t-ingot, extrusion billet, rolling ingot and foundry ingot. Extrusion billet
and other shaped primary aluminum products are considered to be premium products
and, accordingly, sell at a premium to the commodity-priced aluminum ingot. The
Mt. Holly Facility, constructed in 1980, is the most recently built reduction
facility in the United States.
Since January 1, 1996, Century's requirements for alumina, the raw material
used by its reduction facilities to produce primary aluminum, have been
purchased pursuant to a long-term fixed-price supply agreement with Alcoa L.L.C.
and Alcoa Australia. The Company uses significant amounts of electricity in the
aluminum reduction process. To fulfill its power requirements at the Century of
West Virginia facility, the Company purchases electricity from Ohio Power under
a power supply agreement.
INDUSTRY OVERVIEW
The aluminum industry is highly cyclical, and the market prices of alumina
and primary aluminum (which is traded as a commodity) have been volatile from
time to time. The most commonly used indicator for pricing primary aluminum is
the price per metric tonne for transactions on the London Metals Exchange
("LME"). The LME price does not represent the actual price for the Company's
products; rather, it is the most commonly used benchmark for pricing primary
aluminum in the aluminum industry. As a result, prices for primary aluminum have
fluctuated widely. Over the past 12 years, the average LME cash price has ranged
from a low of $0.52 per pound in 1993 to a high of $1.17 per pound in 1988.
During 1997, industry fundamentals improved and the LME cash price
increased from an average of $0.61 per pound in October 1996 to an average of
$0.78 per pound in August 1997. In 1998, selling by investment funds, consumer
hesitation in anticipation of lower prices and economic uncertainty in Asian
markets adversely influenced the LME cash price. Prices continued to decline
early in 1999 but rebounded as the year progressed primarily due to improving
worldwide economic conditions. The average LME cash price was $0.62, $0.62 and
$0.73 per pound for the years ended December 31, 1999, 1998 and 1997,
respectively.
PRODUCTS AND MARKETS
The Company produces and sells primary aluminum, including premium primary
product such as rolling ingot and extrusion billet.
The Company's strategy is to maximize smelter productivity and minimize
related operating costs. The Company intends to implement this strategy through
process improvement initiatives and strategic acquisitions which reduce its
overall cost of producing molten metal. For instance, the Company has recently
announced its intention to purchase an additional 23% of the Mt. Holly Facility
from Xstrata AG ("Xstrata"), a publicly traded Swiss company for approximately
$95 million. Glencore International AG (the "Glencore Group" or "Glencore") is a
major shareholder of Xstrata and Century. The proposed acquisition will increase
the Company's capacity by approximately 110 million pounds and reduce its
overall cost of production. The acquisition is expected to be completed before
April 30, 2000.
COMPETITION
The market for primary aluminum is diverse and highly competitive. The
Company competes in the production and sale of primary aluminum with numerous
other producers in North America and with
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imported products, principally from Europe, Venezuela and the Commonwealth of
Independent States (formerly the Union of Soviet Socialists Republic). The
Company competes on the basis of quality, price, timeliness of delivery and
customer service. Some of the Company's competitors have substantially greater
manufacturing and financial resources, and some have cost structures with
respect to alumina, electricity and labor that are more advantageous than those
of the Company. Among the Company's principal competitors are Alcoa, Alcan and
Kaiser Aluminum.
Aluminum also competes with other materials such as steel, plastic and
glass for various applications. Higher or lower aluminum prices tend to make
aluminum products less or more competitive with these alternative materials.
PRICING
Century offers a number of pricing alternatives to its customers which,
combined with the Company's metals risk management program, are designed to
lock-in a certain level of price stability on its primary aluminum production.
Pricing of the Company's products is generally offered on the following
bases: (i) a fixed-price basis, where the customer pays an agreed upon price
over an extended period of time but usually less than one year or (ii) an
indexed price, where the customer pays an agreed-upon differential relative to
an established index, such as the LME. The Company's shipments to Pechiney are
priced on an indexed basis as defined in the Metal Agreement.
SALES AND DISTRIBUTION
Century serves customers principally in the industrial sector of the
economy. There can be no assurance that any of the Company's major customers
will continue to purchase their aluminum requirements from the Company at
current volumes. For financial information regarding export sales, see Note 16
to the Consolidated Financial Statements.
Sales of primary aluminum products to the Glencore Group amounted to $68.8
million, $74.3 million and $105.5 million for the years ended 1999, 1998 and
1997, respectively. Sales to the Glencore Group represented 12.1%, 11.4% and
14.6% of the net sales of the Company for the years ended 1999, 1998 and 1997,
respectively. The Glencore Group has priced and unpriced agreements with the
Company to purchase, on an arms-length basis, 73.8 million pounds of primary
aluminum products during 2000 and 2001. However, there can be no assurance that
the Company will continue to do business with the Glencore Group beyond the
existing agreements.
BACKLOG
The Company's backlog, including the Pechiney minimum requirement, was
approximately 406 million pounds at December 31, 1999, all of which will be
filled during 2000. Backlog is not a significant measure for primary aluminum
because it is a commodity.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various environmental laws and
regulations. The Company has spent and expects to spend in the future,
significant amounts for compliance with those laws and regulations. In addition,
past manufacturing activities have resulted in environmental impacts requiring
remediation. Pursuant to certain environmental laws, the Company, regardless of
fault, may be liable for the costs of remediation of contaminated property or
for the amelioration of damage to natural resources. Although the Company
believes, based upon information currently available to management, that it will
not have liabilities in this regard which are likely to have a material adverse
effect on the Company, there can be no assurance that future remedial
requirements at currently and formerly owned or operated properties or adjacent
areas will not result in a material adverse effect on the Company's financial
condition, results of operations or liquidity. The Company has planned
environmental capital expenditures for the years ending December 31,
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2000, 2001, and 2002 of approximately $3.7 million, $0.9 million and $0.4
million, respectively. In addition, the Company expects to incur operating
expenses relating to environmental matters of approximately $2.9 million, $2.6
million and $3.0 million for the years ending December 31, 2000, 2001 and 2002,
respectively. As part of its general capital expenditure plan, the Company also
expects to incur capital expenditures for other capital projects that may, in
addition to improving operations, reduce certain environmental impacts. See Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental Expenditures and Other Contingencies."
The 1990 amendments to the Clean Air Act impose stringent standards on
aluminum industry air emissions. These amendments will affect the operations of
the Company's facilities. Technology-based standards relating to smelters and
carbon plants have been promulgated. However, the Company cannot predict with
certainty the total amount of environmental expenditures the Company will incur
to comply with these standards. The Company's general capital expenditure plan
includes certain projects designed to improve the Company's compliance with
respect to both known and anticipated requirements.
Pursuant to an Environmental Protection Agency ("EPA") order issued in 1994
under Section 3008(h) (the "3008(h) order") of the Resource Conservation and
Recovery Act ("RCRA"), Century of West Virginia is performing remediation
measures at a former oil pond area and in connection with cyanide contamination
in the groundwater. Century of West Virginia also conducted and submitted to the
EPA an RCRA facility investigation ("RFI") evaluating other areas that may have
contamination exceeding certain levels. The EPA has advised Century of West
Virginia that it may not comment on the RFI until the third quarter of 2000.
After the RFI is complete, Century of West Virginia will have 60 days within
which to submit a corrective measures study ("CMS") to the EPA proposing means
of remediating areas that may require cleanup. If any cleanup is required, EPA
would issue a subsequent order. Century of West Virginia believes this process
will not be completed before the fourth quarter of 2000. At this time, the
Company is unable to determine if any cleanup measures may be required. However,
the Company is aware of some environmental contamination at Century of West
Virginia, and it is likely cleanup activities will be required in two areas of
the facility. Century of West Virginia believes a significant portion of this
contamination is attributable to the operations of a prior owner and will be the
financial responsibility of that owner, as discussed below.
Prior to the Company's acquisition of the Century of West Virginia
facility, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated
the facility for approximately thirty years. Many of the conditions which
Century of West Virginia investigated under the 3008(h) order exist because of
activities which occurred during Kaiser's ownership and operation. With respect
to those conditions, Kaiser will be responsible for the costs of required
cleanup under the terms of the Kaiser Purchase Agreement. In addition, Kaiser
retained title to certain land within the Century of West Virginia premises and
retains full responsibility for those areas. Under current environmental laws,
the Company may be required to remediate any contamination which was discharged
from areas which Kaiser owns or previously owned or operated. However, if such
remediation is required, the Company believes that Kaiser will be liable for
some or all of the costs thereof pursuant to the Kaiser Purchase Agreement.
In connection with the sale to Pechiney of the fabricating businesses, the
Company and Century of West Virginia provided Pechiney with certain
indemnifications. Those include the indemnification rights Century of West
Virginia and the Company, respectively, have under the Kaiser Purchase Agreement
(with respect to the real property transferred to Pechiney) and the Company's
Cast Plate, Inc., Stock Purchase Agreement with Alcoa. The Pechiney Purchase
Agreement provides further indemnifications which are limited, in general, to
pre-closing conditions which were not disclosed to Pechiney or to off site
migration of hazardous substances from pre-closing acts or omissions of Century
of West Virginia. Environmental indemnifications under the Pechiney Purchase
Agreement expire September 20, 2005; they are payable only to the extent they
exceed $2 million.
The Company is aware of two areas of contamination at its previously owned
Virgin Islands Alumina Company ("Vialco") facility. At the first of these areas,
the Company has removed contaminated soils and has disposed of such soils in
approved facilities. In addition, it has begun a bioremediation program that it
believes will fulfill the remaining legal requirements with respect to such
soils. In the second area, the
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Company believes that a substantial amount of the contamination originated from
an adjacent refinery owned by Hess Oil Virgin Islands, Inc. ("HOVIC"). The
Company further believes that the vast majority of any contamination that did
not originate from HOVIC was caused by releases on the property that predated
Vialco's ownership and will not be the legal responsibility of Vialco. Pursuant
to the Acquisition Agreement by which Vialco sold the premises to St. Croix
Alumina, LLC, a subsidiary of Alcoa Alumina and Chemicals LLS ("St. Croix"),
Vialco retained liability for environmental conditions existing at the time of
the sale only to the extent such conditions arose from operation of the facility
by Vialco. In addition, indemnification arises only if the conditions require
remediation or give rise to claims under the laws in effect at the time of sale.
Finally, St. Croix may not request indemnity from Vialco until St. Croix has
spent $0.3 million on such environmental conditions and Vialco's indemnity is
capped at $18 million. Management of the Company does not believe that the
retained liability, if any, will have a material adverse effect on the Company's
financial condition, results of operations, or liquidity.
It is the Company's policy to accrue for costs associated with
environmental assessments and remedial efforts when it becomes probable that a
liability has been incurred and the costs can be reasonably estimated. The
aggregate environmental related accrued liabilities were $0.9 million and $1.4
million at December 31, 1999 and 1998, respectively. All accruals have been
recorded without giving effect to any possible future insurance or Kaiser
indemnity proceeds. With respect to ongoing environmental compliance costs,
including maintenance and monitoring, such costs are expensed as incurred.
Because of the issues and uncertainties described above, and the Company's
inability to predict the requirements of the future environmental laws, there
can be no assurance that future capital expenditures and costs for environmental
compliance will not have a material adverse effect on the Company's future
financial condition, results of operations, or liquidity. Based upon all
available information, management does not believe that the outcome of these
environmental matters will have material adverse effect on the Company's
financial condition, results of operations, or liquidity.
RESEARCH AND DEVELOPMENT
Century performs ongoing process development work primarily using in-house
engineering resources. The Company has most recently been focusing on efforts to
refine the computer control of pots and to reduce electricity usage by using
different anode stub configurations. Expenditures for third-party research and
development totaled $0.8 million, $1.7 million and $2.2 million in 1999, 1998
and 1997, respectively. No third-party expenditures are planned for 2000.
PATENTS AND TRADEMARKS
The Company owns or has rights to use a number of patents or patent
applications relating to various aspects of its operations. The Company does not
consider its business to be materially dependent on any of these patents.
EMPLOYEES AND LABOR RELATIONS
The Company currently employs approximately 757 persons. Century of West
Virginia's present work force is comprised of approximately 615 hourly
employees, represented by the United Steelworkers of America ("USWA"), and
approximately 128 salaried personnel. The corporate office is comprised of 14
salaried personnel. Century of West Virginia's hourly employees are currently
working under a four year labor agreement with the USWA which expires on May 31,
2003.
Century maintains noncontributory defined benefit pension plans,
postretirement healthcare and life insurance benefit plans and defined
contribution 401(k) plans for its salaried and hourly employees. Management
believes that its relations with its employees are good.
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ITEM 2. PROPERTIES
Century of West Virginia's facility houses the Company's principal
operations. The facility occupies 27 acres under roof on a site totaling 2,290
acres strategically located on the Ohio River near Ravenswood, West Virginia,
165 miles southwest of Pittsburgh, Pennsylvania and 45 miles north of
Charleston, West Virginia.
The Company's reduction facilities at Ravenswood and Mt. Holly have an
aggregate annual capacity of approximately 500 million pounds of primary
aluminum.
Century of West Virginia's reduction facility, which was built in 1955, has
an annual production capacity of approximately 375 million pounds and produces
primary aluminum. Approximately 310 million pounds of Century of West Virginia's
production is used to satisfy the primary aluminum requirements of Pechiney with
the balance sold in the form of sow to other outside parties.
The Mt. Holly Facility was constructed in 1980 and is the most recently
constructed reduction facility in the United States. The Mt. Holly Facility has
a total production capacity of approximately 475 million pounds, of which
Century owns a 26.67% undivided interest. The remaining undivided interest in
the Mt. Holly Facility is owned 50.33% by Alumax of South Carolina, Inc.
("ASC"), a subsidiary of Alcoa and 23.00% by Xstrata. ASC manages and operates
the facility pursuant to an Owners Agreement, prohibiting the disposal of the
interest held by any of the owners without the consent of the other owners and
providing for certain rights of refusal. Pursuant to the Owners Agreement, each
owner furnishes its own alumina, or alumina owned by an affiliate, for
conversion to aluminum and is responsible for its pro rata share of the
operating and conversion costs. In February 2000, the Company announced its
intention to acquire Xstrata's 23% interest in the Mt. Holly Facility. The
Company expects the acquisition to close before April 30, 2000.
Equipment failures at Century of West Virginia's facility could limit or
shut down the Company's production for a significant period of time. In order to
minimize the risk of equipment failure, the Company follows a comprehensive
maintenance and loss prevention program and periodically reviews its failure
exposure. No assurance can be given that a material shutdown will not occur in
the future or that such a shutdown would not have a material adverse effect on
the Company. In addition to equipment failures, the facility also is subject to
the risk of catastrophic loss. The Company believes that it maintains adequate
property damage insurance to provide for reconstruction of damaged equipment, as
well as business interruption insurance to mitigate losses resulting from any
production shutdown caused by an insured loss.
ITEM 3. LEGAL PROCEEDINGS
Century of West Virginia is a named defendant (along with other companies)
in approximately 2,363 civil actions brought by individuals seeking to recover
compensatory and/or punitive damages in connection with alleged asbestos-related
diseases. All plaintiffs have been employees of independent contractors who
claim to have been exposed to asbestos in the course of performing services at
various facilities, including the Century of West Virginia facility. The cases
are typically resolved based upon factual determinations as to the facilities at
which the plaintiffs worked, the periods of time during which work was
performed, the type of work performed, and the conditions in which work was
performed. If the plaintiffs' work was performed during the period when Kaiser
owned the Century of West Virginia facility, Kaiser has retained responsibility
for defense and indemnity pursuant to the Kaiser Purchase Agreement. If a
plaintiff is shown to have worked at the Century of West Virginia facility after
the time Century of West Virginia purchased the facility from Kaiser, Kaiser
assumes the defense and liability, subject to a reservation of rights against
Century of West Virginia. The Company believes it is unlikely that existing or
potential plaintiffs were exposed to asbestos at the Century of West Virginia
facility after Century of West Virginia purchased the facility from Kaiser.
There are currently several actions pending by individuals who claim exposure
after Century of West Virginia's assumption of the premises. While the impact of
the asbestos proceedings is impossible to predict, the Company believes that the
ultimate resolution will not have a material adverse effect on the Company's
financial condition, results of operations, or liquidity.
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The Company has pending against it or may be subject to various other
lawsuits, claims and proceedings related primarily to employment, commercial,
environmental and safety and health matters. Although it is not presently
possible to determine the outcome of these matters, management believes their
ultimate disposition will not have a material adverse effect on the Company's
financial condition, results of operations, or liquidity. For a description of
certain environmental matters involving the Company, see Item 1 "Environmental
Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the Company. Each of such persons serves at the discretion of the
Board of Directors.
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<CAPTION>
BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE DURING THE PAST 5 YEARS; POSITIONS HELD WITH COMPANY
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Craig A. Davis................. 59 Chairman and Chief Executive Officer of the Company since
August 1995; Chairman and Chief Executive Officer of Century
Aluminum of West Virginia since August 1995; Chairman and
acting Chief Executive Officer of Century Aluminum of West
Virginia from April 1992 through July 1995; Executive of
Glencore International and Glencore AG from September 1990
to March 1996 and Director of Glencore International since
December 1993.
Gerald A. Meyers............... 50 President and Chief Operating Officer and Director of the
Company since August 1995; President and Chief Operating
Officer of Century Aluminum of West Virginia since January
1993 and Director of Century Aluminum of West Virginia since
April 1994.
Gerald J. Kitchen.............. 59 Executive Vice President, General Counsel and Chief
Administrative Officer of the Company since September 1995;
Vice President, General Counsel and Chief Administrative
Officer of Century Aluminum of West Virginia since August
1995; Partner of the law firm of Thoits, Love, Hershberger &
McLean from November 1992 to September 1995.
David W. Beckley............... 55 Executive Vice President and Chief Financial Officer of the
Company since September 1995; Vice President and Chief
Financial Officer of Century Aluminum of West Virginia since
September 1995; Vice President and Corporate Controller of
Alliant Techsystems, Inc. (defense contractor) from May 1990
through May 1995.
Daniel J. Krofchek............. 46 Vice President and Treasurer of the Company since September
1998; Treasurer of the Company from September 1997 through
August 1998; various positions with H.J. Heinz Company from
1988 through September 1997.
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASDAQ National Market tier of the
NASDAQ Stock Market under the Symbol: CENX. The following table sets forth, on a
quarterly basis, the high and low sales prices of the Common Stock during the
two most recent fiscal years.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1999
First Quarter............................................ $ 9.88 $ 4.19
Second Quarter........................................... $ 9.00 $ 5.13
Third Quarter............................................ $11.88 $ 6.25
Fourth Quarter........................................... $15.13 $ 8.75
1998
First Quarter............................................ $18.44 $12.00
Second Quarter........................................... $20.75 $13.88
Third Quarter............................................ $15.13 $ 7.25
Fourth Quarter........................................... $11.00 $ 5.75
</TABLE>
The Company declared and paid dividends of $0.20 per share of Common Stock
during 1999 and 1998. The Company anticipates that its revised loan agreement
will contain, among other things, restrictions on the payment of dividends by
the Company. See Note 5 to the Consolidated Financial Statements.
At December 31, 1999, there were 28 holders of record and approximately
1,000 beneficial owners of the Company's common stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the years indicated. The selected consolidated financial data for
and as of the end of each of the years in the three-year period ended December
31, 1999 are derived from the Consolidated Financial Statements of the Company
included elsewhere herein which have been audited by Deloitte & Touche LLP. The
selected consolidated financial data for and as of the years ended December 31,
1996 and 1995 is derived from the audited consolidated financial statements of
the Company which are not included herein. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto appearing in Items 7 and 8, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1999(1) 1998 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Net sales -- third party customers.... $497,475 $576,006 $615,467 $550,168 $610,722
Net sales -- related parties.......... 68,801 74,252 105,521 138,711 137,260
-------- -------- -------- -------- --------
Total net sales....................... 566,276 650,258 720,988 688,879 747,982
Cost of goods sold.................... 572,921 611,796 691,887 636,486 653,487
-------- -------- -------- -------- --------
Gross profit (loss)................... (6,645) 38,462 29,101 52,393 94,495
Selling, general and administrative
expenses........................... 18,884 19,246 17,948 18,614 12,729
-------- -------- -------- -------- --------
Operating income (loss)............... (25,529) 19,216 11,153 33,779 81,766
Gain on sale of fabricating
businesses......................... 41,130 -- -- -- --
Interest expense -- net, others....... (3,535) (2,204) (3,066) (2,058) (3,578)
Interest expense -- net, affiliates... -- -- -- -- (369)
Other income (expense)................ (789) 553 419 91 1,472
Net gain (loss) on forward
contracts.......................... (5,368) 10,574 (6,837) (6,670) 8,718
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes and
extraordinary item................. 5,909 28,139 1,669 25,142 88,009
Income tax expense.................... (628) (10,202) (601) (8,902) (34,502)
-------- -------- -------- -------- --------
Income from continuing operations
before extraordinary item.......... 5,281 17,937 1,068 16,240 53,507
Extraordinary item -- write off of
deferred bank fees, net of income
tax benefit of $766................ (1,362) -- -- -- --
-------- -------- -------- -------- --------
Income from continuing operations..... 3,919 17,937 1,068 16,240 53,507
Income from discontinued
operations -- net of income
taxes.............................. -- -- -- 264 5,773
-------- -------- -------- -------- --------
Net income............................ $ 3,919 $ 17,937 $ 1,068 $ 16,504 $ 59,280
======== ======== ======== ======== ========
Basic earnings per share:
Income from continuing operations
before extraordinary item........ $ 0.26 $ 0.90 $ 0.05 $ 0.78 $ 2.31
Extraordinary item................. (0.07) -- -- -- --
-------- -------- -------- -------- --------
Income from continuing
operations....................... 0.19 0.90 0.05 0.78 2.31
Income from discontinued
operations....................... -- -- -- 0.01 0.25
-------- -------- -------- -------- --------
Net income......................... $ 0.19 $ 0.90 $ 0.05 $ 0.79 $ 2.56
======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999(1) 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Diluted earnings per share:
Income from continuing operations
before extraordinary item........ $ 0.26 $ 0.89 $ 0.05 $ 0.78 $ 2.31
Extraordinary item................. (0.07) -- -- -- --
-------- -------- -------- -------- --------
Income from continuing
operations....................... 0.19 0.89 0.05 0.78 2.31
Income from discontinued
operations....................... -- -- -- 0.01 0.25
-------- -------- -------- -------- --------
Net income......................... $ 0.19 $ 0.89 $ 0.05 $ 0.79 $ 2.56
======== ======== ======== ======== ========
Cash dividends declared and paid per
common share.......................... $ 0.20 $ 0.20 $ 0.20 $ 0.15 $ --
BALANCE SHEET DATA (AT PERIOD END):
Working capital....................... $124,391 $188,156 $180,524 $170,037 $151,324
Total assets.......................... 310,802 545,630 507,148 473,731 538,120
Long-term debt........................ -- 89,389 58,950 24,356 --
Total noncurrent liabilities.......... 58,831 252,782 220,604 190,092 178,511
Total shareholders' equity............ 179,728 177,483 163,546 166,478 225,509
</TABLE>
- ---------------
(1) On September 21, 1999, the Company sold its fabricating businesses to
Pechiney. Accordingly, the results of operations for 1999 do not include the
fabricating businesses after such date. Similarly, balance sheet data as of
December 31, 1999 does not include the fabricating businesses.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial Statements
of the Company, including the notes thereto, appearing in Item 8.
OVERVIEW
On September 21, 1999, the Company and Century of West Virginia sold their
fabricating businesses. Accordingly, the following information includes the
operations of these businesses through September 21, 1999.
The Company is a manufacturer of primary aluminum and the Company's net
sales are derived from the sale of such primary aluminum.
The aluminum industry is highly cyclical and the market price of primary
aluminum (which trades as a commodity) is determined by worldwide supply and
demand conditions, and as such, is highly volatile. For example, over the past
12 years, the average LME cash price has ranged from a low of $0.52 per pound in
1993 to a high of $1.17 per pound in 1988. The cash price for primary aluminum
traded on the LME has averaged $0.62, $0.62 and $0.73 per pound for the years
1999, 1998, and 1997, respectively. The Company's results of operations depend
to a large degree on the market prices of primary aluminum. Any adverse changes
in the conditions that affect the market price of primary aluminum could have a
material adverse affect on the Company's results of operations.
Of the approximately 343 million pounds of primary aluminum produced at
Century of West Virginia's reduction facility in 1999, approximately 310 million
pounds was used by the Company's prior rolling operations and Pechiney, with the
balance sold primarily to the Glencore Group and third parties at market prices.
The Company's interest in the Mt. Holly Facility amounted to approximately 123
million pounds of primary aluminum production in 1999. During 1999, Glencore
purchased 62.7 million pounds of primary aluminum that was produced at the Mt.
Holly Facility. Century's remaining share of the Mt. Holly Facility production
was sold to third parties. In total, the Company shipped 106.6 million pounds of
primary aluminum products in the form of t-ingot to the Glencore Group in 1999.
Revenues from these shipments amounted to $68.8 million (representing 12.1% of
1999 net sales). The Glencore Group has priced and unpriced agreements with the
Company to purchase, on an arms length basis, 73.8 million pounds of primary
aluminum products during 2000 and 2001.
The principal elements comprising the Company's cost of goods sold are raw
materials, energy and labor. The major raw materials and energy sources used by
the Company in its production process are alumina, aluminum scrap, coal tar
pitch, petroleum coke, aluminum fluoride and electricity. The market price of
alumina has been volatile from time to time. On July 24, 1995, Century entered
into a long-term fixed-price alumina supply contract with Alcoa L.L.C. and Alcoa
of Australia. Pursuant to the supply agreement, since January 1, 1996, Century
has paid a fixed price for alumina, subject to fixed annual price increases of
approximately 2.5% through 2001.
The Company uses significant amounts of electricity in the aluminum
reduction process. To fulfill its power requirements at the Century of West
Virginia facility, prior to July 1, 1996, the Company purchased electricity from
Ohio Power at a price based principally upon Ohio Power's costs of production.
The Company and the same public utility signed a power supply agreement,
covering the period from July 1, 1996 through July 31, 2003. Under this
agreement, the Company pays a fixed price for electricity used. Since, under the
terms of the agreement, the power rate is fixed, the Company's margins could be
adversely affected if aluminum prices decrease.
With respect to its labor costs, in 1992, the Company established a
progress share plan for eligible union employees, providing for contributions of
10% of Century of West Virginia's pre-plan, after-tax income (as defined) for
each plan year through 1997 when the plan terminated. On June 1, 1999, the
Company entered into a new four year labor contract with its hourly workers. The
agreement calls for fixed increases in hourly wages in 1999, 2000, 2001 and
2002.
11
<PAGE> 13
In August 1999, an illegal, one-day work stoppage temporarily shut down one
of the Company's four production lines at the Century of West Virginia facility.
The cost of this work stoppage is estimated to be approximately $10.0 million
including equipment damaged as a result of the production line shutdown. The
Company has filed a claim with its insurance carrier for business interruption
and equipment damage relative to the work stoppage.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the percentage
relationship to net sales of certain items included in the Company's statements
of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 101.2 94.1 96.0
----- ----- -----
Gross profit (loss)....................................... (1.2) 5.9 4.0
Selling, general and administrative expenses................ 3.3 3.0 2.5
----- ----- -----
Operating income (loss)................................... (4.5) 2.9 1.5
Gain on sale of fabricating businesses...................... 7.2 -- --
Interest expense -- net..................................... (0.6) (0.3) (0.4)
Other income (expense)...................................... (0.1) 0.1 0.1
Net gain (loss) on forward contracts........................ (1.0) 1.6 (0.9)
----- ----- -----
Income from continuing operations before income taxes....... 1.0 4.3 0.3
Income tax expense.......................................... (0.1) (1.6) (0.1)
----- ----- -----
Income from continuing operations........................... 0.9% 2.7% 0.2%
===== ===== =====
</TABLE>
12
<PAGE> 14
The following table sets forth, for the periods indicated, the pounds and
the average sales price per pound for certain of the Company's products:
<TABLE>
<CAPTION>
SHEET AND PLATE PRIMARY
PRODUCTS ALUMINUM
----------------------------------------- -------------------
DIRECT(1) TOLL DIRECT(1)(2)
------------------- ------------------ -------------------
POUNDS $/POUNDS POUNDS $/POUNDS POUNDS $/POUNDS
------- -------- ------ -------- ------- --------
(POUNDS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999
First Quarter................ 113,751 $1.18 4,405 $0.25 122,250 $0.63
Second Quarter............... 113,579 $1.17 2,357 $0.23 131,018 $0.63
Third Quarter................ 100,339 $1.16 1,818 $0.23 116,583 $0.66
Fourth Quarter(3)............ -- -- -- -- 115,991 $0.70
------- ----- ------ ----- ------- -----
Total................ 327,669 $1.17 8,580 $0.24 485,842 $0.65
1998
First Quarter................ 114,618 $1.23 7,154 $0.31 123,584 $0.75
Second Quarter............... 103,355 $1.23 9,592 $0.26 123,620 $0.72
Third Quarter................ 109,205 $1.20 6,718 $0.29 128,652 $0.68
Fourth Quarter............... 106,437 $1.19 4,778 $0.38 120,650 $0.68
------- ----- ------ ----- ------- -----
Total................ 433,615 $1.21 28,242 $0.30 496,506 $0.71
1997
First Quarter................ 138,916 $1.10 12,017 $0.32 117,261 $0.74
Second Quarter............... 134,411 $1.14 13,130 $0.29 121,675 $0.76
Third Quarter................ 112,232 $1.17 9,217 $0.32 119,975 $0.76
Fourth Quarter............... 106,112 $1.24 14,649 $0.26 122,372 $0.76
------- ----- ------ ----- ------- -----
Total................ 491,671 $1.15 49,013 $0.29 481,283 $0.75
</TABLE>
- ---------------
(1) Does not include materials and products processed by the Company for a fee
("tolling") and forward sales contracts without physical delivery.
(2) The primary aluminum segment includes intersegment sales to the sheet and
plate products segment.
(3) The Company sold its fabricating businesses to Pechiney in September 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Consolidated net sales decreased $84.0 million (or 12.9%) in
1999 to $566.3 million from $650.3 million in 1998. The decrease was partially a
result of the sale of the Company's former fabricating businesses in September
1999 and reduced average unit selling prices. Primary aluminum product sales
(including shipments to the fabricating businesses of $136.8 million) decreased
$32.9 million (or 9.4%) in 1999 to $317.4 million from $350.3 million in 1998
(including shipments to the fabricating businesses of $234.5 million). The
decrease was a result of reduced volumes caused by the illegal strike at Century
of West Virginia's Ravenswood facility in August 1999 and to reduced average
unit selling prices during 1999 as compared to the average in 1998.
Gross Profit and Loss. The Company reported a gross loss of $6.6 million
in 1999 compared to a gross profit of $38.5 million in 1998 or a decrease of
$45.1 million. The decrease primarily resulted from lower unit selling prices,
the costs and effects of lost production of approximately $10 million resulting
from the illegal strike in August 1999, a charge of $12.3 million for inventory
writedowns and LIFO adjustments, and the sale of the Company's former
fabricating businesses.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses of $18.9 million in 1999 were slightly lower
than expenses of $19.2 million in 1998. The decrease was due to the sale of the
fabricating businesses partially offset by increased professional fee expenses.
13
<PAGE> 15
Gain on Sale of Fabricating Businesses. The gain on the sale of the
fabricating businesses of $41.1 million in 1999 represents the excess of
proceeds received over the net assets sold to Pechiney on September 21, 1999,
adjusted for the expected effects of certain post-closing adjustments.
Interest Expense -- Net. Interest expense increased $1.3 million to $3.5
million in 1999 from $2.2 million in 1998. The increase was due to reduced
capitalized interest in 1999 compared to 1998 and to higher borrowings during
the first three quarters of 1999 compared to the same period in 1998, partially
offset by interest income earned in the fourth quarter of 1999.
Net Gains or Losses on Forward Contracts. The Company incurred a net loss
on forward contracts of $5.4 million in 1999 compared to a net gain of $10.6
million in 1998. The decrease resulted from steadily increasing market prices
for primary aluminum during 1999 which reduced the value of the Company's
forward sales contracts.
Tax Provision. Tax expense for 1999 was $0.7 million compared to $10.2
million in 1998. The decrease was primarily the result of reduced operating
income.
Net Income. Net income for the year ended 1999 was $3.9 million compared
to $17.9 million for 1998. The decrease was a result of lower average unit
selling prices, reduced volumes, a charge for inventory writedowns and LIFO
adjustments, the costs and effects of lost production from the illegal strike in
August 1999. The decrease was substantially offset by the gain on the sale of
the fabricating businesses.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Consolidated net sales decreased $70.7 million (or 9.8%) in
1998 to $650.3 million from $721.0 million in 1997. Sheet and plate net sales
decreased $47.3 million (or 8.1%) in 1998 to $534.5 million from $581.8 million
in 1997. The segment shipped 461.9 million pounds of sheet and plate products in
1998 versus 540.7 million pounds of sheet and plate products in 1997. Most of
the declines were in products that have been de-emphasized as a result of the
sheet and plate restructuring completed in 1997. Lower sheet and plate volume
had the effect of decreasing sales by $73.1 million in 1998. The volume decline
was partially offset by a $25.8 million improvement in mix and selling prices of
sheet and plate products sold in 1998.
Primary sales decreased $20.2 million (or 5.5%) in 1998 to $350.3 million
from $370.5 million in 1997, including intersegment sales of $234.5 million and
$231.3 million during 1998 and 1997, respectively. The segment shipped 496.5
million pounds of primary products in 1998 versus 481.3 million pounds of
primary products in 1997 including intersegment shipments of 333.3 million
pounds and 296.7 million pounds during 1998 and 1997, respectively. Lower
average selling prices, as a result of lower LME prices, reduced revenues in
1998.
Gross Profit. Consolidated gross profit increased $9.4 million (or 32.3%)
in 1998 to $38.5 million from $29.1 million in 1997. Sheet and plate gross
profit increased $32.3 million in 1998 to $9.9 million from a loss of $22.4
million in 1997. The increase in gross profit was a result of the shift in
product mix from lower margin commodity products to higher margin value added
products and the positive impact of lower LME prices on aluminum raw material
costs.
Primary gross profit decreased $22.8 million in 1998 to $28.8 million from
$51.6 million in 1997. The decrease in gross profit is a result of lower average
selling prices. Lower average selling prices were a result of the 1998 decline
in LME prices.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased $1.3 million (or 7.2%) in 1998. The increase
was due primarily to variable compensation expenses.
Interest Expense -- Net. Interest expense decreased $0.9 million (or
28.1%) in 1998. This decline was a result of lower borrowing rates and higher
amounts of capitalized interest. These benefits were partially offset by an
increase in the amount of debt outstanding.
14
<PAGE> 16
Net Gains on Forward Contracts. Lower LME prices during 1998 improved the
market value of the Company's forward contracts. As a result, the Company
recorded net gains on forward contracts of $10.6 million in 1998. During 1997,
the Company recorded a net loss on forward contracts of $6.8 million.
Tax Provision. Income tax expense increased to $10.2 million in 1998 from
$0.6 million in 1997. The increase was a result of higher income from operations
in 1998.
Net income. As a result of improved price realizations for sheet and plate
products, lower costs for scrap aluminum inputs and forward contract gains, net
income for the year ended 1998 increased $16.9 million over 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $124.4 million and $188.2 million at December
31, 1999 and 1998, respectively. The decrease in working capital was primarily
the result of the sale of the Company's fabricating businesses in September
1999.
The Company's statements of cash flows for the years indicated are
summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash (used in) provided by operating
activities....................................... $(44,190) $ 25,369 $ 9,318
Net cash provided by (used in) investing
activities....................................... 222,707 (51,838) (39,982)
Net cash (used in) provided by financing
activities....................................... (93,521) 26,439 30,594
-------- -------- --------
Increase (decrease) in cash........................ $ 84,996 $ (30) $ (70)
======== ======== ========
</TABLE>
Net cash flows used in operating activities were $44.2 million during 1999.
Net cash flow derived from operations was $25.4 million and $9.3 million during
1998 and 1997, respectively. The 1999 decrease was primarily the result of
reduced income from operations in that year.
The Company's net cash derived from investing activities was $222.7 million
in 1999. The net cash used in investing activities was $51.8 million and $40.0
million during 1998 and 1997, respectively. The large increase in cash flow from
investing activities is a result of proceeds from the sale of the fabricating
businesses in September 1999. Capital expenditures were $23.0 million, $44.3
million and $40.0 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company used these expenditures to purchase, modernize or
upgrade production equipment, maintain facilities and comply with environmental
regulations. Capital expenditures for 2000 are expected to be approximately
$18.0 million and will be principally related to upgrading production equipment,
maintaining facilities and complying with environmental requirements. In
addition, the Company intends to spend approximately $95 million in 2000 for the
acquisition from Xstrata of its 23% interest in the Mt. Holly Facility.
Net cash flows used in financing activities were $93.5 million in 1999. Net
cash flows derived from financing activities were $26.4 million, and $30.6
million in 1998 and 1997, respectively. The large decrease in cash flows from
financing activities resulted from the Company's utilization of a portion of the
proceeds from the sale of the fabricating businesses to retire all of its
outstanding bank debt.
On February 24, 1999, the Company entered into an agreement with
BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to
provide up to $180.0 million of credit facilities to refinance indebtedness, to
finance certain capital expenditures and for other general corporate purposes.
The borrowing base for purposes of determining availability was based upon
certain eligible inventory and receivables. The credit facilities consisted of a
revolving loan of up to $160.0 million and a term loan of $20.0 million. The
revolving loan was secured by the inventory and receivables of Century of West
Virginia and Berkeley. As a result of the sale of the fabricating businesses,
the Company and its lenders have agreed to reduce the revolving credit
facilities from $160.0 million to $75.0 million and to establish new financial
covenants and other terms. The facility may not be used until such time as new
covenants and other terms are established.
15
<PAGE> 17
The Company anticipates that the facility will provide for various
restrictive covenants, including the following: (i) standard restrictions on
dispositions of property and assets except in the ordinary course of business,
(ii) restrictions on the incurrence of indebtedness and liens and the making of
capital expenditures and investments, (iii) a prohibition on the payment of
dividends except dividends up to $5.0 million per year, (iv) a prohibition on
change of business or change of control and (v) maintenance of certain financial
ratios.
Pursuant to an agreement with the Pension Benefit Guaranty Corporation
("PBGC Agreement"), the Company made scheduled contributions to its pension plan
for hourly employees in 1999. The contributions were approximately $7.0 million
above the minimum required contributions under Section 412 of the Internal
Revenue Code. See Note 12 to the Consolidated Financial Statements.
The Company's liquidity requirements arise primarily from working capital
needs and capital investments. The Company believes that cash flows from
operations and funds available under its Bank Agreement will be sufficient to
fund its working capital requirements, capital expenditures and debt service in
the near term and for the foreseeable future.
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
The Company's operations are subject to various environmental laws and
regulations. The Company has spent and expects to spend in the future,
significant amounts for compliance with those laws and regulations. In addition,
past manufacturing activities have resulted in environmental impacts requiring
remediation. Pursuant to certain environmental laws, the Company, regardless of
fault, may be liable for the costs of remediation of contaminated property or
for the amelioration of damage to natural resources. Although the Company
believes, based upon information currently available to management, that it will
not have liabilities in this regard which are likely to have a material adverse
effect on the Company, there can be no assurance that future remedial
requirements at currently and formerly owned or operated properties or adjacent
areas will not result in a material adverse effect on the Company's financial
condition, results of operations or liquidity. The Company has planned
environmental capital expenditures for the years ending December 31, 2000, 2001,
and 2002 of approximately $3.7 million, $0.9 million and $0.4 million,
respectively. In addition, the Company expects to incur operating expenses
relating to environmental matters of approximately $2.9 million, $2.6 million
and $3.0 million for the years ending December 31, 2000, 2001 and 2002,
respectively. As part of its general capital expenditure plan, the Company also
expects to incur capital expenditures for other capital projects that may, in
addition to improving operations, reduce certain environmental impacts. See Item
1 "Environmental Matters".
The Company is a defendant in several actions relating to various aspects
of its business. While it is impossible to predict the ultimate disposition of
any litigation, the Company does not believe that any of these lawsuits, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, results of operations or liquidity. See Item 3
"Legal Proceedings".
YEAR 2000 COMPLIANCE PROGRAM
The Company, like other businesses, made substantial preparations for the
Year 2000 issue. The Year 2000 issue arose from the past practice of utilizing
two digits (as opposed to four) to represent the year in some computer programs
and software. If uncorrected, this could have resulted in computational errors.
All of the products produced and sold by the Company are unaffected by Year 2000
issues in use or operation since they contain no microprocessors.
Based on information available to date, the Company has not experienced any
significant events attributable to Year 2000 issues. The Company will continue
to monitor for potential issues at Century, its customers and suppliers, in
order to permit a rapid response should any issues arise. The Company believes
that if any Year 2000 issues were to arise, they would not have a significant
impact on its operations and would most likely be isolated, short-term events.
In 1999 and 1998, the Company incurred approximately $9.0 million of direct
costs in connection with its Year 2000 program. These costs included external
consulting costs and the cost of hardware and software replaced as a result of
Year 2000 issues. The Company does not expect to incur significant direct costs
related to the Year 2000 issue during the current year.
16
<PAGE> 18
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 modified the
accounting for derivative and hedging activities and was initially effective for
fiscal years beginning after June 15, 1999. In April 1999, the FASB delayed the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. An
Exposure Draft was issued on March 3, 2000 which proposes certain amendments to
SFAS No. 133. The Company continues to evaluate the potential impact SFAS No.
133 and its proposed amendments will have on its results of operations and
financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICES
Century produces primary aluminum products and the Company's earnings are
exposed to aluminum price fluctuations. The Company manages this risk through
the issuance of fixed price commitments and financial instruments. The Company
does not engage in trading or speculative transactions. Although the Company has
not materially participated in the purchase of call options, in cases where
Century sells forward primary aluminum, it may purchase call options to preserve
the benefit from price increases significantly above forward sales prices. In
addition, it may purchase put options to protect itself from price decreases.
The Company had fixed price commitments to sell 124.4 million pounds of
primary aluminum at December 31, 1999 and 543.9 million pounds of primary
aluminum, scrap aluminum, and sheet and plate products at December 31, 1998. Of
the total fixed price sales commitments, 68.3 million pounds and 34.6 million
pounds at December 31, 1999 and 1998, respectively, were with the Glencore
Group. The Company had no fixed price commitments to purchase aluminum at
December 31, 1999. The Company had fixed price commitments to purchase 190.8
million pounds of aluminum and alloy raw materials at December 31, 1998. Of the
total fixed price purchase commitments, 162.1 million pounds at December 31,
1998 were with the Glencore Group. In addition, the Company has a long-term
supply agreement for 936.0 million pounds of alumina annually; whereby, the
Company will pay a fixed price for alumina with annual price increases of
approximately 2.5% through 2001.
At December 31, 1999 and 1998, the Company had entered into 60.0 million
and 65.6 million pounds, respectively, of forward primary aluminum sales
contracts primarily with the Glencore Group to mitigate the risk of commodity
price fluctuations inherent in a portion of its inventory. The 1999 contracts
will be settled in cash at various dates in 2000 and 2001. Based on market
prices at December 31, 1999 and 1998, the forward sales contracts could have
been settled by the Company paying approximately $1.7 million and receiving $3.1
million, respectively. The actual settlement was and will be based on market
prices on the respective settlement dates. At December 31, 1998, the Company had
forward purchase contracts, primarily with the Glencore Group, for 18 million
pounds.
A hypothetical $0.10 per pound increase in the market price of primary
aluminum is estimated to have an unfavorable impact of $6.0 million on pre-tax
income in 2000 as a result of the forward primary aluminum purchase and sale
contracts entered into by the Company at December 31, 1999. Actual changes in
commodity prices may differ from hypothetical changes. This quantification of
the Company's exposure to the commodity price of aluminum is necessarily
limited, as it does not take into consideration the Company's inventory or fixed
price commitments, or the offsetting impact upon the purchase price of raw
materials and sales price of aluminum products.
All gains and losses from forward contract activity are reported separately
in the statements of operations. Unrealized gains or losses on the forward
primary aluminum contracts, realized gains or losses from the cash settlement of
the forward primary aluminum contracts, and reversals of prior period unrealized
losses are reported as either gains or losses on forward contracts.
Century monitors its overall position, and its metals risk management
activities are subject to the management, control and direction of senior
management. These activities are regularly reported to the Board of Directors of
Century.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report................................ 19
Consolidated Balance Sheets at December 31, 1999 and 1998... 20
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.......................... 21
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. 22
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... 23
Notes to the Consolidated Financial Statements.............. 24-41
</TABLE>
18
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Century Aluminum Company:
We have audited the accompanying consolidated balance sheets of Century
Aluminum Company and subsidiaries (the "Company") as of December 31, 1999 and
1998, 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Century Aluminum Company and
subsidiaries as of December 31, 1999 and 1998, 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.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 25, 2000
19
<PAGE> 21
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 85,008 $ 12
Restricted cash equivalents............................... 5,821 5,814
Accounts receivable, trade -- net......................... 38,499 74,948
Due from affiliates....................................... 15,991 16,036
Inventories............................................... 44,936 197,705
Prepaid and other assets.................................. 6,379 9,006
-------- --------
Total current assets................................... 196,634 303,521
PROPERTY, PLANT AND EQUIPMENT -- NET........................ 105,158 227,320
OTHER ASSETS................................................ 9,010 14,789
-------- --------
TOTAL............................................. $310,802 $545,630
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade................................... $ 29,134 $ 37,450
Due to affiliates......................................... 10,737 15,146
Accrued and other current liabilities..................... 27,770 36,733
Accrued employee benefits costs -- current portion........ 4,602 26,036
-------- --------
Total current liabilities.............................. 72,243 115,365
-------- --------
REVOLVING TERM LOAN......................................... -- 89,389
ACCRUED PENSION BENEFITS COSTS -- Less current portion...... 3,589 9,792
ACCRUED POSTRETIREMENT BENEFITS COSTS -- Less current
portion................................................... 39,391 129,318
OTHER LIABILITIES........................................... 15,851 24,283
-------- --------
Total noncurrent liabilities........................... 58,831 252,782
-------- --------
CONTINGENCIES AND COMMITMENTS (Note 12)
SHAREHOLDERS' EQUITY:
Common Stock (one cent par value, 50,000,000 shares
authorized; 20,202,538 and 20,000,000 shares
outstanding at December 31, 1999 and 1998,
respectively).......................................... 202 200
Additional paid-in capital................................ 164,409 161,953
Retained earnings......................................... 15,117 15,330
-------- --------
Total shareholders' equity............................. 179,728 177,483
-------- --------
TOTAL............................................. $310,802 $545,630
======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 22
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
NET SALES:
Third-party customers.................................... $497,475 $576,006 $615,467
Related parties.......................................... 68,801 74,252 105,521
-------- -------- --------
566,276 650,258 720,988
COST OF GOODS SOLD......................................... 572,921 611,796 691,887
-------- -------- --------
GROSS PROFIT (LOSS)........................................ (6,645) 38,462 29,101
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 18,884 19,246 17,948
-------- -------- --------
OPERATING INCOME (LOSS).................................... (25,529) 19,216 11,153
GAIN ON SALE OF FABRICATING BUSINESSES..................... 41,130 -- --
INTEREST EXPENSE -- Net.................................... (3,535) (2,204) (3,066)
OTHER INCOME (EXPENSE) -- Net............................. (789) 553 419
NET GAIN (LOSS) ON FORWARD CONTRACTS....................... (5,368) 10,574 (6,837)
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.......... 5,909 28,139 1,669
INCOME TAX EXPENSE......................................... (628) (10,202) (601)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........................... 5,281 17,937 1,068
EXTRAORDINARY ITEM -- WRITE OFF OF DEFERRED BANK FEES, NET
OF INCOME TAX BENEFIT OF $766............................ (1,362) -- --
-------- -------- --------
NET INCOME................................................. $ 3,919 $ 17,937 $ 1,068
======== ======== ========
BASIC EARNINGS PER SHARE:
Income before extraordinary item......................... $ 0.26 $ 0.90 $ 0.05
Extraordinary item....................................... (0.07) -- --
-------- -------- --------
Net Income............................................... $ 0.19 $ 0.90 $ 0.05
======== ======== ========
DILUTED EARNINGS PER SHARE:
Income before extraordinary item......................... $ 0.26 $ 0.89 $ 0.05
Extraordinary item....................................... (0.07) -- --
-------- -------- --------
Net Income............................................... $ 0.19 $ 0.89 $ 0.05
======== ======== ========
CASH DIVIDENDS PAID PER
COMMON SHARE............................................. $ 0.20 $ 0.20 $ 0.20
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 23
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996...................... $200 $161,953 $ 4,325 $166,478
Net Income.................................... 1,068 1,068
Dividends..................................... (4,000) (4,000)
---- -------- ------- --------
BALANCE, DECEMBER 31, 1997...................... 200 161,953 1,393 163,546
Net Income.................................... 17,937 17,937
Dividends..................................... (4,000) (4,000)
---- -------- ------- --------
BALANCE, DECEMBER 31, 1998...................... 200 161,953 15,330 177,483
Net Income.................................... 3,919 3,919
Issuance of Common Stock...................... 2 2,456 2,458
Dividends..................................... (4,132) (4,132)
---- -------- ------- --------
BALANCE, DECEMBER 31, 1999...................... $202 $164,409 $15,117 $179,728
==== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 3,919 $ 17,937 $ 1,068
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization...................... 18,749 19,685 18,427
Deferred income taxes.............................. 22,022 (3,767) (6,392)
Pension and other post retirement benefits......... (16,656) (12,021) (4,992)
Workers' compensation.............................. (150) (1,314) 308
Inventory reserve.................................. 1,389 -- --
Gain on sale of fabricating businesses............. (41,130) -- --
Change in operating assets and liabilities:
Accounts receivable, trade -- net................ (42,803) 37,588 (21,863)
Due from affiliates.............................. (467) (7,674) 4,319
Inventories...................................... 26,843 (22,789) 6,064
Prepaids and other assets........................ (9,224) (876) 1,830
Accounts payable, trade.......................... 8,519 (14,594) 20,069
Due to affiliates................................ (1,518) (2,087) (5,433)
Accrued and other current liabilities............ (15,944) 13,366 (5,065)
Other -- net..................................... 2,261 1,915 978
--------- --------- ---------
Net cash (used in) provided by operating
activities....................................... (44,190) 25,369 9,318
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............. (22,983) (44,259) (39,967)
Purchase price adjustment related to business
acquisitions....................................... 296 -- --
Proceeds from sale of fabricating businesses.......... 245,400 -- --
Business acquisitions................................. -- (7,251) --
Capital contribution to Mt. Holly..................... -- (319) (11)
Restricted cash deposits.............................. (6) (9) (4)
--------- --------- ---------
Net cash provided by (used in) investing
activities....................................... 222,707 (51,838) (39,982)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings............................................ 340,708 233,610 234,816
Repayment of borrowings............................... (430,097) (203,171) (200,222)
Dividends............................................. (4,132) (4,000) (4,000)
--------- --------- ---------
Net cash (used in) provided by financing
activities....................................... (93,521) 26,439 30,594
--------- --------- ---------
INCREASE (DECREASE) IN CASH............................. 84,996 (30) (70)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............ 12 42 112
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR.................. $ 85,008 $ 12 $ 42
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation -- Century Aluminum Company
("Century" or the "Company") is a holding company whose principal subsidiary is
Century Aluminum of West Virginia, Inc. ("Century of West Virginia"), formerly
known as Ravenswood Aluminum Corporation, which operates a primary aluminum
reduction facility near Ravenswood, West Virginia. Century of West Virginia,
through its wholly-owned subsidiary, Berkeley Aluminum, Inc. ("Berkeley"), holds
a 26.67% interest in a partnership which operates a primary aluminum reduction
facility in Mt. Holly, South Carolina (the "Mt. Holly Facility") and a 26.67%
undivided interest in the property, plant and equipment comprising the Mt. Holly
Facility. As of December 31, 1999, the remaining interest in the partnership and
the remaining undivided interest in the Mt. Holly Facility are owned 50.33% by
Alumax of South Carolina, Inc., a subsidiary of Alcoa ("ASC") and 23.00% by
Xstrata AG ("Xstrata"), a publicly traded Swiss company. Glencore International
AG ("Glencore" and, together with its subsidiaries, the "Glencore Group") is a
major shareholder of Xstrata. ASC manages and operates the facility pursuant to
an Owners Agreement, prohibiting the disposal of the interest held by any of the
owners without the consent of the other owners and providing for certain rights
of first refusal. Pursuant to the Owners Agreement, each owner furnishes its own
alumina, or alumina owned by an affiliate, for conversion to aluminum and is
responsible for its pro rata share of the operating and conversion costs. In
February 2000, the Company announced its intention to purchase an additional 23%
of the Mt. Holly Facility from Xstrata for approximately $95,000.
Prior to April 1996, the Company was an indirect, wholly owned subsidiary
of Glencore. In April 1996, the Company completed an initial public offering of
its common stock. At December 31, 1999, the Glencore Group owned 39.2% of
Century's common shares outstanding.
On December 31, 1998, the Company acquired a cast aluminum plate business
located in Vernon, California, from Alcoa Inc. The business was named Century
Cast Plate, Inc. and operated as a wholly owned subsidiary of Century. The
business produced cast and machined aluminum plate.
On September 21, 1999, the Company completed the sale to Pechiney Rolled
Products, LLC, a Delaware limited liability company ("Pechiney"), of certain
assets and the assumption of certain liabilities of Century of West Virginia's
rolled products unit at Ravenswood, West Virginia (the "Rolling Business") and
all of the issued and outstanding shares of common stock of Century Cast Plate,
Inc. (together the "fabricating businesses"). The parties consummated the sale
pursuant to the Stock and Asset Purchase Agreement dated July 26, 1999 (the
"Purchase Agreement") by and among Century, Century of West Virginia and
Pechiney. The aggregate purchase price for the fabricating businesses was
$248,000, and is subject to certain post-closing adjustments. The purchase price
was determined by arms-length negotiations between the parties. Century used a
portion of the purchase price to repay all of its outstanding bank indebtedness.
The Company's historical results of operations included in the accompanying
consolidated financial statements may not be indicative of the results of
operations to be expected in the future.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Century Aluminum Company and its subsidiaries, after
elimination of all significant intercompany transactions and accounts.
Berkeley's interest in the Mt. Holly partnership is accounted for under the
equity method. There are no material undistributed earnings in the Mt. Holly
partnership.
Revenue -- Revenue is recognized when title passes to customers in
accordance with contract terms. Included in net sales are tolling fees that the
Company earned from smelting, casting and fabricating material supplied by
third-party customers. These fees are not related to primary aluminum shipments
and, as such, will not be present in future years due to the sale of the
fabricating businesses to Pechiney. Net sales includes tolling fees of $2,045,
$8,469 and $14,428 for the years ended December 31, 1999, 1998 and 1997,
respectively.
24
<PAGE> 26
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales returns and allowances are treated as a reduction of sales and are
provided for based on historical experience and current estimates.
Cash and Restricted Cash Equivalents -- Cash and restricted cash
equivalents are comprised of cash and short-term investments having maturities
of less than 90 days at the time of purchase. The carrying amount of cash and
restricted cash equivalents approximates fair value.
Accounts Receivable -- The accounts receivable, trade are net of an
allowance for uncollectable accounts of $29 and $2,390 at December 31, 1999 and
1998, respectively.
Inventories -- Alumina and aluminum inventories are stated at the lower of
cost (using the last-in, first-out ("LIFO") method) or market. The remaining
inventories (operating and other supplies) are valued at the lower of average
cost or market.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Additions, renewals and improvements are capitalized. Asset and
accumulated depreciation accounts are relieved for dispositions with resulting
gains or losses included in earnings. Maintenance and repairs are expensed as
incurred. Depreciation of plant and equipment is provided for by the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements............................ 14 to 40 years
Machinery and equipment............................... 5 to 22 years
</TABLE>
The Company periodically evaluates the carrying value of long-lived assets
to be held and used when events and circumstances warrant such a review. The
carrying value of a separately identifiable, long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair value of the long-lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved.
Other Assets -- At December 31, 1999 and 1998, other assets consist
primarily of the Company's investment in the Mt. Holly partnership, deferred
pension assets and deferred tax assets.
Income Taxes -- The Company accounts for income taxes using the liability
method, whereby deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. In evaluating
the Company's ability to realize deferred tax assets, the Company uses judgment
in considering the relative impact of negative and positive evidence. The weight
given to the potential effect of negative and positive evidence is commensurate
with the extent to which it can be objectively verified. Based on the weight of
evidence, both negative and positive, including the lack of historical earnings,
if it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is established.
Interest Expense -- Net -- Interest earned on investments is netted with
interest incurred on indebtedness. Interest incurred in the construction of
qualifying assets is capitalized as a component of the construction costs.
Postemployment Benefits -- The Company provides certain postemployment
benefits to former and inactive employees and their dependents during the period
following employment, but before retirement. These benefits include salary
continuance, supplemental unemployment and disability healthcare. Postemployment
benefits are accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits."
The statement requires recognition of the estimated future cost of providing
postemployment benefits on an accrual basis over the active service life of the
employee.
25
<PAGE> 27
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fixed-Price Commitments and Forward Contracts -- The Company has entered
into various fixed-price commitments to purchase alumina and primary aluminum
and to sell primary aluminum. The Company has also entered into forward primary
aluminum contracts to be settled in cash to manage the Company's exposure to
changing primary aluminum prices. A change in market value of a forward contract
is recognized as a gain or loss in the period of change and is recognized in the
statements of operations as a gain or loss on forward contracts.
Financial Instruments -- The Company's financial instruments (principally
receivables, payables, debt and forward contracts) are carried at amounts that
approximate fair value.
Concentration of Credit Risk -- Financial instruments, in addition to
forward contracts, which potentially expose the Company to concentrations of
credit risk, consist principally of cash investments and trade receivables. The
Company places its cash investments with highly rated financial institutions. At
times, such investments may be in excess of the FDIC insurance limit. With the
sale of the fabricating businesses to Pechiney, the Company significantly
reduced its customer base and thereby increased its concentrations of credit
risk with respect to trade receivables. The Company routinely assesses the
financial strength of its customers, but generally does not require collateral
to support trade receivables. As of December 31, 1999, the Company's receivables
from a certain customer were approximately $30,000 or 78% of total trade
accounts receivable.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation -- The Company has elected not to adopt the
recognition provisions for employee stock-based compensation as permitted in
SFAS No. 123, "Accounting for Stock-Based Compensation".
New Accounting Standards -- In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 modified the accounting for
derivative and hedging activities and was initially effective for fiscal years
beginning after June 15, 1999. In April 1999, the FASB delayed the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. An Exposure
Draft was issued on March 3, 2000 which proposes certain amendments to SFAS No.
133. The Company continues to evaluate the potential impact SFAS No. 133 and its
proposed amendments will have on its results of operations and financial
position.
2. SALE OF FABRICATING BUSINESSES
On September 21, 1999, the Company and Century of West Virginia completed
the sale of their fabricating businesses to Pechiney. The transaction involved
the sale of certain assets and the assumption of certain liabilities and the
sale of all of the issued and outstanding shares of common stock of Century Cast
Plate. The aggregate purchase price for the fabricating businesses was $248,000
and the assumption of approximately $163,400 of current and noncurrent
liabilities, subject to certain post closing adjustments. As a result of this
transaction, the Company realized a gain of $41,130. Included in the gain are
the estimated net effects resulting from the curtailment and settlement of the
Company's employee benefit plans associated with the fabricating businesses. The
gain is subject to adjustment based on the ultimate resolution of the post
closing adjustments which may affect the fabricating businesses' closing balance
sheet as of September 21, 1999.
In connection with the sale, Century of West Virginia and Pechiney entered
into a Metal Supply Agreement ("Metal Agreement") dated as of September 21,
1999, which shall continue in effect until
26
<PAGE> 28
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
July 31, 2003 with provisions for an extension. Pursuant to the Metal Agreement,
Pechiney has agreed to purchase and the Company has agreed to deliver
substantial quantities (from 23.0 million pounds to 27.0 million pounds per
month) of the molten aluminum produced at Century of West Virginia's reduction
facility located in Ravenswood, West Virginia. Pricing for shipments to Pechiney
is based on a market index as defined in the Metal Agreement. In addition,
Pechiney is providing primary aluminum casting services to Century of West
Virginia in connection with the excess molten aluminum produced at the
Ravenswood, West Virginia reduction facility, which was not purchased by
Pechiney. In connection with the transaction, the Company and Pechiney have
entered into a Shared Facilities and Shared Services Agreement ("Shared Services
Agreement") related to certain services, facilities, and related physical assets
that will be shared between the parties. Additionally, as part of the agreement,
the Company has agreed to indemnify Pechiney, up to certain limits, for certain
claims and environmental matters.
3. INVENTORIES
Inventories, at December 31, consist of the following:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Raw materials........................................... $27,271 $ 81,474
Work-in-process......................................... 2,899 71,045
Finished goods.......................................... 5,715 25,858
Operating and other supplies............................ 9,051 19,328
------- --------
$44,936 $197,705
======= ========
</TABLE>
At December 31, 1999 and 1998, approximately 80% and 90%, respectively of
inventories were valued at the lower of LIFO cost or market. The excess of the
LIFO cost (or market, if lower) of inventory over the first-in, first-out
("FIFO") cost was approximately $1,845 and $20,150 at December 31, 1999 and
1998, respectively.
Inventory at December 31, 1999 has been written down from LIFO cost to
estimated net realizable value. Results of operations for 1999 include non-cash
charges of $12,272 for inventory write-downs and LIFO adjustments.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at December 31, consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land and improvements.................................. $ 4,431 $ 5,775
Buildings and improvements............................. 20,824 36,509
Machinery and equipment................................ 154,881 295,711
Construction in progress............................... 23,304 50,951
-------- --------
203,440 388,946
Less accumulated depreciation.......................... 98,282 161,626
-------- --------
$105,158 $227,320
======== ========
</TABLE>
At December 31, 1999 and 1998, the cost of property, plant and equipment
includes $56,605 and $51,454, respectively, and accumulated depreciation
includes $22,781 and $20,547, respectively, representing the Company's undivided
interest in the primary aluminum reduction facility in Mt. Holly, South
Carolina.
27
<PAGE> 29
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has various operating lease commitments through 2003 relating
to machinery and equipment. Expenses under all operating leases were $1,077,
$1,839 and $1,504 for the years ended December 31, 1999, 1998 and 1997,
respectively.
There were no noncancelable operating leases as of December 31, 1999.
5. DEBT
On February 24, 1999, the Company entered into an agreement with
BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to
provide up to $160,000 of revolving credit facilities and a $20,000 term loan to
refinance indebtedness, to finance certain capital expenditures and for other
general corporate purposes. The borrowing base for purposes of determining
availability was based upon certain eligible inventory and receivables. On
September 15, 1999, the Bank Agreement was amended to permit the sale of the
fabricating businesses to Pechiney and additionally required that on the closing
date the Company repay all amounts outstanding under the revolving credit
facilities (see Note 2 to the Consolidated Financial Statements). On September
21, 1999, the Company repaid its outstanding debt under the revolving credit
facilities. The Company and its lenders have agreed to reduce the revolving
credit facilities from $160,000 to $75,000 and to establish new financial
covenants and other terms. The facility may not be used until such time as new
covenants and other terms are established.
The Company anticipates that the facility will provide for various
restrictive covenants, including the following: (i) standard restrictions on
dispositions of property and assets except in the ordinary course of business,
(ii) restrictions on the incurrence of indebtedness and liens and the making of
capital expenditures and investments, (iii) a prohibition on the payment of
dividends except dividends up to $5,000 per year, (iv) a prohibition on change
of business or change of control and (v) maintenance of certain financial
ratios.
On January 30, 1996 Century of West Virginia and Berkeley entered into a
bank revolving credit facility ("Prior Facility") with BankAmerica Business
Credit, Inc. The Prior Facility provided for a revolving credit facility that
consisted of borrowings and letters of credit up to $150,000 in the aggregate,
based on availability. The borrowing base for purposes of determining
availability under the Prior Facility was based upon certain eligible inventory
and receivables.
The variable interest rate on the borrowings under the Prior Facility was
7.1% on December 31, 1998. Borrowings of $89,389 as of December 31, 1998 were
collateralized by Century of West Virginia's and Berkeley's inventory and
receivables and were guaranteed by the Company.
28
<PAGE> 30
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS AT DECEMBER 31
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Accrued and Other Current Liabilities
Income taxes............................................. $ -- $19,954
Transaction related costs and accruals................... 18,887 --
Salaries, wages and benefits............................. 3,564 9,973
Other.................................................... 5,319 6,806
------- -------
$27,770 $36,733
======= =======
Accrued Employee Benefit Costs -- Current Portion
Pensions................................................. $ -- $10,418
Postretirement benefits.................................. 1,928 7,843
Employee benefits cost................................... 2,674 7,775
------- -------
$ 4,602 $26,036
======= =======
Other Liabilities
Workers' compensation.................................... $ 7,795 $20,427
Deferred taxes........................................... 6,778 --
Other.................................................... 1,278 3,856
------- -------
$15,851 $24,283
======= =======
</TABLE>
Century of West Virginia is self-insured for workers' compensation, except
for certain catastrophic coverage that is provided under State of West Virginia
insurance programs. Cash equivalents of $5,650 are restricted by the Company's
self-insurance arrangements. The liability for self-insured workers'
compensation claims has been discounted at 6% at December 31, 1999 and 1998. The
components of the liability for workers' compensation at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Undiscounted liability................................... $14,886 $41,015
Less discount............................................ 5,065 14,631
------- -------
$ 9,821 $26,384
======= =======
</TABLE>
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
Pension Benefits
The Company maintains noncontributory defined benefit pension plans
covering substantially all of its employees. For salaried employees, plan
benefits are based primarily on years of service and average compensation during
the later years of employment. For hourly employees, plan benefits are based
primarily on a formula that provides a specific benefit for each year of
service. The Company's funding policy is to contribute annually an amount based
upon actuarial and economic assumptions designed to achieve adequate funding of
the projected benefit obligations and to meet the minimum funding requirements
of ERISA. Plan assets consist principally of U.S. equity securities, growth
funds and fixed income accounts. As explained in Note 12, the Company agreed to
make additional contributions to the hourly plan in connection with the initial
public offering of the Company's common stock. In addition, the Company provides
supplemental executive retirement benefits for its executive officers.
29
<PAGE> 31
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Postretirement Benefits (OPEB)
In addition to providing pension benefits, the Company provides certain
healthcare and life insurance benefits for substantially all retired employees.
The Company accounts for these plans in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
No. 106 requires the Company to accrue the estimated cost of providing
postretirement benefits during the working careers of those employees who could
become eligible for such benefits when they retire. The Company funds these
benefits as the retirees submit claims.
The change in benefit obligations and change in plan assets as of December
31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- --------------------
PENSION OPEB PENSION OPEB
--------- --------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year....... $ 158,102 $ 161,461 $152,386 $137,493
Service cost.................................. 2,502 2,956 3,005 3,220
Interest cost................................. 7,979 8,160 10,384 10,113
Change in liability due to (sale) acquisition
of businesses............................... (129,120) (132,661) -- 7,300
Plan changes.................................. 9,769 801 -- --
(Gains) losses................................ (4,882) 8,589 3,930 11,809
Benefits paid................................. (8,366) (8,160) (11,603) (8,474)
--------- --------- -------- --------
Benefit obligation at end of year............. $ 35,984 $ 41,146 $158,102 $161,461
========= ========= ======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year........................................ $ 145,470 $ -- $120,159 $ --
Actual return on plan assets.................. 13,498 -- 16,310 --
Change in assets due to sale of businesses.... (127,618) -- -- --
Employer contributions........................ 17,740 8,160 20,604 8,474
Benefits paid................................. (8,366) (8,160) (11,603) (8,474)
--------- --------- -------- --------
Fair value of assets at end of year........... $ 40,724 $ -- $145,470 $ --
========= ========= ======== ========
FUNDED STATUS OF PLANS
Funded status................................. $ (4,740) $ 41,146 $ 12,632 $161,461
Unrecognized actuarial gain (loss)............ 8,048 -- 14,185 (25,494)
Unrecognized transition obligation............ (929) -- -- --
Unrecognized prior service cost............... (3,286) 105 (6,607) 1,194
--------- --------- -------- --------
Net liability (asset) recognized.............. $ (907) $ 41,251 $ 20,210 $137,161
========= ========= ======== ========
</TABLE>
Net periodic benefit costs were comprised of the following elements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
PENSION OPEB PENSION OPEB PENSION OPEB
-------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost................. $ 2,502 $ 2,956 $ 3,004 $ 3,220 $ 2,995 $ 2,786
Interest cost................ 7,979 8,160 10,383 10,113 10,444 9,676
Expected return on plan
assets..................... (10,322) -- (11,468) -- (7,666) --
Net amortization and
deferral................... 1,009 732 978 670 2,737 (149)
-------- ------- -------- ------- ------- -------
Net periodic cost............ $ 1,168 $11,848 $ 2,897 $14,003 $ 8,510 $12,313
======== ======= ======== ======= ======= =======
</TABLE>
30
<PAGE> 32
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following assumptions were used in the actuarial computations at
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.50% 6.75% 7.00%
Rate of increase in future compensation levels
Hourly pension plan....................................... 4.00% 4.00% 4.00%
Salaried pension plan..................................... 4.00% 4.00% 4.00%
Long term rate of return on pension plan assets............. 9.00% 9.00% 9.00%
</TABLE>
For measurement purposes, a 6.00%, 5.50% and 5.50% annual rate increase in
the per capita cost of covered health care benefits was assumed for 1999, 1998
and 1997, respectively. The rates were assumed to remain at 6.00% for 2000 and
thereafter.
A one-percentage-point increase in the assumed rate of inflation in future
medical costs would increase the postretirement benefit obligation at December
31, 1999 by $5,178 and would increase aggregate 1999 service and interest cost
by $2,660. A one-percentage-point decrease in the assumed rate of inflation in
future medical costs would decrease the postretirement benefit obligation at
December 31, 1999 by $4,186 and would decrease aggregate 1999 service and
interest cost by $2,069. At December 31, 1999, the defined benefit pension plan
for salaried employees had a projected benefit obligation of $6,486 and plan
assets of $5,085.
The Company sponsors a tax-deferred savings plan under which eligible
employees may elect to contribute specified percentages of their compensation
with the Company providing matching contributions of 60% of the first 6% of a
participant's annual compensation contributed to the savings plan. One half of
the Company's contribution is invested in the common stock of Century and one
half of the Company's contribution is in cash. Company contributions to the
savings plan were $585, $774 and $806 for the years ended December 31, 1999,
1998 and 1997, respectively.
8. SHAREHOLDERS' EQUITY
Preferred Stock -- Under the Company's Restated Certificate of
Incorporation, the Board of Directors is authorized to issue up to 5,000,000
shares of preferred stock, with a par value of one cent per share, in one or
more series. The authorized but unissued preferred shares may be issued with
such dividend rates, conversion privileges, voting rights, redemption prices and
liquidation preferences as the Board of Directors may determine, without action
by shareholders.
9. STOCK BASED COMPENSATION
1996 Stock Incentive Plan -- The Company adopted the 1996 Stock Incentive
Plan (the "Stock Incentive Plan") for the purpose of awarding performance share
units and granting qualified incentive stock options and nonqualified stock
options to salaried officers and other key employees of the Company. The Stock
Incentive Plan has a term of ten years from its effective date. The number of
shares available under the Stock Incentive Plan is 1,200,000. Granted stock
options vest one-third on the grant date and an additional one-third on each of
the first and second anniversary dates. The Company awarded 460,000 performance
share units at the time of the initial public offering for no consideration. The
performance share units represent the right to receive common stock, on a
one-for-one basis on their vesting dates. The value of the performance share
units, $13 per share, is being charged to compensation expense over their five
year vesting period, which is one-third at the end of each of the third, fourth
and fifth anniversary dates. During 1999, 153,333 of the performance shares
became vested and were converted to Common Stock. The Stock Incentive Plan, as
presently administered, provides for additional grants upon the attainment of
certain established performance goals. In 1999, the Company recognized $1,623 of
expense related to the Stock Incentive Plan. The performance share units do not
affect the issued and outstanding shares of common stock until conversion at the
end of the
31
<PAGE> 33
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vesting periods. However, the performance share units are considered common
stock equivalents and therefore are included, using the treasury stock method,
in average common shares outstanding for diluted earnings per share
computations.
The Company applies APB Opinion 25 and related interpretations in
accounting for the 1996 Stock Incentive Plan. Accordingly, no compensation cost
has been recognized for the stock option portions of the plan. Had compensation
cost for the Stock Incentive Plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS No.
123, the Company's net income and earnings per share would have changed to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
<S> <C> <C> <C> <C>
Net Income As Reported.......................... $3,919 $17,937 $1,068
Pro Forma............................ $4,074 $17,568 $ 681
Basic earnings per share As Reported.......................... $ 0.19 $ 0.90 $ 0.05
Pro Forma............................ $ 0.20 $ 0.88 $ 0.03
Diluted earnings per share As Reported.......................... $ 0.19 $ 0.89 $ 0.05
Pro Forma............................ $ 0.20 $ 0.87 $ 0.03
</TABLE>
Non-Employee Directors Stock Option Plan -- The Company adopted a
non-employee directors stock option plan for the purpose of granting
non-qualified stock options to non-employee directors. The number of shares
available under this plan is 200,000, of which options for 83,000 shares have
been awarded. The initial options vest one-third on the grant date and an
additional one-third on each of the first and second anniversary dates.
Subsequent options vest one-fourth each calendar quarter. Each option granted
under this plan will be exercisable for a period of ten years from the date of
grant.
A summary of the status of the Company's Stock Incentive Plan and the
Non-Employee Directors Stock Option Plan as of December 31, 1999, 1998 and 1997
and changes during the year ended on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------- -------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 609,900 $13.15 595,600 $13.31 543,000 $13.13
Granted....................... 23,500 $ 9.26 102,900 $14.01 53,700 $15.12
Exercised..................... (333) $ 8.63 -- -- -- --
Forfeited..................... (102,867) $12.58 (88,600) $15.22 (1,100) $13.00
-------- ------ ------- ------ ------- ------
Outstanding at end of year.... 530,200 $13.19 609,900 $13.15 595,600 $13.31
======== ====== ======= ====== ======= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ----------------------------
- ---------------------------------------------------------------- NUMBER
NUMBER WEIGHTED-AVG. WEIGHTED-AVG. EXERCISABLE
RANGE OF OUTSTANDING REMAINING EXERCISE AT WEIGHTED-AVG.
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE PRICE 12/31/99 EXERCISE PRICE
- --------------- ----------- ---------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$14.50 to $16.72 45,500 7.1 years $15.83 45,500 $15.83
$11.50 to $14.49 460,300 6.3 years $13.02 460,300 $13.02
$ 7.03 to $11.49 24,400 9.5 years $ 9.30 10,266 $ 9.00
</TABLE>
32
<PAGE> 34
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Weighted average fair value per option
granted during the year................................... $2.77 $3.43
Dividends per quarter....................................... $0.05 $0.05
Risk-free interest rate..................................... 5.54% 5.32%
Expected volatility......................................... 30% 30%
Expected lives (in years)................................... 5 3
</TABLE>
10. EARNINGS PER SHARE
Basic and diluted earnings per share for income from continuing operations
for the years ended December 31, are as follows (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Numerator:
Net income available to common shareholders......... $ 3,919 $17,937 $ 1,068
Denominator:
Average common shares outstanding................... 20,202 20,000 20,000
Basic earnings per share.............................. $ 0.19 $ 0.90 $ 0.05
======= ======= =======
DILUTED EARNINGS PER SHARE:
Numerator:
Net income available to common shareholders......... $ 3,919 $17,937 $ 1,068
Denominator:
Average common shares outstanding................... 20,202 20,000 20,000
Effect of dilutive securities:
Stock options and performance awards................ 155 266 241
------- ------- -------
Common shares outstanding, assuming dilution.......... 20,357 20,266 20,241
Diluted earnings per share............................ $ 0.19 $ 0.89 $ 0.05
======= ======= =======
</TABLE>
11. INCOME TAXES
Significant components of the income tax expense from continuing operations
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Federal:
Current benefit (expense)......................... $ 18,850 $(12,487) $(6,056)
Deferred (expense) benefit........................ (19,183) 3,592 5,554
State:
Current benefit (expense)......................... 2,544 (1,482) (937)
Deferred (expense) benefit........................ (2,839) 175 838
-------- -------- -------
Total income tax expense.......................... $ (628) $(10,202) $ (601)
======== ======== =======
</TABLE>
33
<PAGE> 35
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory U.S. Federal income tax rate to the
effective income tax rate on income from continuing operations is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35% 35% 35%
Effect of:
Permanent differences..................................... (27) (2) (3)
State taxes, net of Federal benefit....................... 3 3 4
--- -- --
11% 36% 36%
=== == ==
</TABLE>
Permanent differences primarily relate to the Company's foreign sales
corporation and the sale of the fabricating businesses.
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
FEDERAL
Deferred federal tax assets:
Accrued postretirement benefit cost.................. $ -- $ 34,882
Accrued liabilities.................................. 8,758 9,880
Federal NOL carried forward.......................... 2,587 --
General business credit.............................. 165 --
-------- --------
Net deferred federal tax assets................... 11,510 44,762
Deferred federal tax liabilities:
Tax over financial statement depreciation............ (18,356) (30,316)
-------- --------
Net deferred federal tax (liability) asset........ (6,846) 14,446
-------- --------
STATE
Deferred state tax assets:
Accrued postretirement benefit cost.................. -- 4,983
Accrued liabilities.................................. 1,217 1,512
State NOL carried forward............................ 2,343 --
-------- --------
Net deferred state tax assets..................... 3,560 6,495
Deferred state tax liabilities:
Tax over financial statement depreciation............ (2,126) (4,331)
-------- --------
Net deferred state tax asset...................... 1,434 2,164
-------- --------
Net deferred tax (liability) asset..................... $ (5,412) $ 16,610
======== ========
</TABLE>
Of the $5,412 net deferred tax liability at December 31, 1999, $6,778 is
included in other liabilities; the remainder is included in current assets. At
December 31, 1998, $7,137 of the net deferred tax asset was included in other
assets; the remainder was included in current assets.
12. CONTINGENCIES AND COMMITMENTS
Environmental Contingencies
The Company's operations are subject to various environmental laws and
regulations. The Company has spent and expects to spend in the future,
significant amounts for compliance with those laws and regulations.
34
<PAGE> 36
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, past manufacturing activities have resulted in environmental
impacts requiring remediation. Pursuant to certain environmental laws, the
Company, regardless of fault, may be liable for the costs of remediation of
contaminated property or for the amelioration of damage to natural resources.
Although the Company believes, based upon information currently available to
management, that it will not have liabilities in this regard which are likely to
have a material adverse effect on the Company, there can be no assurance that
future remedial requirements at currently and formerly owned or operated
properties or adjacent areas will not result in a material adverse effect on the
Company's financial condition, results of operations or liquidity.
The 1990 amendments to the Clean Air Act impose stringent standards on
aluminum industry air emissions. These amendments will affect the operations of
the Company's facilities. Technology-based standards relating to smelters and
carbon plants have been promulgated. However, the Company cannot predict with
certainty the total amount of environmental expenditures the Company will incur
to comply with these standards.
Pursuant to an Environmental Protection Agency ("EPA") order issued in 1994
under Section 3008(h) (the "3008(h) order") of the Resource Conservation and
Recovery Act ("RCRA"), Century of West Virginia is performing remediation
measures at a former oil pond area and in connection with cyanide contamination
in the groundwater. Century of West Virginia also conducted and submitted to the
EPA an RCRA facility investigation ("RFI") evaluating other areas that may have
contamination exceeding certain levels. The EPA has advised Century of West
Virginia that it may not comment on the RFI until the third quarter of 2000.
After the RFI is complete, Century of West Virginia will have 60 days within
which to submit a corrective measures study ("CMS") to the EPA proposing means
of remediating areas that may require cleanup. If any cleanup is required, EPA
would issue a subsequent order. Century of West Virginia believes this process
will not be completed before the fourth quarter of 2000. At this time, the
Company is unable to determine if any cleanup measures may be required. However,
the Company is aware of some environmental contamination at Century of West
Virginia, and it is likely cleanup activities will be required in two areas of
the facility. Century of West Virginia believes a significant portion of this
contamination is attributable to the operations of a prior owner and will be the
financial responsibility of that owner, as discussed below.
Prior to the Company's acquisition of the Century of West Virginia
facility, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated
the facility for approximately thirty years. Many of the conditions which
Century of West Virginia investigated under the 3008(h) order exist because of
activities which occurred during Kaiser's ownership and operation. With respect
to those conditions, Kaiser will be responsible for the costs of required
cleanup under the terms of the Kaiser Purchase Agreement. In addition, Kaiser
retained title to certain land within the Century of West Virginia premises and
retains full responsibility for those areas. Under current environmental laws,
the Company may be required to remediate any contamination which was discharged
from areas which Kaiser owns or previously owned or operated. However, if such
remediation is required, the Company believes that Kaiser will be liable for
some or all of the costs thereof pursuant to the Kaiser Purchase Agreement.
In connection with the sale to Pechiney of the fabricating businesses, the
Company and Century of West Virginia provided Pechiney with certain
indemnifications. Those include the indemnification rights Century of West
Virginia and the Company, respectively, have under the Kaiser Purchase Agreement
(with respect to the real property transferred to Pechiney) and the Company's
Cast Plate, Inc., Stock Purchase Agreement with Alcoa. The Pechiney Purchase
Agreement provides further indemnifications which are limited, in general, to
pre-closing conditions which were not disclosed to Pechiney or to off site
migration of hazardous substances from pre-closing acts or omissions of Century
of West Virginia. Environmental indemnifications under the Pechiney Purchase
Agreement expire September 20, 2005; they are payable only to the extent they
exceed $2,000.
35
<PAGE> 37
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is aware of two areas of contamination at its previously owned
Virgin Islands Alumina Company ("Vialco") facility. At the first of these areas,
the Company has removed contaminated soils and has disposed of such soils in
approved facilities. In addition, it has begun a bioremediation program that it
believes will fulfill the remaining legal requirements with respect to such
soils. In the second area, the Company believes that a substantial amount of the
contamination originated from an adjacent refinery owned by Hess Oil Virgin
Islands, Inc. ("HOVIC"). The Company further believes that the vast majority of
any contamination that did not originate from HOVIC was caused by releases on
the property that predated Vialco's ownership and will not be the legal
responsibility of Vialco. Pursuant to the Acquisition Agreement by which Vialco
sold the premises to St. Croix Alumina, LLC, a subsidiary of Alcoa Alumina and
Chemicals LLS ("St. Croix"), Vialco retained liability for environmental
conditions existing at the time of the sale only to the extent such conditions
arose from operation of the facility by Vialco. In addition, indemnification
arises only if the conditions require remediation or give rise to claims under
the laws in effect at the time of sale. Finally, St. Croix may not request
indemnity from Vialco until St. Croix has spent $300 on such environmental
conditions and Vialco's indemnity is capped at $18,000. Management of the
Company does not believe that the retained liability, if any, will have a
material adverse effect on the Company's financial condition, results of
operations, or liquidity.
It is the Company's policy to accrue for costs associated with
environmental assessments and remedial efforts when it becomes probable that a
liability has been incurred and the costs can be reasonably estimated. The
aggregate environmental related accrued liabilities were $900 and $1,400 at
December 31, 1999 and 1998, respectively. All accruals have been recorded
without giving effect to any possible future insurance or Kaiser indemnity
proceeds. With respect to ongoing environmental compliance costs, including
maintenance and monitoring, such costs are expensed as incurred.
Because of the issues and uncertainties described above, and the Company's
inability to predict the requirements of the future environmental laws, there
can be no assurance that future capital expenditures and costs for environmental
compliance will not have a material adverse effect on the Company's future
financial condition, results of operations, or liquidity. Based upon all
available information, management does not believe that the outcome of these
environmental matters will have a material adverse effect on the Company's
financial condition, results of operations, or liquidity.
Legal Contingencies
Century of West Virginia is a named defendant (along with other companies)
in approximately 2,363 civil actions brought by individuals seeking to recover
compensatory and/or punitive damages in connection with alleged asbestos-related
diseases. All plaintiffs have been employees of independent contractors who
claim to have been exposed to asbestos in the course of performing services at
various facilities, including the Century of West Virginia facility. The cases
are typically resolved based upon factual determinations as to the facilities at
which the plaintiffs worked, the periods of time during which work was
performed, the type of work performed, and the conditions in which work was
performed. If the plaintiffs' work was performed during the period when Kaiser
owned the Century of West Virginia facility, Kaiser has retained responsibility
for defense and indemnity pursuant to the Kaiser Purchase Agreement. If a
plaintiff is shown to have worked at the Century of West Virginia facility after
the time Century of West Virginia purchased the facility from Kaiser, Kaiser
assumes the defense and liability, subject to a reservation of rights against
Century of West Virginia. The Company believes it is unlikely that existing or
potential plaintiffs were exposed to asbestos at the Century of West Virginia
facility after Century of West Virginia purchased the facility from Kaiser.
There are currently several actions pending by individuals who claim exposure
after Century of West Virginia's assumption of the premises. While the impact of
the asbestos proceedings is impossible to predict, the Company believes that the
ultimate resolution will not have a material adverse effect on the Company's
financial condition, results of operations, or liquidity.
36
<PAGE> 38
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has pending against it or may be subject to various other
lawsuits, claims and proceedings related primarily to employment, commercial,
environmental and safety and health matters. Although it is not presently
possible to determine the outcome of these matters, management believes their
ultimate disposition will not have a material adverse effect on the Company's
financial condition, results of operations, or liquidity.
In August 1999, an illegal, one-day work stoppage temporarily shut down one
of the Company's four production lines at the Century of West Virginia facility.
The cost of this work stoppage is estimated to be approximately $10,000
including equipment damaged as a result of the production line shutdown. The
Company has filed a claim with its insurance carrier for business interruption
and equipment damage relative to the work stoppage.
Commitments
The Company and a public utility have a fixed price power supply agreement,
covering the period from July 1, 1996 through July 31, 2003.
On January 23, 1996, the Company and the Pension Benefit Guaranty
Corporation ("PBGC") entered into an agreement (the "PBGC Agreement") which
provided that the Company make scheduled cash contributions to its pension plan
for hourly employees in 1996, 1997, 1998 and 1999. The Company made its
scheduled contributions for each of the years. The Company has granted the PBGC
a first priority security interest in (i) the property, plant and equipment at
its Century of West Virginia facility and (ii) all of the outstanding shares of
Berkeley. In addition, Century must grant the PBGC a first priority security
interest in the first $50,000 of the property, plant and equipment of any
business or businesses that the Company acquires. The Company, at its
discretion, may, however, substitute Berkeley's undivided interest in the Mt.
Holly Facility in lieu of any such after-acquired property, plant and equipment
as well as the shares of Berkeley.
Other
Century of West Virginia's hourly employees, which comprise 83% of the
Company's workforce are represented by the United Steelworkers of America and
are currently working under a four year labor agreement effective June 1, 1999.
13. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS
The Company produces primary aluminum products and manages risk through the
issuance of fixed-price commitments and financial instruments.
The Company had fixed price commitments to sell 124.4 million pounds of
primary aluminum at December 31, 1999 and 543.9 million pounds of primary
aluminum, aluminum scrap and sheet and plate products at December 31,1998. Of
the total fixed-price sales commitments, 68.3 million pounds and 34.6 million
pounds at December 31, 1999 and 1998, respectively, were with the Glencore
Group. The Company had no fixed-price commitments to purchase aluminum at
December 31, 1999. The Company had fixed-price commitments to purchase 190.8
million pounds of aluminum and alloy raw materials at December 31, 1998. Of the
total fixed-price purchase commitments, 162.1 million pounds at December 31,
1998 were with the Glencore Group.
In order to manage the Company's exposure to fluctuating commodity prices,
the Company enters into forward sales and purchase contracts for primary
aluminum that will be settled in cash. The Company had forward sales contracts
for 60.0 million and 65.6 million pounds of primary aluminum to be settled in
cash, primarily with the Glencore Group, at December 31, 1999 and 1998,
respectively. At December 31, 1998, the Company had forward purchase contracts,
primarily with the Glencore Group, for 18.0 million pounds. There were no
forward purchase contracts as of December 31, 1999. Forward sales contracts at
December 31, 1999
37
<PAGE> 39
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are scheduled for settlement at various dates in 2000 and 2001. Based on market
prices at December 31, 1999, the forward sales contracts could be settled by the
Company paying approximately $1,700. The actual settlement will be based on
market prices on the respective settlement dates.
The Company entered into a long-term supply agreement for 936.0 million
pounds of alumina annually, beginning January 1, 1996. The Company will pay a
fixed price for alumina with annual price increases of approximately 2.5%
through 2001. Pricing for the years 2002 through 2006 will be subject to
agreement between the parties.
In connection with the sale of the fabricating businesses (see Note 2 to
the Consolidated Financial Statements), the Company entered into a Molten
Aluminum Purchase Agreement (the "Metal Agreement") with Pechiney, that shall
continue in effect until July 31, 2003 with provisions for extension. Pursuant
to the Metal Agreement, Pechiney has agreed to purchase and the Company has
agreed to deliver, on a monthly basis, at least 23.0 million pounds and no more
than 27.0 million pounds of molten aluminum. The selling price is based on a
quoted average primary aluminum market price as reported for the month
immediately preceding the month of delivery.
Although the Company has not materially participated in the purchase of
call options, in cases where Century sells forward primary aluminum, it may
purchase call options to preserve the opportunity to benefit from price
increases significantly above the forward sales prices. In addition, in cases
where the Company purchases forward primary aluminum, it may purchase put
options to protect itself from price decreases.
14. RELATED PARTY TRANSACTIONS
The related party transactions occurring during the years ended December
31, 1999, 1998 and 1997, and not discussed elsewhere in the notes to the
consolidated financial statements, are described below.
Related Party Transactions -- Century
During the years 1997, 1998 and 1999 and at December 31, 1999, the Chairman
of the Board of Directors of Century was a member of the Board of Directors of
Glencore International AG. In addition, during the years ended and at December
31, 1999,1998 and 1997, one of Century's Board members was the Chairman of the
Board of Directors of Glencore International AG.
Related Party Transactions -- Century of West Virginia
During the years ended December 31, 1999, 1998 and 1997, Century of West
Virginia purchased alumina and bought and sold primary and scrap aluminum in
transactions with Glencore at prices which management believes approximated
market.
Related Party Transactions -- Berkeley
A substantial portion of Berkeley's sales during the years ended December
31, 1999, 1998 and 1997 were to Glencore.
38
<PAGE> 40
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary
A summary of the aforementioned related party transactions for the years
ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Net sales............................................ $68,801 $74,252 $105,521
Purchases............................................ 63,256 43,651 84,250
Net gain (loss) on forward contracts................. (5,368) 10,574 (6,837)
</TABLE>
See Note 13 for a discussion of the Company's fixed-price commitments and
forward contracts with related parties.
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Cash paid for:
Interest............................................... $6,305 $5,528 $4,629
Income taxes........................................... 2,021 9,850 9,260
Cash received from:
Interest............................................... 1,670 -- --
Income tax refunds..................................... 174 5,584 159
</TABLE>
Non-Cash Investing Activities
During the years ended December 31, 1999, 1998 and 1997, $1,845, $3,242 and
$1,292, respectively, of interest cost incurred in the construction of equipment
was capitalized.
16. BUSINESS SEGMENTS
Prior to September 21, 1999, the Company operated in two reportable
business segments; primary aluminum and sheet and plate products. The primary
aluminum segment produces rolling ingot, t-ingot, extrusion billet and foundry
ingot. The sheet and plate segment produced a wide range of products such as
brazing sheet for sale to automobile manufacturers, heat treated and non-heat
treated plate for sale to aerospace and defense manufacturers, heavy gauge,
wide-leveled coil for sale to heavy truck, truck trailer, marine and rail car
manufacturers and sheet and coil for sale to building products manufacturers.
The accounting policies of the segments are the same as those described in
Note 1 "Summary of Significant Accounting Policies" except that intersegment
revenues are accounted for based upon a market-based standard established by the
Company. The Company evaluated segment performance based upon gross profit.
Effective with the sale of the sheet and plate segment to Pechiney on
September 21, 1999, the Company now operates in one business segment: primary
aluminum.
39
<PAGE> 41
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CORPORATE,
UNALLOCATED
PRIMARY SHEET AND PLATE & ELIMINATIONS TOTAL
-------- --------------- -------------- --------
<S> <C> <C> <C> <C>
1999
Net Sales
Third-party and intersegment
customers........................... $248,569 $385,754 $(136,848) $497,475
Related party customers................ 68,801 -- -- 68,801
Depreciation and amortization............ 10,172 8,577 -- 18,749
Segment gross profit (loss)(2)(3)........ (17,418) 10,773 -- (6,645)
Segment assets(1)........................ 303,992 -- 6,810 310,802
Expenditures for segment assets.......... 14,737 8,246 -- 22,983
</TABLE>
<TABLE>
<CAPTION>
CORPORATE,
UNALLOCATED
PRIMARY SHEET AND PLATE & ELIMINATIONS TOTAL
-------- --------------- -------------- --------
<S> <C> <C> <C> <C>
1998
Net Sales
Third-party and intersegment
customers........................... $276,025 $534,522 $(234,541) $576,006
Related party customers................ 74,252 -- -- 74,252
Depreciation and amortization............ 9,308 10,191 186 19,685
Segment gross profit (loss).............. 28,791 9,857 (186) 38,462
Segment assets(1)........................ 181,383 353,028 11,219 545,630
Expenditures for segment assets.......... 19,132 25,126 1 44,259
</TABLE>
<TABLE>
<CAPTION>
CORPORATE,
UNALLOCATED
PRIMARY SHEET AND PLATE & ELIMINATIONS TOTAL
-------- --------------- -------------- --------
<S> <C> <C> <C> <C>
1997
Net Sales
Third-party and intersegment
customers........................... $264,956 $581,785 $(231,274) $615,467
Related party customers................ 105,521 -- -- 105,521
Depreciation and amortization............ 9,026 9,341 60 18,427
Segment gross profit (loss).............. 51,609 (22,448) (60) 29,101
Segment assets(1)........................ 166,603 329,775 10,770 507,148
Expenditures for segment assets.......... 10,703 26,397 2,867 39,967
</TABLE>
- ---------------
(1) Segment assets include accounts receivable, due from affiliates, inventory
and property, plant and equipment-net, the remaining assets are unallocated
corporate assets, deferred tax assets and intersegment eliminations.
(2) The primary segment includes a non-cash charge of $4,623 for inventory
writedowns and LIFO adjustments.
(3) The sheet and plate segment includes a non-cash charge of $7,649 for
inventory writedowns and LIFO adjustments.
40
<PAGE> 42
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in the consolidated financial statements are the following amounts
related to geographic locations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales
United States.................................... $501,655 $568,136 $586,339
Canada........................................... 38,572 54,763 60,300
Europe........................................... 15,840 14,611 46,388
Other............................................ 10,209 12,748 27,961
</TABLE>
At December 31, 1999 and 1998, all of the Company's long-lived assets were
located in the United States.
Revenues from one customer, Glencore, represented 12.1%, 11.4% and 14.6% of
the Company's consolidated revenues in 1999, 1998 and 1997, respectively.
Revenues from another customer represented 10.4% of the Company's consolidated
sales in 1999. Revenues from this customer in 1998 and 1997 were less than 10%
of the Company's consolidated revenues.
17. QUARTERLY INFORMATION (UNAUDITED)
On September 21, 1999, the Company and Century of West Virginia sold their
fabricating businesses. Accordingly, the following information includes the
operations of these businesses through September 21, 1999.
Financial results by quarter for the years ended December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
GROSS INCOME (LOSS) INCOME (LOSS)
NET PROFIT BEFORE PER SHARE BEFORE
SALES (LOSS) EXTRAORDINARY ITEM EXTRAORDINARY ITEM
-------- ------- ------------------ ------------------
<S> <C> <C> <C> <C>
1999:
1st Quarter........................ $163,359 $ 1,559 $(2,759) $(0.14)
2nd Quarter(1)..................... 169,006 (827) (5,080) (0.25)
3rd Quarter(2)(3).................. 153,045 (7,144) 16,649 0.82
4th Quarter(4)..................... 80,866 (233) (3,529) (0.17)
1998:
1st Quarter........................ $176,390 $13,511 $ 5,828 $ 0.29
2nd Quarter........................ 156,762 11,826 8,110 0.41
3rd Quarter........................ 162,727 6,523 1,942 0.10
4th Quarter........................ 154,379 6,602 2,057 0.10
</TABLE>
- ---------------
(1) The second quarter gross profit includes non-cash charges of $3,842 for
inventory write-downs and LIFO adjustments.
(2) The third quarter gross profit includes non-cash charges of $11,748 for
inventory writedowns and LIFO adjustments.
(3) The Company recorded a pre-tax gain on the sale of the fabricating
businesses of $41,130 and an after-tax extraordinary charge of $1,362 to
write-off deferred debt fees in the third quarter of 1999.
(4) The fourth quarter gross profit includes a non-cash credit of $3,318 for the
net effect of inventory writeups and LIFO adjustments.
41
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "1. ELECTION OF DIRECTORS" and
Section 16(a) Beneficial Ownership Reporting Compliance" to be included in the
Company's definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year covered by this report on Form 10-K, is incorporated
herein by reference. The information regarding Executive Officers of the
Registrant is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The (i) information set forth under the caption "Board and Committee
Meetings; Directors' Compensation" and (ii) information set forth under the
captions "Executive Compensation," "Employment Agreements", "Severance
Compensation Arrangements", "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions and Relationships" all to be included
in the Company's definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year covered by this report on Form 10-K, is incorporated
herein by reference. Notwithstanding the foregoing, (i) the information set
forth in said Proxy Statement under the caption "Report of the Compensation
Committee" and (ii) the information set forth under the caption "Performance
Graph" in said Proxy Statement, is NOT incorporated by reference herein or in
any other filing of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" to be included in the Company's definitive
Proxy Statement relating to the Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A within 120 days after the close of the fiscal year
covered by this report on Form 10-K, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions and
Relationships" to be included in the Company's definitive Proxy Statement
relating to the Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A within 120 days after the close of the fiscal year covered by
this report on Form 10-K, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) LIST OF FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Century Aluminum Company
and the Independent Auditors' Report are included in Part II, Item 8 of this
Form 10-K.
Independent Auditors' Report.
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997.
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997.
Notes to the Consolidated Financial Statements.
42
<PAGE> 44
(A)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report.
Schedule I -- Condensed Financial Information of Registrant as of and for
the years ended December 31, 1999, 1998 and 1997.
Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997.
(A)(3) LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
2.1 Stock and Asset Purchase Agreement dated July 26, 1999 by
and among Century Aluminum Company, Century Aluminum of West
Virginia, Inc. and Pechiney Rolled Products LLC(f)
2.2 Management Services Agreement dated as of September 21, 1999
by and between Century Aluminum Company and Pechiney Rolled
Products LLC(f)
2.3 Molten Aluminum Purchase Agreement dated as of September 21,
1999 by and between Century Aluminum of West Virginia, Inc.
and Pechiney Rolled Products LLC(f)
2.4 Amended and Restated Shared Facilities and Services
Agreement dated as of September 21, 1999 by and between
Century Aluminum of West Virginia, Inc. and Pechiney Rolled
Products LLC(f)
3.1 Restated Certificate of Incorporation of Registrant.*
3.2 Amended and Restated Bylaws of Registrant, dated March 5,
1999.(e)
4.1 Form of Stock Certificate.*
10.1 Revolving Credit and Term Loan Agreement among Century
Aluminum Company, Century Aluminum of West Virginia, Inc.,
Berkeley Aluminum, Inc., and Century Cast Plate, Inc., as
Borrowers, various lending institutions, as lenders,
BankBoston, N.A., as Agent, The CIT Group/ Business Credit,
Inc., as Co-Agent, and BancBoston Robertson Stephens Inc.,
as Arranger, dated as of March 31, 1999.(e)
10.2 Alumina Supply Agreement between Alcoa Alumina & Chemicals,
L.L.C., Alcoa of Australia, Ltd. and Ravenswood Aluminum
Corporation, dated July 24, 1995.*(a)
10.4 Agreement between Ravenswood Aluminum Corporation and United
Steelworkers of America AFL-CIO, Local 5668, dated November
30, 1994.*
10.5 Agreement between Ravenswood Aluminum Corporation and United
Steelworkers of America AFL-CIO, Local 5668, dated June 12,
1992.*
10.6 Employment Agreement between Century Aluminum Company and
Craig A. Davis.(b)(e)
10.7 Employment Agreement between Century Aluminum Company and
Gerald A. Meyers.(b)(e)
10.8 Employment Agreement between Century Aluminum Company and
Gerald J. Kitchen.(b)(e)
10.9 Employment Agreement between Century Aluminum Company and
David W. Beckley.(b)(e)
10.10 Form of Employment Agreement between Century Aluminum
Company and Steven R. Sedberry.*(b)
10.11 Form of Severance Agreement between Century Aluminum Company
and Craig A. Davis.*(b)
10.11a Amendment to Severance Protection Agreement between Century
Aluminum Company and Craig A. Davis(e)
10.12 Form of Severance Agreement between Century Aluminum Company
and Gerald A. Meyers.*(b)
10.12a Amendment to Severance Protection Agreement between Century
Aluminum Company and Gerald A. Meyers(e)
10.13 Form of Severance Agreement between Century Aluminum Company
and Gerald J. Kitchen.*(b)
10.13a Amendment to Severance Protection Agreement between Century
Aluminum Company and Gerald J. Kitchen(e)
10.14 Form of Severance Agreement between Century Aluminum Company
and David W. Beckley.*(b)
10.14a Amendment to Severance Protection Agreement between Century
Aluminum Company and David W. Beckley(e)
10.15 Form of Severance Agreement between Century Aluminum Company
and Steven R. Sedberry.*(b)
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.16 1996 Stock Incentive Plan as amended through June 8,
1999.(b)(e)
10.17 Non-Employee Directors Stock Option Plan.*(b)
10.18 Amended and Restated Asset Purchase Agreement between Kaiser
Aluminum & Chemical Corporation and Ravenswood Acquisition
Corporation, dated as of December 13, 1988.*
10.19 Acquisition Agreement between Virgin Islands Alumina
Corporation and St. Croix Alumina, L.L.C., dated July 19,
1995.*
10.20 Ravenswood Environmental Services Agreement between Kaiser
Aluminum & Chemical Corporation and Ravenswood Aluminum
Corporation, dated as of February 7, 1989.*
10.22 Form of Tax Sharing Agreement.*
10.23 Form of Disaffiliation Agreement.*
10.26 Loan and Security Agreement among various financial
institutions, BankAmerica Business Credit, Inc., as agent,
Ravenswood Aluminum Corporation and Berkeley Aluminum, Inc.,
dated as of January 30, 1996.*
10.27 Security Agreement, made by Century Aluminum Company in
favor of BankAmerica Business Credit, Inc. dated as of
January 30, 1996.*
10.28 Guaranty by Century Aluminum Company in favor of BankAmerica
Business Credit, Inc. dated as of January 30, 1996.*
10.29 Agreement among the Pension Benefit Guaranty Corporation,
Century Aluminum Company, Ravenswood Aluminum Corporation,
Berkeley Aluminum, Inc., Ravenswood Receivables Corporation,
Ravenswood International Sales Corp., Virgin Islands Alumina
Corporation, Glencore Holdings AG, Glencore International
AG, Glencore AG, Vialco Holdings Ltd., Glencore Marketing
Inc., Pickands Mather Sales, Inc., Berkeley Finance
Corporation, Adam Maritime Corp., Glencore Canada, Inc. and
Clarendon Coal, Inc., dated as of January 23, 1996.*
10.30 Intercreditor Agreement between the Pension Benefit Guaranty
Corporation and BankAmerica Business Credit, Inc., dated as
of January 30, 1996.*
10.31 Amended and Restated Owners Agreement between Alumax of
South Carolina, Inc., Berkeley Aluminum, Inc. and Glencore
Primary Aluminum Company LLC, dated as of January 26, 1996.*
10.32 Limited Term Firm Power Supply Agreement between Ravenswood
Aluminum Corporation and Ohio Power Company dated as of June
28, 1996.(c)
10.33 Amendment No. 1 to the Limited Term Firm Power Supply
Agreement between Ravenswood Aluminum Corporation and Ohio
Power Company dated as of June 28, 1996.(c)
10.34 Tenth Amendment to Loan and Security Agreement by and among
Century Aluminum of West Virginia, Inc. and Berkeley
Aluminum, Inc. and BankAmerica Business Credit, Inc. entered
into as of May 11,1998.(d)
10.37 Century Aluminum Company 1996 Stock Incentive Plan
Implementation Guidelines.(b)(d)
10.38 Century Aluminum Company Incentive Compensation Plan.(b)(d)
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
27.0 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the Registrant's Form S-1 Registration
Statement, as amended, Registration No. 33-95486.
(a) Confidential treatment has been granted as to portions of this exhibit.
(b) Management contract or compensatory plan.
(c) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
(d) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(e) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
(f) Incorporated by reference to the Registrant's Report on Form 8-K dated
October 6, 1999.
(B) REPORTS ON FORM 8-K: NONE
44
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
CENTURY ALUMINUM COMPANY
By: /s/ GERALD A. MEYERS
------------------------------------
Gerald A. Meyers
President and Chief Operating
Officer
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. DAVIS Chairman and Chief Executive March 30, 2000
- --------------------------------------------------- Officer
Craig A. Davis
/s/ WILLIAM HAMPSHIRE Vice-Chairman March 30, 2000
- ---------------------------------------------------
William R. Hampshire
/s/ GERALD A. MEYERS President, Chief Operating March 30, 2000
- --------------------------------------------------- Officer and Director
Gerald A. Meyers
/s/ DAVID W. BECKLEY Executive Vice President and March 30, 2000
- --------------------------------------------------- Chief Financial Officer
David W. Beckley (Principal Financial Officer
and
Principal Accounting Officer)
/s/ ROMAN A. BNINSKI Director March 30, 2000
- ---------------------------------------------------
Roman A. Bninski
/s/ JOHN C. FONTAINE Director March 30, 2000
- ---------------------------------------------------
John C. Fontaine
/s/ WILLY R. STROTHOTTE Director March 30, 2000
- ---------------------------------------------------
Willy R. Strothotte
/s/ STUART M. SCHREIBER Director March 30, 2000
- ---------------------------------------------------
Stuart M. Schreiber
</TABLE>
45
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Century Aluminum Company:
We have audited the consolidated financial statements of Century Aluminum
Company and subsidiaries (the "Company") as of December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999, and have
issued our report thereon dated February 25, 2000 included elsewhere in this
Form 10-K. Our audits also included the financial statement schedules listed in
Item 14 of this Form 10-K. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 25, 2000
46
<PAGE> 48
CENTURY ALUMINUM COMPANY
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT -- NET........................ $ 843 $ 1,029
INVESTMENTS IN WHOLLY-OWNED SUBSIDIARIES.................... 190,503 195,734
-------- --------
TOTAL............................................. $191,346 $196,763
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DUE TO SUBSIDIARIES......................................... $ 9,191 $ 18,700
OTHER CURRENT LIABILITIES................................... 2,427 580
-------- --------
CURRENT LIABILITIES.................................... 11,618 19,280
CONTINGENCIES AND COMMITMENTS (Note 2)
SHAREHOLDERS' EQUITY
Common Stock.............................................. 202 200
Additional paid-in capital................................ 164,409 161,953
Retained earnings......................................... 15,117 15,330
-------- --------
Total shareholders' equity............................. 179,728 177,483
-------- --------
TOTAL............................................. $191,346 $196,763
======== ========
</TABLE>
See notes to condensed financial information
47
<PAGE> 49
CENTURY ALUMINUM COMPANY
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
EQUITY IN INCOME FROM CONTINUING OPERATIONS OF WHOLLY-OWNED
SUBSIDIARIES.............................................. $ 5,281 $17,937 $1,068
EQUITY IN EXTRAORDINARY CHARGE OF WHOLLY-OWNED
SUBSIDIARIES.............................................. (1,362) -- --
------- ------- ------
NET INCOME.................................................. $ 3,919 $17,937 $1,068
======= ======= ======
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary charge........................ $ 0.26 $ 0.90 $ 0.05
Extraordinary charge...................................... (0.07) -- --
------- ------- ------
Net income................................................ $ 0.19 $ 0.90 $ 0.05
======= ======= ======
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary charge........................ $ 0.26 $ 0.89 $ 0.05
Extraordinary charge...................................... (0.07) -- --
------- ------- ------
Net income................................................ $ 0.19 $ 0.89 $ 0.05
======= ======= ======
</TABLE>
See notes to condensed financial information
48
<PAGE> 50
CENTURY ALUMINUM COMPANY
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET CASH FROM OPERATING ACTIVITIES
Net income................................................ $ 3,919 $ 17,937 $ 1,068
Equity in undistributed net income of subsidiaries........ (3,919) (17,937) (1,068)
Change in other current liabilities....................... 1,847 580 --
------- -------- -------
Net cash provided by operating activities................... 1,847 580 --
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment................. -- (1) (1,275)
Business acquisitions..................................... -- (7,251) --
------- -------- -------
Net cash used in investing activities....................... -- (7,252) (1,275)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from (payments to) subsidiaries................ 2,285 10,672 5,275
Dividends paid............................................ (4,132) (4,000) (4,000)
------- -------- -------
Net cash provided by financing activities................... (1,847) 6,672 1,275
------- -------- -------
Net increase/(decrease) in cash............................. -- -- --
Beginning cash.............................................. -- -- --
------- -------- -------
ENDING CASH................................................. $ -- $ -- $ --
======= ======== =======
</TABLE>
See notes to condensed financial information
49
<PAGE> 51
CENTURY ALUMINUM COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- In the accompanying condensed financial
information of the Registrant ("parent-company-only financial statements"), the
Company's investment in subsidiaries is stated at cost plus equity in
undistributed earnings and losses of subsidiaries. The Company's share of income
from continuing and discontinued operations of subsidiaries is reflected using
the equity method of accounting. Parent-company-only financial statements should
be read in conjunction with the Company's consolidated financial statements and
the notes to such consolidated financial statements appearing in this Form 10-K
("Consolidated Financial Statements").
2. CONTINGENCIES AND COMMITMENTS
For disclosure of contingencies and commitments, see Notes 4, 12 and 13 to
the Consolidated Financial Statements.
3. SHAREHOLDERS' EQUITY
For disclosure of information concerning shareholders' equity, see Note 8
to the Consolidated Financial Statements.
50
<PAGE> 52
CENTURY ALUMINUM COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END
OF PERIOD EXPENSE DEDUCTIONS(1) OF PERIOD
---------- ---------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful trade accounts
receivable.................................... $1,700 $570 $ -- $2,270
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful trade accounts
receivable.................................... $2,270 $120 $ -- $2,390
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful trade accounts
receivable.................................... $2,390 $109 $2,470 $ 29
</TABLE>
- ---------------
(1) On September 21, 1999, the Company and Century of West Virginia completed
the sale of the fabricating businesses to Pechiney. As such, Pechiney
assumed the risk of any bad debts included in the accounts receivable of the
fabricating businesses.
51
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF CENTURY ALUMINUM COMPANY
Subsidiaries of Century Aluminum Company are:
Century Aluminum of West Virginia, Inc.
Berkeley Aluminum, Inc.
Virgin Islands Alumina Corporation, L.L.C.
Ravenswood International Sales Corporation
52
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-15689 for the Century Aluminum Company 1996 Stock Incentive Plan,
Registration Statement No. 333-15671 for the Century Aluminum Company
Non-Employee Directors Stock Option Plan, Registration Statement No. 333-07239
for the Ravenswood Aluminum Corporation Salaried Employee Defined Contribution
Retirement Plan, and Registration Statement No. 333-28827 for the Ravenswood
Aluminum Corporation United Steelworkers of America Savings Plan on Forms S-8 of
our reports dated February 25, 2000 appearing in this Annual Report on Form 10-K
of Century Aluminum Company for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
March 30, 2000
Pittsburgh, Pennsylvania
53
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Century
Aluminum Company Consolidated Financial Statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000949157
<NAME> CENTURY ALUMINUM COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 90,829
<SECURITIES> 0
<RECEIVABLES> 38,528
<ALLOWANCES> 29
<INVENTORY> 44,936
<CURRENT-ASSETS> 196,634
<PP&E> 203,440
<DEPRECIATION> 98,282
<TOTAL-ASSETS> 310,802
<CURRENT-LIABILITIES> 72,243
<BONDS> 0
0
0
<COMMON> 202
<OTHER-SE> 179,526
<TOTAL-LIABILITY-AND-EQUITY> 310,802
<SALES> 566,276
<TOTAL-REVENUES> 566,276
<CGS> 572,921
<TOTAL-COSTS> 572,921
<OTHER-EXPENSES> (16,089)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,535
<INCOME-PRETAX> 5,909
<INCOME-TAX> 628
<INCOME-CONTINUING> 5,281
<DISCONTINUED> 0
<EXTRAORDINARY> 1,362
<CHANGES> 0
<NET-INCOME> 3,919
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
