<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000.
Commission file number 0-27918
CENTURY ALUMINUM COMPANY
(Exact name of Registrant as specified in its Charter)
DELAWARE 13-3070826
(State of Incorporation) (IRS Employer Identification No.)
2511 GARDEN ROAD
BUILDING A, SUITE 200
MONTEREY, CALIFORNIA 93940
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (831) 642-9300
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
The registrant had 20,339,203 shares of common stock outstanding at
October 31, 2000.
<PAGE> 2
CENTURY ALUMINUM COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1 - Financial Statements Page Number
<S> <C>
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999.......................................................... 1
Consolidated Statements of Operations for the three months
and nine months ended September 30, 2000 and 1999.............................. 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999.............................................. 3
Notes to the Consolidated Financial Statements................................. 4-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 12-18
Item 3 - Quantitative and Qualitative Disclosures About Market Risk......................... 18-19
Part II - Other Information
Item 1 - Legal Proceedings................................................................ 20
Item 4 - Submission of Matters to a Vote of Stockholders.................................. 20
Item 6 - Exhibits and Reports on Form 8-K................................................. 20
Signatures................................................................................ 21
Exhibit Index............................................................................. 22
</TABLE>
<PAGE> 3
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ..................................................................... $ 23,079 $ 85,187
Restricted cash equivalents .............................................. -- 5,642
Accounts receivable, trade - net ......................................... 32,146 38,499
Due from affiliates ...................................................... 12,531 15,991
Inventories .............................................................. 41,626 44,936
Prepaid and other assets ................................................. 6,955 6,379
-------- --------
Total current assets ................................................ 116,337 196,634
PROPERTY, PLANT AND EQUIPMENT - NET ........................................... 180,831 105,158
OTHER ASSETS .................................................................. 15,579 9,010
-------- --------
TOTAL ............................................................... $312,747 $310,802
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade .................................................. $ 24,253 $ 29,134
Due to affiliates ........................................................ 2,633 10,737
Accrued and other current liabilities .................................... 16,272 27,770
Accrued employee benefits costs - current portion ........................ 4,774 4,602
-------- --------
Total current liabilities ........................................... 47,932 72,243
-------- --------
ACCRUED PENSION BENEFITS COSTS - Less current portion ......................... 3,725 3,589
ACCRUED POSTRETIREMENT BENEFITS COSTS - Less current portion .................. 41,175 39,391
OTHER LIABILITIES ............................................................. 24,691 15,851
-------- --------
Total noncurrent liabilities ........................................ 69,591 58,831
-------- --------
SHAREHOLDERS' EQUITY:
Common Stock (one cent par value, 50,000,000 shares authorized; 20,339,203
shares outstanding at September 30, 2000 and 20,202,538 at December 31,
1999) ................................................................. 203 202
Additional paid-in capital ............................................... 166,184 164,409
Retained earnings ........................................................ 28,837 15,117
-------- --------
Total shareholders' equity .......................................... 195,224 179,728
-------- --------
TOTAL ............................................................... $312,747 $310,802
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE> 4
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES:
Third-party customers ............ $ 78,419 $ 134,334 $ 223,145 $ 428,957
Related parties .................. 32,684 18,711 93,472 56,453
--------- --------- --------- ---------
111,103 153,045 316,617 485,410
COST OF GOODS SOLD .................... 103,026 160,189 292,500 491,823
--------- --------- --------- ---------
GROSS PROFIT (LOSS) ................... 8,077 (7,144) 24,117 (6,413)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .......... 3,370 5,396 9,825 13,997
--------- --------- --------- ---------
OPERATING INCOME (LOSS) ............... 4,707 (12,540) 14,292 (20,410)
GAIN ON SALE OF FABRICATING BUSINESSES -- 41,130 5,156 41,130
INTEREST INCOME (EXPENSE) - Net ....... 399 (1,808) 1,887 (5,360)
NET LOSS ON FORWARD CONTRACTS ......... (1,116) (763) (641) (3,263)
OTHER INCOME (EXPENSE) ................ (127) (5) 2,738 (673)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ............ 3,863 26,014 23,432 11,424
INCOME TAX BENEFIT (EXPENSE) .......... 486 (9,365) (6,559) (2,613)
--------- --------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM .. 4,349 16,649 16,873 8,811
EXTRAORDINARY ITEM - WRITE-OFF OF
DEFERRED BANK FEES, NET OF INCOME TAX
BENEFIT OF $766 ....................... -- (1,362) -- (1,362)
--------- --------- --------- ---------
NET INCOME ............................ $ 4,349 $ 15,287 $ 16,873 $ 7,449
========= ========= ========= =========
EARNINGS PER COMMON SHARE
Basic
Net income before extraordinary item $ 0.21 $ 0.82 $ 0.83 $ 0.43
Extraordinary item ................. $ -- $ (0.06) $ -- $ (0.06)
Net income ......................... $ 0.21 $ 0.76 $ 0.83 $ 0.37
Diluted
Net income before extraordinary item $ 0.21 $ 0.82 $ 0.83 $ 0.43
Extraordinary item ................. $ -- $ (0.06) $ -- $ (0.06)
Net income ......................... $ 0.21 $ 0.76 $ 0.83 $ 0.37
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic .............................. 20,339 20,202 20,339 20,202
========= ========= ========= =========
Diluted ............................ 20,399 20,354 20,405 20,333
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE ............ $ 0.05 $ 0.05 $ 0.15 $ 0.15
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
2
<PAGE> 5
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 16,873 $ 7,449
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................. 10,726 15,878
Deferred income taxes .......................................... 5,439 8,278
Pension and other postretirement benefits ...................... 2,092 (14,560)
Inventory market adjustment .................................... 1,631 5,344
Gain on sale of fabricating businesses ......................... (5,156) (41,130)
Change in operating assets and liabilities: Accounts receivable,
trade - net ............................................... 6,353 (31,049)
Due from affiliates ....................................... 7,931 5,639
Inventories ............................................... 5,541 30,048
Prepaids and other assets ................................. (2,859) (3,607)
Accounts payable, trade ................................... (6,531) 13,663
Due to affiliates ......................................... (943) (5,580)
Accrued and other current liabilities ..................... (13,594) (7,823)
Other - net ............................................... 12,673 1,692
--------- ---------
Net cash provided by (used in) operating activities ............ 40,176 (15,758)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ........................... (10,039) (19,639)
Purchase price adjustment related to business acquisitions .......... -- 296
Acquisition ......................................................... (94,734) --
Proceeds from sale of fabricating businesses ........................ -- 245,400
Restricted cash deposits ............................................ 5,642 (4)
--------- ---------
Net cash provided by (used in) investing activities ............ (99,131) 226,053
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings .......................................................... -- 340,708
Repayment of borrowings ............................................. -- (430,097)
Dividends ........................................................... (3,153) (3,122)
--------- ---------
Net cash used in financing activities .......................... (3,153) (92,511)
--------- ---------
NET INCREASE (DECREASE) IN CASH ........................................... (62,108) 117,784
CASH, BEGINNING OF PERIOD ................................................. 85,187 12
--------- ---------
CASH, END OF PERIOD ....................................................... $ 23,079 $ 117,796
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 6
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. GENERAL
On September 21, 1999, Century Aluminum Company ("Century" or the
"Company") and Century Aluminum of West Virginia, Inc. ("Century of West
Virginia") sold the net assets of their two aluminum fabricating businesses to
Pechiney Rolled Products LLC ("Pechiney"). Century's fabricating businesses
consisted of Century Cast Plate, Inc. ("Century Cast Plate") located in Vernon,
California and the rolling and casting operations of Century of West Virginia,
located in Ravenswood, West Virginia ("Pechiney Transaction"). During the second
quarter of 2000 the Company reached a settlement of the post-closing purchase
price adjustments of the fabrication businesses and recorded a $5,156 increase
to the gain from the sale. The financial results for the third quarter and first
nine months of 1999 include the operations of the fabricating businesses.
Century is a holding company whose principal subsidiary is Century of
West Virginia, which operates a primary aluminum reduction facility in
Ravenswood, West Virginia. Century of West Virginia, through its wholly-owned
subsidiary Berkeley Aluminum, Inc. ("Berkeley"), holds a 49.67% interest in a
partnership which operates a primary aluminum reduction facility in Mt. Holly,
South Carolina ("MHAC") and a 49.67% undivided interest in the property, plant
and equipment comprising MHAC. Glencore International AG (the "Glencore Group"
or "Glencore") is a major shareholder of Century. See footnote 7 included in
these financial statements.
Glencore owns 7,925,000 common shares, or 39.0% of the common shares
outstanding of the Company. Century and the Glencore Group enter into various
transactions such as the purchase and sale of primary aluminum, alumina and
metals risk management.
The accompanying unaudited interim consolidated financial statements of
the Company should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1999. In management's
opinion, the unaudited interim consolidated financial statements reflect all
adjustments, which are of a normal and recurring nature, which are necessary for
a fair presentation, in all material respects, of financial results for the
interim periods presented. Operating results for the first nine months of 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
4
<PAGE> 7
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------- -------
<S> <C> <C>
Raw materials .............. $26,330 $27,271
Work-in-process ............ 2,779 2,899
Finished goods ............. 3,327 5,715
Operating and other supplies 9,190 9,051
------- -------
$41,626 $44,936
======= =======
</TABLE>
At September 30, 2000 and December 31, 1999, approximately 78% and 80%,
respectively, of inventories were valued at the lower of last-in, first-out
("LIFO") cost or market. The excess of the first-in, first-out ("FIFO") cost
over LIFO cost (or market, if lower) of inventory was approximately $492 at
September 30, 2000 and the excess of LIFO cost (or market, if lower) over FIFO
cost was approximately $1,845 at December 31, 1999.
3. BANK REVOLVING CREDIT FACILITY
On March 31, 1999, the Company entered into an agreement with
BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to
provide up to $160,000 of revolving credit facilities 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 in the
Pechiney Transaction and additionally required that on the closing date the
Company repay all amounts outstanding under the revolving credit facilities. On
September 21, 1999, the Company repaid its outstanding debt under the revolving
credit facilities and the Company and its lenders agreed to reduce the
facilities from $160,000 to $67,083.
On April 7, 2000, a second amendment to the Bank Agreement was
completed to permit the purchase of the additional 23% interest in MHAC. In
addition, the amendment revises the definitions of eligible inventory and
receivables for determining the borrowing base and provides for certain
revisions to the restrictive covenants contained in the Bank Agreement. The
restrictive covenants include limitations on the payment of dividends and the
making of capital expenditures, and require the maintenance of certain financial
ratios. There were no outstanding borrowings as of September 30, 2000.
5
<PAGE> 8
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
4. CONTINGENCIES AND COMMITMENTS
Environmental Contingencies
The Company's operations are subject to various environmental laws and
regulations. The Company has spent, and expects to spend in the future,
significant amounts for compliance with those laws and regulations.
Pursuant to an 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. 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 early 2001.
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.
7
<PAGE> 9
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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. The second area is a portion of the site beneath which is a plume of oil
floating on groundwater. On March 31, 2000, the Company received from the EPA a
Draft Administrative Order on Consent directing Hess Oil Virgin Islands, Inc.
("HOVIC"), owner of an adjacent oil refinery, the Company and all other past and
present owners of the site to prepare and carry out a remedial work plan. The
Company believes that the majority of the plume originated from the HOVIC
refinery. 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 but only to the extent such conditions arose
from operation of the facility by Vialco. St. Croix may not request indemnity
from Vialco until St. Croix has spent $300 on such environmental conditions and
Vialco's indemnity to St. Croix is capped at $18,000. Vialco purchased the site
in 1989 from a predecessor company of Lockheed Martin Corporation ("Lockheed").
Lockheed has tendered indemnity and defense of this matter to Vialco pursuant to
terms of the Lockheed-Vialco Asset Purchase Agreement. Management of the Company
does not believe its 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 $874 at September 30,
2000 and December 31, 1999, respectively. All accruals have been recorded
without giving effect to any possible future insurance or Kaiser indemnity
proceeds. With respect to ongoing environmental compliance costs, including
maintenance and monitoring, such costs are expensed as incurred.
Because of the issues and uncertainties described above, and the
Company's inability to predict the requirements of future environmental laws,
there can be no assurance that future capital expenditures and costs for
environmental compliance will not have a material adverse effect on the
Company's future financial condition, results of operations or liquidity. Based
upon all available information, 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 2,362 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
7
<PAGE> 10
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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.
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. During the
second quarter, the Company received $3,000 in partial settlement of the
insurance claim and included the amount in "other income" in the Company's
statement of operations for the nine months ended September 30, 2000.
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 all such
scheduled contributions. Pursuant to the PBGC Agreement, the Company 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 agreed to 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.
8
<PAGE> 11
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS
The Company produces primary aluminum products and manages pricing risk
through the use of fixed price sales commitments and financial instruments.
In connection with the sale of the aluminum fabricating businesses in
September 1999, the Company entered into a Molten Aluminum Purchase Agreement
(the "Metal Agreement") with Pechiney, that shall continue in effect until July
31, 2003 with provisions for extension. Pursuant to the Metal Agreement,
Pechiney has agreed to purchase and the Company has agreed to deliver, on a
monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds
of molten aluminum. The selling price is determined by a market based formula.
Subsequent to the purchase of an additional 23% interest in MHAC from
Xstrata, the Company entered into a ten year agreement with Glencore (the
"Glencore Metal Agreement") to sell approximately 110.0 million pounds of
primary aluminum products per year. Selling prices for the first two years are
determined by a market based formula. The remaining eight years of the contract
are at a fixed price as defined in the agreement.
Exclusive of the Metal Agreement and the Glencore Metal Agreement, the
Company had fixed price commitments to sell 72.2 million pounds and 100.2
million pounds of primary aluminum at September 30, 2000 and December 31, 1999,
respectively. Of these fixed price sales commitments, 25.9 million pounds and
68.3 million pounds at September 30, 2000 and December 31, 1999, respectively,
were with the Glencore Group. The Company had no fixed price commitments to
purchase aluminum at September 30, 2000 or December 31, 1999.
The Company uses financial instruments, primarily forward sales
contracts for primary aluminum to be settled in cash, to manage the Company's
exposure to fluctuating aluminum prices. At September 30, 2000 and December 31,
1999, the Company had forward sales contracts, primarily with the Glencore
Group, for 288.9 million and 60.0 million pounds, respectively. Forward sales
contracts at September 30, 2000 are scheduled for settlement at various dates in
2000 through 2002. Based on market prices at September 30, 2000, these contracts
could be settled by the Company paying approximately $2,400. 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 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 addition, as part of its acquisition of an
additional 23% interest in MHAC, the Company assumed a supply agreement with
Glencore for the alumina raw material requirements relative to the additional
interest. The unit cost is based on a fixed percentage of the market price of
primary aluminum as quoted on the LME. The alumina supply agreement expires in
2008.
9
<PAGE> 12
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
SEPTEMBER 30,
-----------------------
2000 1999
------- -------
<S> <C> <C>
Cash paid for:
Interest ......... $ 218 $ 6,288
Income taxes ..... 616 1,903
Cash received from:
Interest ......... 2,143 --
Income tax refunds 13,322 174
</TABLE>
7. ACQUISITIONS
Effective April 1, 2000, Century, through its wholly-owned indirect
subsidiary Berkeley, increased its 26.67% undivided interest in certain
property, plant and equipment of MHAC to 49.67% by purchasing a 23% undivided
interest from Xstrata AG ("Xstrata") a publicly traded Swiss company. As part of
the purchase, Berkeley also acquired Xstrata's 23% interest in the general
partnership which operates and maintains MHAC (the "Operating Partnership", and
together with MHAC, the "Mt. Holly Assets"). Prior to Berkeley's purchase of the
Mt. Holly Assets, it held a 26.67% undivided interest in MHAC and a 26.67%
interest in the Operating Partnership. Glencore is a major shareholder of
Xstrata.
The sale was completed pursuant to an Asset Purchase Agreement dated as
of March 31, 2000 (the "Purchase Agreement") by and between Berkeley and
Xstrata. The aggregate purchase price for the Mt. Holly Assets was $95,000,
subject to certain post-closing adjustments. Under the terms of the Purchase
Agreement, Berkeley agreed to assume certain of Xstrata's obligations and
liabilities relating to the Mt. Holly Assets. The terms of the Purchase
Agreement were determined through arms'-length negotiations between the parties.
The Company used available cash to complete the purchase.
MHAC has the capacity to produce up to 480 million pounds of primary
aluminum per year. Century's 49.67% ownership represents 238.4 million pounds of
this capacity.
10
<PAGE> 13
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The following schedule represents the unaudited pro forma results of
operations for the nine months ended September 30, 2000 and 1999 assuming the
acquisition occurred on January 1, 1999. The unaudited pro forma amounts may not
be indicative of the results that actually would have occurred if the
transaction described above had been completed and in effect for the periods
indicated or the results that may be obtained in the future. The unaudited pro
forma amounts only include the effects of the Glencore Metal Agreement after
April 1, 2000.
<TABLE>
<CAPTION>
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 334,698 $ 532,433
Net income before extraordinary item 14,436 1,009
Net income 14,436 (353)
Diluted earnings per share before extraordinary item 0.71 0.05
Diluted earnings per share $ 0.71 $ (0.02)
</TABLE>
On August 31, 2000, the Company entered into a stock purchase agreement
with Southwire Company ("Southwire"), a privately held wire and cable
manufacturing company based in Carrollton, Georgia. Under this agreement, the
Company will acquire all of the outstanding equity securities of Metalsco Ltd.,
a wholly-owned subsidiary of Southwire which owns a direct 1% partnership
interest in NSA Ltd. ("NSA") and an indirect 99% interest in NSA through its
wholly-owned subsidiary, Skyliner, Inc. (the "Transaction"). Southwire owns
(through Metalsco Ltd.) and operates an aluminum reduction operation in
Hawesville, Kentucky (the "Hawesville facility") which the Company will acquire.
The Hawesville facility has the capacity to produce 237,000 metric tons (523
million pounds) of primary aluminum per year.
Under the stock purchase agreement, the Company will also acquire from
Southwire, certain land, facilities and rights related to NSA's aluminum
reduction operations which are not held by NSA. The purchase price is $460,000
plus the assumption of $7,800 in industrial revenue bonds and is subject to
certain post-closing adjustments. Completion of the purchase is contingent upon,
among other matters, the Company concluding financing for the acquisition.
11
<PAGE> 14
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENT UNDER THE PRIVATE
SECURITIES REFORM ACT OF 1995.
This quarterly report on Form 10-Q 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 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations," "Part
I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk" and
"Part II, Item 1 Legal Proceedings." 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.
The following information should be read in conjunction with the
Company's 1999 Form 10-K along with the consolidated financial statements and
related footnotes included within the Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ACQUISITIONS AND DISPOSITIONS
On September 21, 1999, the Company and Century of West Virginia sold
their two aluminum fabricating businesses. Accordingly, the following
information includes the operations of these businesses in 1999 through the date
of sale.
On April 1, 2000, the Company purchased an additional 23% interest in
Mt. Holly for cash consideration of $95.0 million, subject to certain
post-closing adjustments. This purchase increased Century's ownership to 49.67%.
Mt. Holly has the capacity to produce up to 480 million pounds of primary
aluminum per year. Century's ownership represents 238.4 million pounds of this
capacity.
On August 31, 2000, the Company entered into a stock purchase agreement
with Southwire Company ("Southwire"), a privately held wire and cable
manufacturing company based in Carrollton, Georgia. Under this agreement, the
Company will acquire all of the outstanding equity securities of Metalsco Ltd.,
a wholly-owned subsidiary of Southwire which owns a direct 1% partnership
interest in NSA Ltd. ("NSA") and an indirect 99% interest in NSA
12
<PAGE> 15
through its wholly-owned subsidiary, Skyliner, Inc. (the "Transaction").
Southwire owns (through Metalsco Ltd.) and operates an aluminum reduction
operation in Hawesville, Kentucky (the "Hawesville facility") which the Company
will acquire. The Hawesville facility has the capacity to produce 237,000 metric
tons (523 million pounds) of primary aluminum per year.
Under the stock purchase agreement, the Company will also acquire from
Southwire, certain land, facilities and rights related to NSA's aluminum
reduction operations which are not held by NSA. The purchase price is $460,000
plus the assumption of $7,800 in industrial revenue bonds and is subject to
certain post-closing adjustments. Completion of the purchase is contingent upon,
among other matters, the Company concluding financing for the acquisition.
OVERVIEW
The Company is a manufacturer of primary aluminum. The aluminum
industry is highly cyclical and the market price of aluminum (which trades as a
commodity) has been volatile from time to time. The principal elements
comprising the Company's cost of goods sold are raw materials, energy and labor.
The major raw materials and energy sources used by the Company in its production
process are alumina, coal tar, pitch, petroleum coke, aluminum fluoride and
electricity.
The Company produces t-ingot, rolling ingot, extrusion billet and
foundry ingot. A significant portion of the Company's shipments are to a related
party (the Glencore Group).
Because a majority of the Company's costs are fixed, results of
operations are sensitive to changes in the market price of aluminum and to
fluctuations in volume. The market price for primary aluminum remained
relatively stable during the third quarter of 2000 and the Company's shipments
were essentially level with the second quarter of 2000. Demand continues to be
strong for primary aluminum products and worldwide aluminum inventories are
approaching historic lows.
A shortage of electrical power at affordable rates is continuing to
cause a number of the Company's competitors to curtail production at certain of
their reduction facilities. Due to the Company's use of fixed contract pricing
for its power needs, no such curtailment is anticipated at either of the
Company's facilities.
RESULTS OF OPERATIONS
Century's financial highlights include (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales
Third-party customers $ 78,419 $134,334 $223,145 $428,957
Related party customers 32,684 18,711 93,472 56,453
-------- -------- -------- --------
Total 111,103 153,045 316,617 485,410
Net income $ 4,349 $ 15,287 $ 16,873 $ 7,449
Earnings per share - basic $ 0.21 $ 0.76 $ 0.83 $ 0.37
</TABLE>
13
<PAGE> 16
Net sales. Net sales for the three months ended September 30, 2000
decreased $41.9 million or 27.4% to $111.1 million from $153.0 million for the
same period in 1999. The decrease was primarily the result of the sale of the
fabricating businesses in September 1999, offset by higher aluminum prices and
increased volumes from the Company's additional 23% interest in MHAC. Net sales
for the nine months ended September 30, 2000 were $316.6 million, a decrease of
$168.8 million or 34.8% from $485.4 million for the nine months ended September
30, 1999. The decrease was primarily the result of the sale of the fabricating
businesses, partially offset by higher aluminum prices and additional volume
from the Company's increased interest in MHAC.
Gross profit. Gross profit for the three months ended September 30,
2000 increased $15.2 million to $8.1 million from a gross loss of $7.1 million
for the three months ended September 30, 1999. The increase was primarily the
result of a $0.07 per pound increase in price realizations in the third quarter
of 2000 compared to the same period in 1999 and the additional interest in MHAC
acquired by the Company in April 2000. The increases were partially offset by
the sale of the fabricated products businesses. For the nine months ended
September 30, 2000 gross profit increased $30.5 million to $24.1 million from a
gross loss of $6.4 million for the same period in 1999. The increase was also
primarily the result of higher aluminum prices and the additional interest in
MHAC.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended September 30, 2000 decreased
$2.0 million or 37.5% to $3.4 million from $5.4 million for the three months
ended September 30, 1999. This decrease was primarily the result of the sale of
the fabricated products businesses in September 1999. For the nine months ended
September 30, 2000 selling, general and administrative expenses decreased $4.2
million or 30.0% to $9.8 million from $14.0 million for the nine months ended
September 30, 1999. This decrease was also primarily a result of the sale of the
fabricated products businesses in September 1999.
Operating income. Operating income for the three and nine months ended
September 30, 2000 was $4.7 million and $14.3 million, respectively. This
compares with an operating loss of $12.5 million and $20.4 million for the three
and nine months ended September 30, 1999. Operating income increased for the
reasons discussed above.
Gain On Sale of Fabricating Businesses. For the nine months ended
September 30, 2000, the Company recorded a gain on the sale of its fabricating
businesses of $5.2 million. This resulted from the settlement of post-closing
adjustments to the transaction as originally recorded. For the three and nine
months ended September 30, 1999, the Company recorded a gain on the sale of its
fabricating businesses of $41.1 million.
14
<PAGE> 17
Net Interest Income or Expense. Net interest income during the three
and nine months ended September 30, 2000 was $0.4 million and $1.9 million,
respectively. This compares with net interest expense of $1.8 and $5.4 million,
respectively, for the same periods in 1999. The change in interest was due to
the absence of borrowings and the earnings on invested cash during the first
nine months of 2000 resulting from the sale of the fabrication businesses net of
the additional investment in Mt. Holly.
Net Gains/Losses on Forward Contracts. The Company recorded a loss on
forward contracts of $1.1 million for the three months ended September 30, 2000
compared to a loss of $0.8 million for the same period in 1999. For both
periods, rising LME aluminum prices decreased the market value of the Company's
forward contracts relative to their June 30 market values, resulting in a loss.
For the nine months ended September 30, 2000, the Company recorded a loss on
forward contracts of $0.6 million. Higher LME prices as of September 30, 2000
relative to their December 31 market values resulted in the loss. For the nine
months ended September 30, 1999, the Company recorded a loss on forward
contracts of $3.3 million. Higher LME aluminum prices as of September 30, 1999
decreased the market value of the Company's forward contracts relative to their
December 31, 1998 market value, resulting in a loss.
Other Income/Expense. Other expense for the three months ended
September 30, 2000 was $0.1 million. For the nine months ended September 30,
2000, other income was $2.8 million compared to other expense of $0.7 million
for the same period in 1999. The change in other income resulted from the
receipt of $3.0 million during the second quarter of 2000 in partial settlement
of the Company's business interruption and property damage claim with its
insurance carrier. The claim was a result of the illegal work stoppage at the
Company's Ravenswood, West Virginia operation in August 1999.
Tax Provision/Benefit. Income tax benefit for the three months ended
September 30, 2000 was $0.5 million. Income tax expense for the three months
ended September 30, 1999 was $9.4 million. The benefit in 2000 is the result of
a reduction in the estimated income taxes of $1.9 million. Income tax expense
for the nine months ended September 30, 2000 and 1999 was $6.6 million and $2.6
million, respectively. The change in income taxes was a result of higher pre-tax
income in 2000 and the accrual adjustment.
Net Income/Loss. The Company had net income after extraordinary items
of $4.3 million and $16.9 million during the three and nine months ended
September 30, 2000 compared to net income of $15.3 million and $7.4 million
during the comparable 1999 periods. The increase in net income was primarily the
result of higher price realizations, the partial insurance settlement in the
second quarter of 2000 and the income tax accrual adjustment in the third
quarter of 2000. The net income in 1999 was primarily the result of the $41.1
million gain on the sale of the fabricating businesses during September 1999.
15
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $68.4 million and $124.4 million at
September 30, 2000 and December 31, 1999, respectively. The decrease is due
primarily to the cash purchase of an additional 23% interest in Mt. Holly on
April 1, 2000. The Company's liquidity requirements arise primarily from working
capital needs and capital investments.
The Company's statements of cash flows for the nine months ended September 30,
2000 and 1999 are summarized below (dollars in thousands):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net cash from (used in) operating activities....... $ 40,176 $ (15,758)
Net cash from (used in) investing activities....... (99,131) 226,053
Net cash from (used in) financing activities....... (3,153) (92,511)
--------- ---------
Increase (decrease) in cash........................ $ (62,108) $ 117,784
========= =========
</TABLE>
Operating activities generated $40.2 million in net cash during the
first nine months of 2000. In the first nine months of 1999, operating
activities used $15.8 million in net cash. The increase in cash flow was
primarily the result of higher operating income during the nine months ended
September 30, 2000.
The Company's net cash used in investing activities was $99.1 million
during the first nine months of 2000 compared to net cash generated of $226.1
million during the first nine months of 1999. The change between periods was
primarily due to the purchase of an additional interest in Mt. Holly for $95.0
million in April 2000 and funds received from the sale of the fabricating
businesses in 1999 of which there were none in 2000.
Net cash used in financing activities was $3.2 million during the first
nine months of 2000 compared to $92.5 million in the first nine months of 1999.
The Company had net repayments on borrowings for the nine months ended September
30, 1999 compared to no repayments for the same period in 2000.
On March 31, 1999, the Company entered into an agreement with
BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to
provide up to $160.0 million of revolving 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.
On September 15, 1999, the Bank Agreement was amended to permit the
sale of the fabricating businesses in the Pechiney Transaction and additionally
required that on the closing date the Company repay all amounts outstanding
under the revolving credit facilities. The Company and its lenders agreed to
reduce the revolving credit facilities from $160.0 million to $67.1 million.
On April 7, 2000, a second amendment to the Bank Agreement was
completed to permit the purchase of the additional 23% interest in Mt. Holly. In
addition, the amendment revises the definitions of eligible inventory and
receivables for determining the borrowing base and provides for certain
revisions to the restrictive covenants contained in the Bank Agreement. The
restrictive covenants include restrictions on the payment of dividends and the
making of capital expenditures, and require the maintenance of certain financial
ratios.
16
<PAGE> 19
The Company believes that cash flows from operations and funds that will be
available under its bank agreements will be sufficient to meet its working
capital requirements, capital expenditures and debt service requirements in the
near term and for the foreseeable future.
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
The Company has incurred and, in the future, will continue to incur
capital expenditures and operating expenses for matters relating to
environmental control, remediation, monitoring and compliance. The aggregate
environmental related accrued liabilities were $0.9 million at September 30,
2000 and December 31, 1999, respectively. The Company believes that compliance
with current environmental laws and regulations is not likely to have a material
adverse effect on the Company's financial condition, results of operations or
liquidity; however, environmental laws and regulations have changed rapidly in
recent years and the Company may become subject to more stringent environmental
laws and regulations in the future. In addition, the Company may be required to
conduct remediation activities in the future pursuant to various orders issued
by the EPA and West Virginia Department of Environmental Protection. There can
be no assurance that compliance with more stringent environmental laws and
regulations that may be enacted in the future, or future remediation costs,
would not have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
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 Note 4 to Consolidated Financial Statements appearing in Part I,
Item 1.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
SFAS No. 138 which amended certain provisions of SFAS 133, including an
amendment to expand the normal purchase and sale exemption for supply contracts.
The Company will be required to adopt SFAS 133, as amended by SFAS 138 on
January 1, 2001.
The Company has established an implementation team to evaluate the
impact that adopting SFAS 133 will have on the Company's operations. Based on
the implementation teams preliminary analysis, it is anticipated that most of
the Company's fixed priced commitments will qualify for the normal purchase and
sale exemption provided in SFAS 138 and therefore will not have a material
effect on the Company's financial condition or results of operations. It is
further anticipated that the Company's financial instruments, which are
currently recorded at fair value through the statement of operations, may be
designated as cash flow hedges. Such a designation as provided in SFAS 133 as of
September 30, 2000, would have resulted in an after tax increase of $0.4 million
in net income for the nine month period ended September 30, 2000 and a $1.8
million cumulative after tax reduction in other comprehensive income as of
September 30, 2000.
17
<PAGE> 20
NEW STAFF ACCOUNTING BULLETIN - REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" which currently must be adopted no later than the fourth quarter of
fiscal years beginning after December 15, 1999. SAB No. 101 provides additional
guidance on revenue recognition, as well as criteria for when revenue is
generally realized and earned, and also requires the deferral of incremental
direct selling costs. On October 13, 2000 the SEC issued Frequently Asked
Questions and Answers (FAQs) relating to SAB 101. The Company is currently
assessing the impact of SAB No. 101 and related FAQs on our results of
operations and financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICES
Century produces primary aluminum products. 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.
In connection with the sale of the aluminum fabricating businesses in
September 1999, the Company entered into a Molten Aluminum Purchase Agreement
(the "Metal Agreement") with Pechiney, that shall continue in effect until July
31, 2003 with provisions for extension. Pursuant to the Metal Agreement,
Pechiney has agreed to purchase and the Company has agreed to deliver, on a
monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds
of molten aluminum. The selling price is determined by a market based formula.
Subsequent to the purchase of an additional 23% interest in MHAC from
Xstrata , the Company entered into a ten year agreement with Glencore (the
"Glencore Metal Agreement") to sell approximately 110.0 million pounds of
primary aluminum products per year. The selling price for the first two years is
determined by a market based formula. The remaining eight years of the contract
are at a fixed price as defined in the agreement.
Exclusive of the Metal Agreement and the Glencore Metal Agreement, the
Company had fixed price commitments to sell 72.2 and 100.2 million pounds of
primary aluminum at September 30, 2000 and December 31, 1999, respectively. Of
these fixed price sales commitments, 25.9 million pounds and 68.3 million pounds
at September 30, 2000 and December 31, 1999, respectively, were with the
Glencore Group. 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. Prices
for the years 2002 through 2006 will be subject to agreement between the
parties. In addition, as part of its acquisition of an additional 23% interest
in Mt. Holly, the Company assumed a supply agreement with Glencore for the
alumina raw material requirements relative to the additional interest. The unit
cost is based on a fixed percentage of the market price of primary aluminum as
quoted on the LME. The alumina supply agreement expires in 2008.
18
<PAGE> 21
At September 30, 2000, the Company had entered into 288.9 million
pounds of forward primary aluminum sales contracts primarily with the Glencore
Group to mitigate the risk of commodity price fluctuations inherent in its
business. These contracts will be settled in cash at various dates during 2000
and 2002. Based on market prices at September 30, 2000, these financial
instruments could be settled by the Company paying approximately $2.4 million.
The actual settlement will be based on market prices at the respective
settlement dates.
On a hypothetical basis a $0.01 per pound increase in the market price
of primary aluminum is estimated to have an unfavorable impact of $1.8 million
on net income for the nine months ended September 30, 2000 as a result of the
forward primary aluminum sale contracts entered into by the Company at September
30, 2000. This quantification of the Company's exposure to the commodity price
of aluminum is necessarily limited, as it does not take into consideration the
Company's inventory or fixed price commitments, or the offsetting impact upon
the sales price of primary 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.
19
<PAGE> 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 4. Submission of Matters to a Vote of Stockholders -
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.0 - Financial Data Schedule
(b) Reports on Form 8-K
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century Aluminum Company
Date: November 14, 2000 By: /s/ Craig A. Davis
----------------- -------------------------------------
Craig A. Davis
Chairman/Chief Executive Officer
Date: November 14, 2000 By: /s/ David W. Beckley
----------------- --------------------------------------
David W. Beckley
Executive Vice-President/Chief Financial
Officer
21
<PAGE> 24
EXHIBIT INDEX
Exhibit
Number Description
------- ------------------------------------------
27.0 Financial Data Schedule
22
