-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VB5xYqlaf9exM3QEDACAR1xn1RE8y2FflIQuy0NaoiU5xvOVjaUzQ4IxZgfAu1pJ 9gk51RkP2osSJKmbEdeXZA== /in/edgar/work/0000891020-00-002020/0000891020-00-002020.txt : 20001116 0000891020-00-002020.hdr.sgml : 20001116 ACCESSION NUMBER: 0000891020-00-002020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN NORTHWEST ALUMINUM INC CENTRAL INDEX KEY: 0001079177 STANDARD INDUSTRIAL CLASSIFICATION: [3334 ] IRS NUMBER: 931249606 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72245 FILM NUMBER: 768979 BUSINESS ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLAS STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST ALUMINUM SPECIALTIES INC CENTRAL INDEX KEY: 0001079176 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 931019176 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72245-01 FILM NUMBER: 768980 BUSINESS ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLAS STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST ALUMINUM CO CENTRAL INDEX KEY: 0001079178 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 930905834 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72245-02 FILM NUMBER: 768981 BUSINESS ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLAS STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST ALUMINUM TECHNOLOGIES LLC CENTRAL INDEX KEY: 0001079191 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72245-03 FILM NUMBER: 768982 BUSINESS ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDENDALE HOLDING CO CENTRAL INDEX KEY: 0001079192 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72245-04 FILM NUMBER: 768983 BUSINESS ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDENDALE ALUMINUM CO CENTRAL INDEX KEY: 0001079194 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72245-05 FILM NUMBER: 768984 BUSINESS ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 10-Q 1 v67241e10-q.txt FORM 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to ___________ Commission file number 333-72245 GOLDEN NORTHWEST ALUMINUM, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Oregon 93-1249606 - --------------------------------- ---------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization)
3313 West Second Street The Dalles, Oregon 97058 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (541) 296-6161 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT NOVEMBER 13, 2000 ----- -------------------------------- Common Stock 1,000
2 This quarterly report on Form 10-Q also constitutes a quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the following subsidiaries of Golden Northwest Aluminum, Inc.:
State of I.R.S. Employer Commission file incorporation Identification Company number or organization Number - ------- --------------- --------------- -------------- Goldendale Holding Company 333-72245-04 Delaware 91-1785763 Goldendale Aluminum Company 333-72245-05 Delaware 91-1380241 Northwest Aluminum Company 333-72245-02 Oregon 93-0905834 Northwest Aluminum Specialties, Inc. 333-72245-01 Oregon 93-1019176 Northwest Aluminum Technologies, LLC 333-72245-03 Washington 93-1196863
The address of the principal executive offices for each of these entities is 3313 West Second Street, The Dalles, Oregon 97058 and their telephone number is (541) 296-6161. 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) ASSETS
DECEMBER 31, SEPTEMBER 30, 1999 2000 --------- --------- (UNAUDITED) Current assets: Cash and cash equivalents ...................................................... $ 1,929 $ 1,939 Trade accounts receivable, less allowance for doubtful accounts of $100 ........ 54,752 46,436 Current portion of receivable due from related company ......................... 2,639 2,432 Inventories .................................................................... 65,618 78,778 Intercompany receivable ........................................................ 13,106 1,752 Prepaid expenses and other ..................................................... 666 1,546 Income taxes refundable ........................................................ 3,121 2,947 --------- --------- Total current assets .................................................. 141,831 135,830 --------- --------- Property, plant and equipment, net .................................................. 132,961 139,687 Goodwill, net of accumulated amortization of $14,241 and $17,710 ................... 81,348 75,305 Advances to shareholder ............................................................. 2,000 2,000 Receivable due from related company, less current portion ........................... 1,824 1,985 Other assets, net ................................................................... 10,667 8,893 --------- --------- $ 370,631 $ 363,700 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Current portion of long-term debt .............................................. $ 25,279 $ 41,593 Trade accounts payable ......................................................... 45,925 28,467 Accrued expenses ............................................................... 16,806 20,101 Deferred income taxes .......................................................... 1,583 -- --------- --------- Total current liabilities ............................................. 89,593 90,161 --------- --------- Long-term debt, less current portion ................................................ 170,000 170,000 Deferred income taxes ............................................................... 13,644 13,686 Deferred compensation notes payable ................................................. 662 305 Other long-term liabilities ......................................................... 1,825 1,838 Dividends payable ................................................................... 13,163 15,901 --------- --------- Total liabilities ..................................................... 288,887 291,891 --------- --------- Commitments and contingencies (Notes 5 and 6) Preferred stock of subsidiary ....................................................... 29,663 29,663 Shareholder's equity: Common stock; 350,000 shares authorized; 1,000 shares issued and outstanding ................................................................. -- -- Additional paid-in capital ..................................................... 63,628 65,504 Accumulated deficit ............................................................ (11,547) (23,358) --------- --------- Total shareholder's equity ............................................ 52,081 42,146 --------- --------- $ 370,631 $ 363,700 ========= =========
The accompanying notes to interim consolidated financial statements are an integral part of these statements. 1 4 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- --------------------------- 1999 2000 1999 2000 --------- --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) Revenues ................................................. $ 112,718 $ 101,017 $ 323,065 $ 330,279 Cost of revenues ......................................... 105,625 91,277 309,102 302,911 --------- --------- --------- --------- Gross margin ............................................. 7,093 9,740 13,963 27,368 General and administrative expenses ...................... 3,615 6,521 12,234 14,716 --------- --------- --------- --------- Operating income ......................................... 3,478 3,219 1,729 12,652 --------- --------- --------- --------- Other income (expense): Interest expense ...................................... (5,054) (5,561) (16,836) (17,390) Other income (expense), net ........................... 82 (96) 607 (341) --------- --------- --------- --------- Net other expense ........................................ (4,972) (5,657) (16,229) (17,731) --------- --------- --------- --------- Loss before income taxes ................................. (1,494) (2,438) (14,500) (5,079) Income tax expense (benefit) ............................. 846 580 (1,219) 2,118 --------- --------- --------- --------- Net loss ................................................. $ (2,340) $ (3,018) $ (13,281) $ (7,197) ========= ========= ========= ========= Net loss ................................................. $ (2,340) $ (3,018) $ (13,281) $ (7,197) Dividends accrued on preferred stock of subsidiary ....... (911) (914) (2,737) (2,737) --------- --------- --------- --------- Net loss available to common shareholder ................. $ (3,251) $ (3,932) $ (16,018) $ (9,934) ========= ========= ========= ========= Earnings (loss) per share - basic and diluted: Net loss available to common shareholder .............. $ (3,251) $ (3,932) $ (16,018) $ (9,934) ========= ========= ========= ========= Net loss per share of common stock .................... $ (3,251) $ (3,932) $ (16,018) $ (9,934) ========= ========= ========= ========= Weighted average shares of common stock outstanding ... 1,000 1,000 1,000 1,000 ========= ========= ========= =========
The accompanying notes to interim consolidated financial statements are an integral part of these statements. 2 5 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1999 2000 --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net loss ............................................................... $ (13,281) $ (7,197) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization ........................................ 16,271 17,907 Amortization of financing costs ...................................... 784 794 Provision for bad debts .............................................. -- 2,000 Loss on disposal of assets ........................................... 11 524 Deferred income taxes ................................................ (1,220) (315) Change in assets and liabilities: Trade accounts receivable ........................................ (3,672) 6,316 Inventories ...................................................... (5,308) (13,160) Prepaid expenses ................................................. 66 468 Other assets ..................................................... (2,118) 962 Trade accounts payable ........................................... (5,250) (17,458) Accrued expenses ................................................. (3) 3,295 Intercompany receivable .......................................... 4,145 11,354 Income taxes refundable .......................................... 2,257 174 Other liabilities ................................................ 64 13 --------- --------- Net cash provided by (used in) operating activities ....................... (7,254) 5,677 --------- --------- Cash flows from investing activities: Acquisition of property, plant and equipment ........................... (26,218) (21,714) Net payments from related company ...................................... 1,733 46 Proceeds from sale of equipment ........................................ 25 44 --------- --------- Net cash used in investing activities ..................................... (24,460) (21,624) --------- --------- Cash flows from financing activities: Borrowings under revolving credit facilities ........................... 31,733 303,922 Repayments under revolving credit facilities ........................... (28,625) (287,608) Principal repayments of term loan facilities ........................... (17,472) -- Intercompany borrowings ................................................ 14,364 -- Deferred finance costs ................................................. (586) -- Principal payments on deferred compensation notes ...................... (277) (357) --------- --------- Net cash provided by (used in) financing activities ....................... (863) 15,957 --------- --------- Net increase (decrease) in cash and cash equivalents ...................... (32,577) 10 Cash and cash equivalents, beginning of period ............................ 37,633 1,929 --------- --------- Cash and cash equivalents, end of period .................................. $ 5,056 $ 1,939 ========= =========
Supplemental Disclosures of Cash Flow Information (Note 7) The accompanying notes to interim consolidated financial statements are an integral part of these statements. 3 6 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) 1. BASIS OF PRESENTATION The foregoing unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1999. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's (defined below) consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company's consolidated financial position and results of operations. Operating results for the three-month and nine-month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 2. OPERATIONS AND PRINCIPLES OF CONSOLIDATION The operations of Golden Northwest Aluminum, Inc. (the "Company") consist primarily of the smelting conversion of alumina to aluminum, processing of aluminum into primary products, and the sale of those products within one business segment. The Company's operating subsidiaries' smelting operations were under tolling agreements with aluminum suppliers through December 1999. In December 1999, Northwest Aluminum Company chose not to continue its tolling arrangement and allowed it to expire. The Company's operations are located in the Pacific Northwest on the Columbia River. The Company was incorporated in the state of Oregon on June 3, 1998 for the purposes of becoming the holding company of Northwest Aluminum Company, Northwest Aluminum Specialties, Inc. (collectively "Northwest"), Goldendale Holding Company and its wholly owned subsidiary, Goldendale Aluminum Company (collectively "Goldendale"), and Northwest Aluminum Technologies, LLC ("Technologies"). The consolidated financial statements include the accounts of Northwest, Goldendale and Technologies. The Company, Goldendale and Technologies report on a calendar year basis; Northwest reports on a September 30 fiscal year basis. Included in current assets at December 31, 1999 is $13,106 and at 4 7 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) September 30, 2000 is $1,752, representing the portion of intercompany advances which do not eliminate due to the differing year-ends. All other significant intercompany accounts and transactions have been eliminated. 3. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 138 ("SFAS No. 138"), Accounting for Certain Derivative Instruments and Certain Hedging Activities. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 and No. 138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is currently analyzing the financial impact (if any) that the adoption of SFAS No. 133 and No. 138 will have on its consolidated financial statements. 4. INVENTORIES Inventories consist of the following:
DECEMBER 31, SEPTEMBER 30, 1999 2000 ----------- ------------ Aluminum and tolling in process.................... $42,880 $49,954 Supplies and alloys ............................... 13,619 13,824 Carbon plant materials ............................ 5,414 4,200 Alumina ........................................... 3,705 10,800 ------- ------- $65,618 $78,778 ======= =======
5 8 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) 5. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30, 1999 2000 ----------- ------------ First mortgage notes .............. $150,000 $150,000 Subordinated credit agreement ..... 20,000 20,000 Revolving credit facility ......... 25,279 41,593 -------- -------- Long-term debt .................... 195,279 211,593 Less current portion .............. 25,279 41,593 -------- -------- Long-term debt less current portion $170,000 $170,000 ======== ========
In December 1998, the Company issued $150 million of 12% first mortgage notes due on December 15, 2006. Interest is payable semi-annually on June 15 and December 15, commencing June 15, 1999. Payment of the notes is guaranteed by all of the Company's subsidiaries. The debt is collateralized by substantially all of the real property, plant and equipment of the Company's subsidiaries and by a pledge of all of the issued and outstanding capital stock of the Company's subsidiaries. On or after December 15, 2002 the notes are redeemable at the option of the Company at specified redemption prices. There are no sinking fund requirements. The indenture agreement limits principal payments on subordinated debt, dividends or shareholder distributions, and investments in subsidiaries. In connection with the issuance of the notes, each of the Company's direct and indirect wholly owned subsidiaries has jointly and severally guaranteed the notes on a full and unconditional basis. The Company is a holding company with no independent operations or assets other than those relating to its investments in its subsidiaries. Separate financial statements of the subsidiary guarantors are not included because the guarantees are full and unconditional, the subsidiary guarantors are jointly and severally liable and the separate financial statements and other disclosures concerning the subsidiary guarantors are not deemed material to investors by management of the Company. No restrictions exist on the ability of the subsidiary guarantors to make distributions to the Company, except, however, the obligations of each guarantor under its guarantee are limited to the maximum amount as will result in obligations of such guarantor under its guarantee not constituting a fraudulent conveyance or fraudulent transfer for purposes of bankruptcy law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law (e.g. adequate capital to pay dividends under corporate laws). In December 1998, the Company entered into a $75 million bank revolving credit facility, which matures on December 20, 2003, and is collateralized by inventory, accounts receivable and related intangibles, including a security interest in the Company's tolling agreement. As specified in the credit agreement, borrowings under the credit facility bear interest at a floating base rate plus from 0.50% to 1.00% (10.5% at September 30, 2000) or the LIBOR rate plus from 2.00% to 2.50% (9.12% at September 30, 2000). The additional margin is dependent upon the ratio of consolidated earnings before interest, income taxes, depreciation and amortization to consolidated interest expense. The credit facility provides 6 9 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) for the payment of a commitment fee of 0.50% per annum based on the unused portion of the credit facility. The credit agreement contains restrictive covenants, including a minimum net worth requirement, a minimum excess availability requirement and limitations on capital expenditures, dividends, additional indebtedness, mergers and other business combinations, asset sales, encumbrances, investments and transactions with affiliates. The Company was in compliance with these covenants at September 30, 2000. Also in December 1998, the Company entered into a subordinated credit agreement with Norsk Hydro USA, Inc. pursuant to which $20 million was borrowed. The debt bears interest at LIBOR plus 2.00% (8.32% at September 30, 2000) and is due in December 2005. The debt is secured by a second lien and a pledge on the collateral securing the first mortgage notes and is guaranteed by the Company's subsidiaries. Except for the collateral security, the guarantees by the Company's subsidiaries are subordinate to the indebtedness under the bank revolving credit facility. The credit agreement provides for additional borrowings of $10 million on or prior to December 31, 2001. On January 25, 1999, the Company terminated at no cost its then existing interest rate swap agreements and entered into a new swap agreement that expires in 2003. The fixed interest rate paid on the new swap is 6.4% and covers $20 million of notional principal amount of floating rate (LIBOR) indebtedness of the Company. Although the Company is exposed to credit loss on the interest rate swap in the event of nonperformance by the counterparties, the Company estimates the likelihood of such nonperformance to be remote. At December 31, 1999 the fair value of the interest rate swap was approximately $1,029, and at September 30, 2000 the fair value of the contract was approximately $35. These amounts reflect the estimated amount that the Company would pay to terminate the contract. 6. COMMITMENTS AND CONTINGENCIES The Company, in the regular course of business, is involved in investigations and claims by various regulatory agencies. The Company is also engaged in various legal proceedings incidental to its normal business activities. The Company's management does not believe that the ultimate resolution of these investigations, claims and legal proceedings will have a material effect on its financial position, results of operations or cash flows. At September 30, 2000, the Company had a liability of approximately $1,887 ($1,825 at December 31, 1999) for estimated environmental remediation activities at Goldendale's facility. The Company's estimate of this liability is based on a remediation study conducted by independent engineering consultants. The total cost of remediation was estimated at $2,500; however, under a court decree the Company is only responsible for approximately one-half of the total. The remaining cost is the responsibility of prior owners. No accrual has been provided for the Northwest facility as the Company is unaware of any current condition which would give rise to remedial action. 7 10 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) The Company has entered into various agreements for the purchase of power, alumina and aluminum. The Company's agreements (included in the commitment schedule) with the Bonneville Power Administration ("BPA") expire October 2001. Subsequent to September 30, 2000, the Company entered into an agreement with BPA to provide power through September 30, 2006. The Company is renegotiating its alumina supply and tolling agreements. Future estimated minimum payments under these noncancelable agreements are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------ -------- 2000 ................................................. $ 83,990 2001 ................................................. 90,209 2002 ................................................. 31,429 2003 ................................................. 31,429 2004 ................................................. 31,429 2005 ................................................. 7,857 -------- $276,343 ========
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Supplemental disclosures of cash flow information are as follows:
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1999 2000 ------- ------- Cash paid during the period for: Interest ............................................ $11,967 $11,992 Income taxes ........................................ -- 1,669 Non-cash investing and financing activities: Dividends accrued on preferred stock ................ 2,737 2,737 Acquisition contingency accrual: Goodwill .......................................... -- 2,574 Deferred income taxes ............................. -- 2,574
8. SUBSEQUENT EVENTS Beginning in late September 2000, the Company reduced smelter production levels to 60% of capacity as a result of significant increases in the spot market price of power. At reduced production levels, the Company will be able to reshape or sell power contractually available under its existing power contracts with the Bonneville Power Administration to minimize the effect of high market power prices. In connection with this partial curtailment, the Company will reduce its workforce and provide a severance package to employees that are either voluntarily or involuntarily terminated. Costs related to the curtailment and related workforce reduction will be accrued during the fourth quarter of 2000. 8 11 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) 9. NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. AND GOLDENDALE HOLDING COMPANY AND SUBSIDIARY Financial statements and financial statement schedules for Northwest and Goldendale have been omitted because the 12% first mortgage notes issued by the Company and its subsidiaries and registered under the Securities Act of 1933, of which the subsidiaries are guarantors (thus subjecting them to the reporting requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934) are fully and unconditionally guaranteed by the subsidiaries. Financial information relating to these companies is presented herein in accordance with Staff Accounting Bulletin 53 as an addition to the footnotes to the financial statements of Golden Northwest Aluminum, Inc. Summarized unaudited financial information is as follows: Northwest Aluminum Company and Northwest Aluminum Specialties, Inc.
NINE MONTHS ENDED JUNE 30, ---------------------------- 1999 2000 --------- --------- CONDENSED STATEMENT OF OPERATIONS: Revenues: Customers ........................................ $ 201,493 $ 182,368 Parent and related companies ..................... 330 62 --------- --------- 201,823 182,430 Cost of revenues ................................. 194,764 172,322 General and administrative expenses .............. 4,229 6,742 --------- --------- Operating income ................................. 2,830 3,346 Net other expense ................................ (6,923) (9,653) --------- --------- Net loss ......................................... $ (4,093) $ (6,287) ========= ========= CONDENSED BALANCE SHEET: Current assets ................................... $ 78,512 $ 92,165 Non-current assets ............................... 42,127 44,625 --------- --------- Total assets ................................... $ 120,639 $ 136,790 ========= ========= Current liabilities .............................. $ 41,460 $ 69,943 Non-current liabilities .......................... 66,856 66,872 Shareholder's equity ............................. 12,323 (25) --------- --------- Total liabilities and shareholder's equity ..... $ 120,639 $ 136,790 ========= =========
9 12 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) Goldendale Holding Company and Subsidiary
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1999 2000 --------- --------- CONDENSED STATEMENT OF OPERATIONS: Revenues: Customers ........................................... $ 121,572 $ 147,911 Parent and related companies ........................ 214 861 --------- --------- 121,786 148,772 Cost of revenues .................................... 115,527 131,512 General and administrative expenses ................. 7,791 7,702 --------- --------- Operating income (loss) ............................. (1,532) 9,558 Net other expense ................................... (5,289) (6,975) Income tax expense (benefit) ........................ (1,219) 2,118 --------- --------- Net income (loss) ................................... $ (5,602) $ 465 ========= ========= CONDENSED BALANCE SHEET: Current assets ...................................... $ 44,773 $ 43,821 Non-current assets .................................. 181,298 177,273 --------- --------- Total assets ..................................... $ 226,071 $ 221,094 ========= ========= Current liabilities ................................. $ 39,476 $ 34,195 Non-current liabilities ............................. 132,614 139,721 Stockholder's equity ................................ 53,981 47,178 --------- --------- Total liabilities and stockholder's equity ....... $ 226,071 $ 221,094 ========= =========
10 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section should be read in conjunction with the financial statements in Item 1, Part I, of this report. OVERVIEW The aluminum industry is highly cyclical, with market prices fluctuating widely based on global supply and demand factors, most of which are beyond our control. As shown below, for 1999, the average price per pound of aluminum on the London Metal Exchange was approximately the same as for 1998, which was lower than the average price in any of the three previous years. The average three-month LME prices per pound of aluminum in each of the last five years were as follows:
Price Per Year Ended December 31, Pound - ----------------------- -------- 1995 ................................ $ 0.83 1996 ................................ $ 0.70 1997 ................................ $ 0.74 1998 ................................ $ 0.63 1999 ................................ $ 0.63
The timing and magnitude of any increase or decrease in aluminum prices is uncertain. As of September 30, 2000, the three-month LME price per pound of aluminum was $.72, and more recently at October 31, 2000, LME prices have fluctuated around $.67 per pound. Accordingly, we believe our cash flow and earnings in the near term will be somewhat higher than amounts reported for comparable prior periods. Our cash flow and earnings are highly sensitive to aluminum prices because production costs are largely fixed. At low market aluminum prices, we are able to reduce some variable costs, but most of the production costs of primary aluminum are constant in the short term (alumina, labor, carbon, power), and therefore declines in market prices will cause declines in earnings. Conversely, increased market aluminum prices will cause increases in earnings. For these reasons we strive to maximize plant utilization, which reduces the average cost per pound of aluminum. We do not actively hedge our production. To reduce our reliance on market-priced primary aluminum and to improve overall profitability, we have pursued a strategy of increasing both our "tolled" and "non-tolled" value-added production through specialty casting and processing operations. Through these operations, we are able to realize premiums over market LME prices, the amount of which varies with the degree of value-added content of the product and uniqueness of the product in the marketplace. Our volume of value-added production has increased significantly over the past decade relative to the volume of our primary production. Our continued investment in value-added production operations is designed to further increase our value-added production capabilities. As a consequence of this strategy, our volume of non-tolled value-added production at Northwest has grown from 153.7 million pounds in 1993 to 245.3 million pounds in 1999. 11 14 Northwest chose not to renew its tolling agreement with Glencore after December 1999, and instead use its smelter production to source the majority of its material needs in its value-added business. The effect of this non-renewal is the elimination of revenue and gross margin Northwest derived from tolling aluminum for Glencore. This is more than offset by an increase in gross margin from the sale of non-tolled products, because the underlying cost for primary aluminum is Northwest's own production cost rather than the market price. RECENT DEVELOPMENTS Power prices in the Pacific Northwest are extremely high compared to historic levels in the region and have greatly increased the operating costs of the aluminum industry. In the past 5 months, 3 of the 10 aluminum smelters in the region have shut down and 4 more have announced partial shut downs as a result of these prices. Our existing power contracts with the Bonneville Power Administration ("BPA") will require us to purchase power on the spot market in the spring of 2001. After September 30, 2001, our power contracts with BPA and other public utility districts are structured so that, through September 30, 2006, we will be required to purchase approximately 50% of our power requirements from sources other than BPA. As a result of the extremely high forward price of power on the spot market, over the course of the last three months we have shut down one smelter line at each of our facilities, reducing our overall smelter production level to 60% of capacity. We are able to reshape our procurements of power from BPA, moving purchases of excess BPA power resulting from the curtailment to periods in which we would otherwise be required to procure power from other sources. We are also able to resell the excess power provided to us by BPA at a profit on the spot market and purchase blocks of spot market power to cover our needs during periods that are not currently covered by our existing power contracts. The production curtailment will continue until we believe the combination of power prices and aluminum prices will enable us to produce profitably. We have entered into agreements with the local public utility districts ("PUDs") that serve the areas where our facilities are located, under which the PUDs will supply up to 10 megawatts per year to each smelter at rates based on BPA's rate for power sold to them. We also have entered into a Memorandum of Understanding with National Energy Systems Company and BPA to develop a gas-fired combined cycle combustion turbine power generation facility. We expect this facility to be complete sometime in 2002. The new facility may have the effect of lowering the price we pay for power. We are renegotiating our arrangements with suppliers and customers in connection with the curtailment of our operations. We are negotiating an amendment to our tolling agreement with Hydro to reduce the volume of alumina and aluminum covered by the contract. We are also negotiating an amendment of our alumina supply contract with Glencore to allow us to purchase the required quantity of alumina over a longer period. We expect to reduce our usage of other raw materials, such as carbon and bath, in proportion to our reduced production of primary aluminum. We are also negotiating with the United Steel Workers of America, the union representing a majority of our employees, to provide severance packages to employees who are terminated as a result of the curtailment. Finally, we have been reorganizing our management structure, which we believe will further reduce costs. 12 15 As a result of the curtailment, we expect our variable costs, such as the cost of power, to decrease. Because many of our costs are fixed, however, our cost per unit of aluminum produced will increase. The curtailment will not impact our value-added operations to the same extent as primary production. We expect to increase value-added production at our Goldendale facility due to the increased capacity of the casthouse there. As a result of selling excess power, we expect our earnings before interest and taxes and our cash from operations to increase in fiscal 2001. We do not assure you, however, that we will be able to realize any increase in earnings before interest and taxes or cash from operations. RESULTS OF OPERATIONS The following table sets forth the combined statement of income data as a percentage of revenues for the three-month and the nine-month periods ended September 30, 1999 and 2000.
THREE MONTHS ENDED NINE MONTHS ENDED --------------------- --------------------- SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 1999 2000 1999 2000 ----- ----- ----- ----- Revenues .......................... 100.0% 100.0% 100.0% 100.0% Cost of revenues .................. 93.7% 90.4% 95.7% 91.7% ----- ----- ----- ----- Gross margin ...................... 6.3% 9.6% 4.3% 8.3% General and administrative expenses 3.2% 6.4% 3.8% 4.5% ----- ----- ----- ----- Operating income .................. 3.1% 3.2% 0.5% 3.8% Interest expense .................. (4.5)% (5.5)% (5.2)% (5.3)% Other income (expense), net ....... 0.1% (0.1)% 0.2% (0.1)% ----- ----- ----- ----- Net other expenses ................ (4.4)% (5.6)% (5.0)% (5.4)% ----- ----- ----- ----- Loss before income taxes .......... (1.3)% (2.4)% (4.5)% (1.6)% Income tax expense (benefit) ...... 0.8% 0.6% (0.4)% 0.6% ----- ----- ----- ----- Net loss .......................... (2.1)% (3.0)% (4.1)% (2.2)% ===== ===== ===== =====
THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 Total revenues decreased from $112.7 million to $101.0 million in the three months ended September 30, 1999 and September 30, 2000, respectively, a decrease of $11.7 million, or 10.4%. Total revenues increased from $323.1 million to $330.3 million in the nine months ended September 30, 1999 and September 30, 2000, respectively, an increase of $7.2 million, or 2.2%. Revenues were primarily influenced by the cessation of the Glencore tolling agreement, by changes in the market price of aluminum and by production and shipped volumes. The cessation of the Glencore tolling agreement eliminated approximately 0.5 million pounds per day of production billable under tolling arrangements beginning January 1, 2000. Because of Northwest's September 30 year-end, the impact on the Company's consolidated financial statements was reported 13 16 beginning April 1, 2000. For the three months ended September 30 tolling revenues decreased $17.6 million from 1999 to 2000 and for the nine months ended September 30 tolling revenues decreased $35.0 million from 1999 to 2000 due to the cessation of this agreement. Tolling revenues continued to be earned under the Company's Hydro tolling contract and were $44.1 million and $47.1 million for the three-month periods, and $121.6 million and $147.9 million for the nine-month periods, ended September 30, 1999 and September 30, 2000, respectively. Total revenues from tolling agreements decreased from $61.7 million to $47.1 million in the three months ended September 30, 1999 and September 30, 2000, respectively, a decrease of $14.6 million, or 23.7%. Tolling revenues decreased from $177.3 million to $168.6 million for the nine months ended September 30, 1999 and September 30, 2000, respectively, a decrease of $8.7 million, or 4.9%. Volumes produced under tolling contracts decreased from 133.5 million pounds to 85.6 million for the three months ended September 30, 1999 and September 30, 2000, respectively, and decreased from 393.4 million pounds to 308.6 million pounds for the nine months ended September 30, 1999 and September 30, 2000, respectively. Other than the decrease due to the non-renewal of the Glencore tolling agreement, the changes in production level under tolling arrangements were due primarily to the cyclical nature of our cell relining activity. Volume changes, excluding the impact of the cessation of the Glencore tolling agreement, caused revenues from tolling to decrease by $1.3 million for the three months ended September 30, 2000 over the same period ended September 30, 1999 and caused revenues from tolling to increase by $4.0 million for the nine months ended September 30, 2000 over the same period ended September 30, 1999. Offsetting the impact of volume changes, increases in average effective LME aluminum prices from $.68 per pound to $.75 per pound for the three months ended September 30, 1999 and September 30, 2000, respectively, pushed revenues from tolling contracts upward by $4.3 million. The average effective LME aluminum prices for the nine months ended September 30, 1999 and September 30, 2000 were $.63 per pound and $.76 per pound, respectively, causing a $38.1 million increase in revenues from tolling contracts. Sales of non-tolled products increased from $51.0 million to $53.9 million in the three months ended September 30, 1999 and September 30, 2000, respectively, and increased from $145.8 million to $161.7 million for the nine months ended September 30, 1999 and September 30, 2000, respectively. The primary factors affecting revenues from sales of non-tolled products were the rise in market prices of aluminum and changes in volumes shipped. Shipments of non-tolled aluminum products were 67.7 million pounds and 67.2 million pounds in the three months ended September 30, 1999 and September 30, 2000, respectively. For the nine-month periods ended September 30, shipments of non-tolled aluminum products increased from 197.0 million pounds for 1999 to 205.5 million pounds in 2000. These changes in volumes decreased revenues $0.4 million for the three-month periods and increased revenues $6.7 million for the nine-month periods. The 4.3% increase in shipments for the nine-month periods ended September 30 was due primarily to the continuing strength of the economy and the Company's pursuit of value added markets. In addition to the impact from changes in volume, an increase in average selling price of $.05 per pound because of the overall rise in the market price of aluminum provided increases in non-tolling 14 17 revenues. For the three-month periods the positive impact from price was $3.3 million and for the nine-month periods the positive impact was $9.2 million. Cost of revenues decreased from $105.6 million to $91.3 million in the three months ended September 30, 1999 and September 30, 2000, respectively, a decrease of $14.3 million, or 13.6%. Cost of revenues decreased from $309.1 million to $302.9 million in the nine months ended September 30, 1999 and September 30, 2000, respectively, a decrease of $6.2 million, or 2.0%. As a percentage of revenues, cost of revenues declined from 93.7% to 90.4% for the three-month periods and declined from 95.7% to 91.7% for the nine-month periods ended September 30. The primary influences on cost of revenues were the cessation of the Glencore tolling agreement, changes in market aluminum prices and increases in power costs. Beginning January 1, 2000, the cessation of the Glencore tolling agreement enabled us to utilize our Northwest smelting capacity to provide material for our sales of non-tolled value-added product. This eliminated $18.2 million of cost of revenues related to tolling activities for the three months ended September 30, 2000 and eliminated $36.2 million of cost of revenues related to tolling for the nine months ended September 30, 2000. In addition, the cost of materials for approximately 75% of our non-tolled value-added product is now at our internal smelter production cost instead of market aluminum prices, reducing our costs of revenues by $6.8 million for the three months and $13.6 million for the nine-months ended September 30, 2000 compared to the same periods in 1999. The increased market price of aluminum from 1999 to 2000 resulted in an increase in our purchased metal costs of $1.1 million for the comparative three month periods ended September 30. For the nine month periods ended September 30, the increased market price of aluminum resulted in our purchased metal costs increasing for the comparative periods by $5.9 million. For the three-month periods ended September 30, power costs increased $0.4 million from $19.8 million in 1999 to $20.2 million in 2000. For the nine-month periods ended September 30, they increased $9.7 million from $61.1 million in 1999 to $70.8 million in 2000. The increases resulted from increases in the market price of power. Gross margin increased from $7.1 million in the three months ended September 30, 1999 to $9.7 million in the three months ended September 30, 2000, an increase of 36.6%. Gross margin increased from $14.0 million in the nine months ended September 30, 1999 to $27.4 million in the nine months ended September 30, 2000, an increase of 95.7%. As a percentage of revenues, gross margin rose from 6.3% to 9.6% for the three month periods, and rose from 4.3% to 8.3% for the nine month periods, ended September 30, 1999 and 2000, respectively. The increase in gross margin resulted primarily from the changes in revenues and cost of revenues (discussed above). General and administrative expenses increased from $3.6 million to $6.5 million in the three months ended September 30, 1999 and September 30, 2000, respectively, an increase of 80.4%. General and administrative expenses increased from $12.2 million to $14.7 million for the nine months ended September 30, 1999 and September 30, 2000, respectively, an increase of 20.5%. As a percentage of revenues, general and administrative expenses increased from 3.2% to 6.4% for the related three-month periods, and increased from 3.8% to 4.5% for the related nine-month periods. The increases resulted 15 18 primarily from the recognition of a $2.0 million provision for the possible non-collection of an account receivable. Interest expense increased from $5.1 million to $5.6 million in the three months ended September 30, 1999 and September 30, 2000, respectively. Interest expense increased from $16.8 million to $17.4 million in the nine months ended September 30, 1999 and September 30, 2000, respectively. The increase from 1999 to 2000 is due to increased borrowings under the revolving credit facility. Income tax expense was $0.9 million and $0.6 million in the three months ended September 30, 1999 and September 30, 2000, respectively. Income tax benefit decreased from $1.2 million to an income tax expense of $2.1 million for the nine months ended September 30, 1999 and September 30, 2000, respectively. These changes were due primarily to changes in taxable income or loss in the corresponding periods in 1999 and 2000. As a result of the foregoing factors, we reported a net loss of $3.0 million in the three months ended September 30, 2000 versus a net loss of $2.3 million in the three months ended September 30, 1999. For the nine months ended September 30, 2000, we reported a net loss of $7.2 million, versus a net loss of $13.3 million for the nine months ended September 30, 1999. LIQUIDITY AND CAPITAL RESOURCES Historically, our cash and capital requirements have been satisfied through cash generated from operating activities and borrowings under our primary credit facilities. Our credit facility with Fleet Capital (previously BankBoston) is a $75.0 million senior secured revolving credit facility collateralized by all of the inventory, accounts receivable and other rights to payment of our subsidiaries. Availability under the revolving line of credit is controlled by a borrowing base formula based on eligible receivables and inventory, and there must always be at least $15 million excess borrowing base available at any given time. Based on this formula, the net availability under the revolving line of credit was $67.7 million at September 30, 2000, and we had $41.6 million outstanding under this credit facility at September 30, 2000. More recently at October 31, 2000, the net availability under the revolving line of credit was $70.4 million and we had $45.6 million outstanding. Our liquidity and capital needs relate primarily to payment of principal and interest on borrowings, capital expenditures, including our facilities investment program, and distributions to our sole shareholder to pay income taxes. Subject to reasonable market aluminum prices, we will require approximately $9.9 million in 2000 for our facilities investment program. The first stage of the facilities investment program consisting of an expansion of the Goldendale casthouse and a 34-cell demonstration of new cell line technology should be substantially completed by the end of 2000. Our liquidity and capital needs also relate to working capital and other general corporate requirements, including the incremental working capital needs in connection with the cessation of the Glencore tolling agreement in December 1999. Additionally, the Goldendale preferred stock became redeemable at our discretion after December 31, 1998. We anticipate that the funds necessary to redeem the Goldendale preferred stock would be drawn 16 19 from our revolving credit facility with Fleet. Furthermore, we are subject to a number of contingencies and uncertainties. Our statement of cash flows for the periods indicated are summarized below:
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1999 2000 -------- -------- Net cash provided by (used in) operating activities $ (7,254) $ 5,677 Net cash used in investing activities (24,460) (21,624) Net cash provided by (used in) financing activities (863) 15,957 Increase (decrease) in cash (32,577) 10
The net cash provided by operating activities was $5.7 million for the nine months ended September 30, 2000, and the net cash used in operating activities was $7.3 million for the nine months ended September 30, 1999. Of the net cash provided by operating activities during the nine months ended September 30, 2000, $11.7 million was attributable to cash provided by our net income, as adjusted for non-cash charges. In addition, changes in working capital used net cash of $6.0 million. The increase in working capital was primarily due to the transition from the Glencore tolling arrangement with related impacts on trade accounts receivable, inventories and trade accounts payable. Of the net cash used in operating activities during the nine months ended September 30, 1999, $2.6 million was attributable to cash provided by our net loss, as adjusted for non-cash charges. In addition, changes in working capital used net cash of $9.9 million. The increase in working capital requirements was due to the normalization of credit terms with a primary supplier. Net cash used in investing activities was $21.6 million and $24.5 million in the nine months ended September 30, 2000 and September 30, 1999, respectively. Cash used in investing activities in the nine months ended September 30, 2000 was primarily attributable to capital expenditures of $21.7 million. Cash used in investing activities in the nine months ended September 30, 1999 was primarily attributable to capital expenditures of $26.2 million. Net cash provided by financing activities was $16.0 million in the nine months ended September 30, 2000, compared to net cash used in financing activities of $0.9 million in the nine months ended September 30, 1999. Net cash provided by financing activities in the nine months ended September 30, 2000 was primarily attributable to net borrowings of $16.3 million under our revolving credit facility. We believe cash flow from curtailed operations and the sale of the resulting excess electrical power, available borrowings under our revolving credit facility and under our note purchase agreement with Hydro and cash on hand will provide adequate funds for our foreseeable working capital needs, planned capital expenditures and debt service and other obligations through 2001. 17 20 Our ability to fund operations, make planned capital expenditures, such as our facilities investment program, make principal and interest payments on the notes, and remain in compliance with all of the financial covenants under our debt agreements will be dependent on our future operating performance. Our future operating performance is dependent on a number of factors, including aluminum prices and power costs, many of which are beyond our control. These factors include prevailing economic conditions and financial, competitive, regulatory and other factors affecting our business and operations, and may be dependent on the availability of borrowings under our revolving credit facility or other borrowings. We do not assure you our cash flow from operations, together with other sources of liquidity, will be adequate: - - to make required payments of principal and interest on the notes and our other debt; - - to finance anticipated capital expenditures; - - to fund working capital requirements; or - - to fund the possible redemption of all outstanding shares of the Goldendale preferred stock. If we do not have sufficient available resources to repay any of our indebtedness when it becomes due and payable, we may need to refinance the indebtedness. We do not assure you refinancing will be available or available on reasonable terms. SEASONALITY AND INFLATION Our results of operations can be affected by seasonal factors, such as substantial increases in the cost of electricity in the fall and winter. We do not believe inflation has had a material effect on the combined financial statements for the periods presented. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 138 ("SFAS No. 138"), Accounting for Certain Derivative Instruments and Certain Hedging Activities. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 and No. 138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. We are currently analyzing the financial impact, if any, that the adoption of SFAS No. 133 and No. 138 will have on our consolidated financial statements. 18 21 FORWARD-LOOKING STATEMENTS This report contains statements which constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report (see, for example, "-Overview," "-Recent Developments," "-Results of Operations," and "-Liquidity and Capital Resources"). Such statements can be identified by the use of forward looking terminology such as "believes," "expects," "may," "estimates," "will," "should," "plans," or "anticipates" or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors include the following: - - fluctuations in the price of primary aluminum; - - fluctuations in the cost of electricity; - - servicing our substantial indebtedness; - - the incurrence of future indebtedness; - - restrictions on our ability to operate our business imposed by the terms of our indebtedness; - - the effects of federal and state environmental laws and regulations; - - the continued viability of the technology used in our smelters; - - our ability to operate effectively without tolling agreements, including the Glencore tolling agreement; - - retaining and recruiting key personnel; and - - changes in labor relations with the unions representing our employees. Other factors include the effectiveness of management's strategies and decisions, general economic and business conditions, developments in technology, new or modified statutory or regulatory requirements, and changing prices and market conditions. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We manage interest rate risk through the strategic use of fixed and variable interest rate debt and, to a limited extent, interest rate derivatives. At September 30, 2000, our derivative instrument consisted of an interest rate swap agreement which expires in 2003 and effectively fixes our interest rate at 6.4% on 19 22 a notional principal amount of $20.0 million on our floating rate long-term debt. The agreement requires quarterly cash settlements for interest rate fluctuation outside of the fixed rate. 20 23 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10.1 Amendment No. 3 to Power Sale Agreement, dated September 28, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest. 10.2 Amendment No. 4 to Power Sale Agreement, dated September 18, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Goldendale. 27.1 Financial Data Schedule. (b) Reports on form 8-K. No reports on Form 8-K were filed during the period. 21 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOLDEN NORTHWEST ALUMINUM, INC. NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM SPECIALTIES, INC. Date: November 13, 2000 By: /s/ WILLIAM R. REID -------------------------- William R. Reid Chief Financial Officer GOLDENDALE HOLDING COMPANY GOLDENDALE ALUMINUM COMPANY NORTHWEST ALUMINUM TECHNOLOGIES, LLC Date: November 13, 2000 By: /s/ JESSIE CASSWELL -------------------------- Jessie Casswell Chief Financial Officer 22 25 EXHIBIT INDEX 10.1 Amendment No. 3 to Power Sale Agreement, dated September 28, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest. 10.2 Amendment No. 4 to Power Sale Agreement, dated September 18, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Goldendale. 27.1 Financial Data Schedule. EX-10.1 2 v67241ex10-1.txt EXHIBIT 10.1 1 [DEPARTMENT OF ENERGY LETTERHEAD] October 24, 2000 In reply refer to: PS-6 Amendment No. 3 Contract No. 95MS-94862 Mr. Brett Wilcox President and CEO Northwest Aluminum Company 3313 West 2nd Street The Dalles, OR 97058 Dear Mr. Wilcox: Northwest Aluminum Company (Company) has informed the Bonneville Power Administration (BPA) that high power market prices will make it impractical for the Company to continue to operate at full capacity. As part of a plan to maintain plant operations for an extended period, the Company has requested that BPA allow it to (1) revise Exhibit D of Contract No. 95MS-94862 (Block Sale Contract) to reshape the power available to the Company in Fiscal Year 2001, and (2) remarket power under section 18(b) of the Block Sale Contract. This will enable the Company to make optimum use of BPA power as it makes changes in smelter operating levels that are more sustainable in the current energy market. The Company has indicated that this strategy of production curtailment, reshaping, and remarketing are important elements of a plan to sustain operations at the 80-85 megawatts (MW) level until some other source of power is available. BPA agrees to allow the Company to revise its Exhibit D, subject to the Company agreeing to this letter agreement (Amendment No. 3), which expressly obligates the Company to use all remarketing revenues to support its plan to maintain plant operations at its facility in the 80-85 MW range, and to mitigate the impact on Company employees adversely affected by reduced smelter operations. Accordingly, BPA proposes the following: 1. EFFECTIVE DATE. This Amendment No. 3, when executed by the Parties, shall become effective on September 28, 2000. 2. AMENDMENT OF BLOCK SALE CONTRACT. A new section 18(b)(5) is added as follows: 2 "(5) USE OF REMARKETING REVENUES. The Company will use revenues from remarketing power under this section 18(b) for the following purposes only: (A) To purchase power in the October 1, 2000 through September 30, 2006 period to help maintain smelter operations at the Northwest plant at the planned 80-85 MW level; (B) To mitigate the impact on employees affected by the reduced smelter operating levels; (C) To offset cancellation penalties and other costs of reducing obligations for alumina and other materials; and (D) To cover fixed costs the Company demonstrates cannot be reduced as operating levels are reduced. The Company's obligations under this section 18(b)(5) will survive the termination of this Agreement. The Company hereby agrees that if it uses revenues from remarketing for any purpose other than those listed above in this section 18(b)(5), BPA may reduce the amount of power sold to the Company under the Company's power sales contract for the period October 1, 2001 through September 30, 2006. The amount of such reduction shall be commensurate in value with the amount of revenues used for purposes other than those listed above. All remarketing by the Company will continue to be subject to all other provisions in section 18 of the body of this Agreement, as amended by this section 18(b)(5)." 3. REVISION TO EXHIBIT D. A revised Exhibit for the October 2000 through September 2001 period is attached to this Amendment No. 3. 3 If you agree to the terms of this Amendment No. 3 and the attached Exhibit D, please date and sign both copies of each, return one original copy of each to me, and keep the other originals for your files. Sincerely, Senior Account Executive Name Sydney D. Berwager ------------------------------------- (Print/Type) ACCEPTED: NORTHWEST ALUMINUM COMPANY By /s/ ALLEN BARKLEY ---------------------------------- Name Allen Barkley -------------------------------- (Print/Type) Title General Manager ------------------------------- Date 10/25/00 -------------------------------- EX-10.2 3 v67241ex10-2.txt EXHIBIT 10.2 1 [DEPARTMENT OF ENERGY LETTERHEAD] October 24, 2000 In reply refer to: PS-6 Amendment No. 4 Contract No. 95MS-94854 Mr. Brett Wilcox President and CEO Goldendale Aluminum Company 3313 West Second Street The Dalles, OR 97058 Dear Mr. Wilcox: Goldendale Aluminum Company (Company) has informed the Bonneville Power Administration (BPA) that high power market prices will make it impractical for the Company to continue to operate at full capacity. As part of a plan to maintain plant operations for an extended period, the Company has requested that BPA allow it to (1) revise Exhibit D of Contract No. 95MS-94854 (Block Sale Contract) to reshape the power available to the Company in Fiscal Year 2001, and (2) remarket power under section 18(b) of the Block Sale Contract. This will enable the Company to make optimum use of BPA power as it makes changes in smelter operating levels that are more sustainable in the current energy market. The Company has indicated that this strategy of production curtailment, reshaping, and remarketing are important elements of a plan to sustain operations at the 205-210 megawatts (MW) level until some other source of power is available. BPA agrees to allow the Company to revise its Exhibit D, subject to the Company agreeing to this letter agreement (Amendment No. 4), which expressly obligates the Company to use all remarketing revenues to support its plan to maintain plant operations at its facility in the 205-210 MW range, and to mitigate the impact on Company employees adversely affected by reduced smelter operations. Accordingly, BPA proposes the following: 1. EFFECTIVE DATE. This Amendment No. 4 when executed by the Parties, shall become effective on September 28, 2000. 2. AMENDMENT OF BLOCK SALE CONTRACT. A new section 18(b)(5) is added as follows: 2 "(5) USE OF REMARKETING REVENUES. The Company will use revenues from remarketing power under this section 18(b) for the following purposes only: (A) To purchase power in the October 1, 2000 through September 30, 2006 period to help maintain smelter operations at the Goldendale plant at the planned 205-210 MW level; (B) To mitigate the impact on employees affected by the reduced smelter operating levels; (C) To offset cancellation penalties and other costs of reducing obligations for alumina and other materials; and (D) To cover fixed costs the Company demonstrates cannot be reduced as operating levels are reduced. The Company's obligations under this section 18(b)(5) will survive the termination of this Agreement. The Company hereby agrees that if it uses revenues from remarketing for any purpose other than those listed above in this section 18(b)(5), BPA may reduce the amount of power sold to the Company under the Company's power sales contract for the period October 1, 2001 through September 30, 2006. The amount of such reduction shall be commensurate in value with the amount of revenues used for purposes other than those listed above. All remarketing by the Company will continue to be subject to all other provisions in section 18 of the body of this Agreement, as amended by this section 18(b)(5)." 3. REVISION TO EXHIBIT D. A revised Exhibit for the October 2000 through September 2001 period is attached to this Amendment No. 4. 3 If you agree to the terms of this Amendment No. 4 and the attached Exhibit D, please date and sign both copies of each, return one original copy of each to me, and keep the other originals for your files. Sincerely, Senior Account Executive Name Sydney D. Berwager ------------------------------------- (Print/Type) ACCEPTED: GOLDENDALE ALUMINUM COMPANY By /s/ --------------------------------- Name ------------------------------- (Print/Type) Title ------------------------------ Date ------------------------------- EX-27.1 4 v67241ex27-1.txt FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GOLDEN NORTHWEST ALUMINUM, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001079177 GOLDEN NORTHWEST 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1,939 0 46,436 100 78,778 135,830 139,687 0 363,700 90,161 170,000 0 29,663 0 65,504 363,700 330,279 330,279 302,911 302,911 14,716 2,000 17,390 (5,079) 2,118 (7,197) 0 0 0 (7,197) (9,934) (9,934)
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