-----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, OhSpLUHsGBNWC+DwKns/8/aS+9D2qzsk5jwerQS7RsaA5a4MV7QLCXkEicWC6x0W 3xyUH6Lq7+Dy5A5bJKDycw== 0001095811-01-002078.txt : 20010409 0001095811-01-002078.hdr.sgml : 20010409 ACCESSION NUMBER: 0001095811-01-002078 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN NORTHWEST ALUMINUM INC CENTRAL INDEX KEY: 0001079177 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 931249606 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-72245 FILM NUMBER: 1592267 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-K405 SEC ACT: SEC FILE NUMBER: 333-72245-01 FILM NUMBER: 1592268 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-K405 SEC ACT: SEC FILE NUMBER: 333-72245-02 FILM NUMBER: 1592269 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-K405 SEC ACT: SEC FILE NUMBER: 333-72245-03 FILM NUMBER: 1592270 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-K405 SEC ACT: SEC FILE NUMBER: 333-72245-04 FILM NUMBER: 1592271 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-K405 SEC ACT: SEC FILE NUMBER: 333-72245-05 FILM NUMBER: 1592272 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-K405 1 v70819e10-k405.txt FORM 10-K405 PERIOD ENDED DECEMBER 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 0-19657 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) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (541) 296-6161 ------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None (Title of each class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 27, 2001 the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was $0. Solely for purposes of this calculation, the registrant has treated its Board of Directors and executive officers as affiliates. As of March 27, 2001, the number of shares of the registrant's Common Stock outstanding was 1,000 shares. DOCUMENTS INCORPORATED BY REFERENCE: Not applicable. 2 This annual report on Form 10-K also constitutes an annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the following subsidiaries of Golden Northwest Aluminum, Inc.:
- ------------------------------------------------------------------------------------------------------------------------- State of I.R.S. Employer Commission file incorporation or Identification Company number 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. SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. No annual report or proxy material has been sent to security holders. 3 GOLDEN NORTHWEST ALUMINUM, INC. TABLE OF CONTENTS
ITEM PAGE NO. NO. - --- --- PART I............................................................................................................1 1. Business..................................................................................................1 2. Properties...............................................................................................13 3. Legal Proceedings........................................................................................13 4. Submission of Matters to a Vote of Security Holders......................................................13 PART II..........................................................................................................14 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................14 6. Selected Financial Data..................................................................................14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................15 7(a). Quantitative and Qualitative Disclosures about Market Risk..............................................24 8. Financial Statements and Supplemental Data...............................................................24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................24 PART III.........................................................................................................25 10. Directors and Executive Officers of the Registrant.......................................................25 11. Executive Compensation...................................................................................27 12. Security Ownership of Certain Beneficial Owners and Management...........................................28 13. Certain Relationships and Related Transactions...........................................................28 PART IV..........................................................................................................30 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........................................30
4 PART I ITEM 1. BUSINESS Our company was incorporated in 1998, and, through its three primary operating subsidiaries, Goldendale Aluminum Company, Northwest Aluminum Company and Northwest Aluminum Specialties, Inc., is a leading producer of primary aluminum and selected specialty engineered high quality value-added aluminum products. Our revenues come from two main sources: fees received from tolling alumina into aluminum and sales of value-added aluminum products. At our two facilities on the Columbia River east of Portland, Oregon, we operate two primary aluminum smelters with combined production capacity of 250,000 metric tons, making us one of the five largest primary aluminum producers in the United States. We produce approximately two-thirds of our primary aluminum under a tolling agreement with Hydro Aluminum Louisville, Inc., a large international industrial and trading company. In conjunction with our smelter operations, we operate three casthouses that produce a range of value-added aluminum products, including our proprietary line of direct-cast, small diameter, alloyed billet products. We sell value-added billet and related products directly to the extrusion and direct forge industries for further processing into final products such as fire extinguishers, automobile air bag canisters, golf club heads, bicycle frames and a variety of automotive and aircraft parts. We believe our cost competitive position, strategic relationships, investment in new smelting and casting technologies and mix of higher-margin, value-added products are key competitive advantages and have been primary determinants of our historical profitability. We believe that historically we have ranked among the lower cost aluminum producers in the United States. We attribute our historical profitability to a number of factors including access to and innovative procurement of low-cost hydroelectric power, technical innovation at the plant level, good labor relations and low levels of corporate overhead. The aluminum industry in the Pacific Northwest is facing a critical time in its history. Among the primary factors affecting any aluminum smelting operation is the cost of its electrical power. Due to an extreme under-supply of power and other factors, the market price of electrical power in the Pacific Northwest has risen to a level that currently prohibits smelting operations in a cost effective manner. We were able to remarket most of our existing supply of power at prices in excess of its cost, with the proceeds to be applied to certain "Qualified Expenditures," as described below. We believe that through partnering with our primary supplier of electricity, our labor force, and our major suppliers, in the future we will be able to continue operating our smelters at reduced levels while still meeting our obligations to employees, creditors and others. Additionally, by pursuing the development of new power generation facilities, we believe we will not only survive the current crisis, but will emerge as a more efficient provider of aluminum with access to lower cost power and with the ability to re-market that power during periods of high market power prices. ACCESS TO ELECTRIC POWER One of our primary costs is electrical power and prior to mid-2000, those costs had been relatively stable. The source of the majority of our power has been through the Bonneville Power Administration (BPA). We have supplemented the BPA power with purchases of market power during time periods when market prices historically have been lower than the price we pay BPA under our contract. Because electricity is both necessary for the manufacturing of aluminum and the single largest cost of making primary aluminum, the availability and pricing of electricity and access to transmission is crucial to our operations. Approximately 80% of all power produced or consumed in the Pacific Northwest is delivered over the transmission system of BPA. Both of our smelters are connected directly to the main high voltage transmission grid of BPA. Each plant has a 20-year transmission agreement with BPA, expiring in April 2015, for transmission capacity that we believe is sufficient to meet both plants' existing and projected energy needs. These transmission agreements obligate BPA to offer Goldendale Aluminum Company and Northwest Aluminum Company a new transmission agreement upon the expiration of the current agreements. Moreover, the transmission agreements also obligate BPA to act as agent for Goldendale and Northwest to obtain transmission services over other transmission systems if requested. With the exception of limited rights to restrict transmission service in the event of certain threats to system stability, the transmission agreements obligate BPA to provide Goldendale and Northwest with the same 1 5 open access transmission available to utilities and power companies under the rules of the Federal Energy Regulatory Commission. Goldendale and Northwest are buying energy from BPA under a five-year power sale agreement through which approximately 60% of each plant's energy needs are contractually secured at predetermined prices through September 30, 2001. The published annual average rate for power from BPA is 2.2 cents per kilowatt-hour. The power sale agreement allows us to schedule our purchases in different months when power is priced at different rates in such a way that power purchased from BPA has an actual rate that is lower than the published average rate. The remaining 40% of Northwest's and Goldendale's energy requirements is obtained by purchasing blocks of energy under periodic contracts from various suppliers, including BPA, PacifiCorp, Enron, Illinova Energy, Duke Energy, Avista Energy, the Avista Utilities and others. Beginning in the latter part of 2000, the power market began suffering from extreme under-supply pressures and other factors, resulting in a sharp increase in power prices. These prices required us to adjust the power procurement strategies we had pursued in the past. We had planned to cover our power needs for half of February, all of March and April, and half of May of 2001 by purchasing power on the spot market. The forward prices of power, however, made it clear that market power for those months would not be affordable. We were unwilling to shut down all of our smelting operations during those months due to the costs involved. We chose to reduce our production capacity to approximately 60% of normal beginning in October 2000. Our intent was to have BPA remarket and sell power we did not need because of reduced production and to use the resulting proceeds to buy power for any open periods. We refer to the process of using proceeds from BPA's remarketing of power to purchase power during other periods as "reshaping." Our current power sale contract with BPA allows us to reshape our power purchases in this manner. We proceeded with the curtailment, the related reduction in our work force and adjustments to our long-term alumina supply contracts. BPA remarketed and sold the excess power made available for the months of October, November and December of 2000, and part of the excess power of January 2001. By the end of December 2000, market prices for electrical power had further escalated to the point that the financially prudent option was to have all electrical power available to us remarketed by BPA instead of producing aluminum with it. Late in December, we shut down essentially all remaining smelter production capacity, leaving only approximately 25 metric tons of capacity on line at the Goldendale facility and none at Northwest. We entered into an agreement with BPA which allows BPA to remarket the power available to us and use these proceeds to reimburse us for defined qualified expenditures. Additionally, agreements were made with the United Steel Workers of America in regard to employee lay-offs, with Norsk Hydro Americas, Inc. in regard to readjusting our tolling contract with Hydro and with Glencore in regard to readjusting the alumina supply contract. We entered into a Remarketing Addendum (the "Addendum") with BPA in December 2000. Under the Addendum, our operating subsidiaries, Goldendale Aluminum Company and Northwest Aluminum Company, agreed to curtail smelter production and assist BPA in remarketing the electric power that they had the right to purchase. BPA agreed to use the proceeds from the remarketing to reimburse Goldendale Aluminum Company and Northwest Aluminum Company or their designees for specified qualified expenditures, including, among others, expenses associated with debt service and workforce reductions resulting from the curtailment, and expenditures for the planning, licensing, siting, acquisition and/or construction of conventional or renewable resources to provide power for future operations of our smelters. For a given sale of remarketed power, the net proceeds are equal to the revenue received by BPA in the sale, minus the price we would have been obligated to pay had we purchased the power, minus a specified amount retained by BPA, plus any interest costs BPA avoids as a result of the net proceeds. We estimate that from December 29, 2000 through September 30, 2001, $285.0 million of net proceeds will be available for reimbursement of qualified expenditures. The Addendum is effective through the earlier of the date on which all of the net proceeds have been paid by BPA or September 30, 2010. In October 2000, we entered into a new power sale agreement with BPA that will be effective from October 1, 2001 through September 30, 2006. The contract will allow us to direct available power to either or both of our operating facilities. Approximately 50% of our power requirements will be met through the contract. Last summer, BPA completed a rate proceeding to determine the base rate under this new power contract. The base rate adopted by BPA was $23.5 per megawatt-hour. The rate adopted by BPA also included a "Cost Recovery Adjustment Clause," which allows BPA to adjust rates under certain defined circumstances. Past BPA rates also contained a similar 2 6 adjustment clause, but rate adjustments had never occurred in the past. However, during the fall and winter of 2000, BPA indicated that it probably would need to impose a significant surcharge on rates effective after October 1, 2001. In March 2001, BPA proposed a revised and expanded "Cost Recovery Adjustment Clause" that would grant BPA very broad discretion to adjust rates every six months to ensure that it could recover all its costs and repay its obligations to the U.S. Treasury under almost any circumstances. This revised "Cost Recovery Adjustment Clause" and the initial rate adjustment is subject to a new BPA rate proceeding that is scheduled to be completed by June 2001 and to review by the Federal Energy Regulatory Commission ("FERC"). While the outcome of these proceedings is uncertain, we expect the resulting power costs to be significantly higher than under our current power sale agreements with BPA. Because the rate for BPA power will not be determinable until the conclusion of the rate case, we have a unilateral right to terminate the contract within a specified period after FERC approves the new rates. We anticipate FERC approval by September 2001. Under the new contract, we will not be able to reshape or have BPA remarket our procurements of power. In addition, the BPA Administrator may have broad discretion to temporarily or permanently limit or terminate our purchases of power in circumstances in which the Administrator determines that we are not in compliance with all applicable federal, state and local laws and regulations. We do not expect to receive any cost-based firm power service directly from BPA after our new contract expires on September 30, 2006. Given the change and uncertainties in future BPA service and power markets, our long-term power strategy is now one of self-reliance, severing our dependence on BPA and other power providers, and becoming a power supplier as well as a power consumer. We believe this strategy will allow us to realize the economic value either of producing aluminum or selling power. Entities controlled by our sole shareholder are actively pursuing development of the following power projects: 1. A 248 MW natural gas-fired combined cycle combustion turbine project near Goldendale, Washington. 2. Wind projects to be developed in Klickitat County, Washington and north central Oregon. 3. A 520 MW natural gas-fired combined cycle combustion turbine project near St. Helens, Oregon. 4. Four GE LM6000 turbines and associated equipment to be located at the Goldendale smelter facility. If all of the projects are developed as presently anticipated, the system would include 770 megawatts of base-load, gas-fired, combined cycle combustion turbine capacity, 180 megawatts of "peaking" capacity and 300 to 600 megawatts of intermittent wind generation capacity. We are negotiating a plan and agreement with Northwest Energy Development, LLC, of which our sole shareholder is the sole member ("Northwest Energy"), pursuant to which we will be able to purchase at cost up to 100% of the power generated by the facilities to be built by Northwest Energy for the first 20 years after each facility begins commercial operation. We will then be able to use the power in our operations or remarket it to third parties at market prices. If we remarket the power, we will be able to keep the proceeds if allowed by the project financing arrangement of the particular facility from which we purchase the power or pay the proceeds to the facility to reduce project financing and other costs. We will designate Northwest Energy as the recipient of up to $25 million in BPA remarketing proceeds to reimburse expenditures incurred in connection with the development of the power generation facilities. We also anticipate entering into an agreement with BPA or another party under which BPA or the other party would agree to guarantee or provide up to $200 million of third party revolving debt secured by a portion of the remarketing proceeds to finance qualified expenditures in connection with the development of these power supply facilities. BPA would be able to treat as unavailable for reimbursement of qualified expenditures remarketing proceeds of up to 110% of the amount of its guarantee. We will be eligible to receive liquidated damages from Northwest Energy if a specified minimum amount of generating capacity is not available by October 1, 2006. OPERATIONS We conduct our business and derive revenues through two principal business activities: the production of value-added specialty aluminum products under tolling contracts and for direct sales, and the production of primary aluminum under a tolling contract. All of our business is conducted under one segment as defined by Statement of Financial Accounting Standards No. 131. 3 7 PRODUCTION OF VALUE-ADDED ALUMINUM PRODUCTS We operate a value-added production operation which blends primary aluminum, produced at the Goldendale smelter or purchased from Hydro, Glencore Ltd. and other aluminum producers, with various alloys into a variety of value-added products, including proprietary small diameter billet ("SDB") and related products. Our SDB products are cast directly from molten aluminum in a process that eliminates the expense associated with the extrusion process typically required to manufacture SDB products. Our SDB products are frequently manufactured to customer specifications, and, as such, can be priced to provide us with enhanced margins relative to commodity aluminum products. Since Northwest Aluminum Specialties began its value-added operations in the early 1990s, the business has grown to represent a significant percentage of our total revenues. Our SDB products are typically forged or extruded by our customers into end use forms which include fire extinguishers, automobile air bag canisters, golf club heads, bicycle frames and a variety of automotive and aircraft parts. In late 1996, Specialties added a new billet machining operation that allows us to manufacture SDB in any diameter between 2 inches and 5 inches, within extremely tight engineering tolerances. Bar sawing capabilities were also added that allow us to deliver cut billet "pucks" that meet customer specifications. These new capabilities have led to additional business and opportunities that we believe will allow us to continue to increase the size of our value-added aluminum business and enhance the average premium received. Our value-added standard extrusion billet and hot molten metal products that are not produced under tolling arrangements are sold at the Midwest market price, which includes a premium of $.03 to $.05 per pound over the London Metal Exchange price, plus a premium of between $.06 and $.13 per pound. Our specialty extrusion billet, hot closed die forging, cold impact forging and semi-solid forging are sold at the Midwest market price plus a premium of between $.13 and $.81 per pound. Because of our remelt capability, our non-tolled value-added production has not been impacted by the curtailments to the same extent as our smelter production. Production through the casthouse operations at Northwest is approximately 50% of normal. Sales of non-tolled products were $202.6 million and $219.6 million for the years ended December 31, 1999 and December 31, 2000, respectively. PRODUCTION OF PRIMARY ALUMINUM Our subsidiaries operate two aluminum smelters in The Dalles, Oregon and Goldendale, Washington. The smelters have the capacity to produce approximately 250,000 metric tons of primary aluminum per year. A metric ton is equal to 2,204.6 pounds. These smelters consist of 826 vertical pin Soderberg technology reduction cells organized into five pot lines. The smelters use advanced conservation technology, computer control procedures and environmental control equipment to enhance their efficiency. Capital investment in the facilities by us and the smelters' previous owners over the life of the facilities, competitive wage rates, access to low cost hydroelectric power, low overhead and tolling agreements that have historically insured full smelter utilization have also contributed to the smelters' efficiency. The efficiency of the smelters has allowed us to maintain a competitive cost position relative to other industry participants, many of which are significantly larger than we are. SMELTING METHODS. Smelting, which involves the reduction of alumina to aluminum ingot, is an electrolytic process. Raw alumina is dissolved in an electrolytic bath in large cells, or pots, which are insulated with brick and lined with carbon. The cell lining acts as the negative cathode, and a carbon block, which is partially immersed in the electrolytic bath serves as a positive anode. The carbon anode is composed of petroleum coke and coal tar pitch and is consumed in the smelting process, as oxygen released from alumina in the reduction process binds with the carbon to form carbon dioxide. Because of the high cost of removing metallic impurities from aluminum, careful attention must be given to avoiding impurity introduction by way of the raw materials used in the anode manufacturing process. Petroleum coke and coal tar pitch are used as the carbon and binder sources because of their relatively high purity. Gases and particulate matter are collected in the hood around the lower rim of the anode casing and are passed through the smelter's air and water purification systems. Molten aluminum is drawn from the bottom of the cell, and, typically, poured into molds as unalloyed metal, or sow, or routed into holding furnaces where various alloying ingredients may be added before casting into plate, slab, logs or ingot. 4 8 The world's aluminum smelters are evenly split between two basic anode technologies, Soderberg and pre-bake. The two processes differ only in the fabrication and connection of the carbon anode. Most recently constructed smelters use pre-bake technology, which has certain inherent advantages relative to Soderberg technology and may permit primary aluminum production at a lower cost, albeit at a higher initial investment. Soderberg anodes are baked by utilizing waste heat from the smelting cell and, as such, are referred to as self-baking. A steel casing or mold six to eight meters by two meters containing the coke aggregate and coal tar pitch mixture is mounted over the smelting cell and its contents bake as they progress toward the electrolytic bath. The carbon mass is allowed to slip through the casing at the rate of its oxidation in the electrolytic bath. In the vertical spike version of the Soderberg cell, electrical contact is made by steel tipped aluminum spikes entering from the top. They are pulled by a special tool and reset as their tips approach the electrolytic bath surface due to consumption of the anode. In the horizontal spike version of the Soderberg cell the steel-aluminum spikes enter through the side of the casing instead of through the top. They must be removed and reset as the anode is consumed. Pre-bake anodes are formed by blending sized petroleum coke aggregate and coal tar pitch, molding it into blocks complete with preformed electrical connection sockets by hydraulic pressing or vibration forming, and firing in oil- or gas-fired ceramic-lined ring furnace pits. A typical block is 70 centimeters wide, 125 centimeters long and 50 centimeters high. Electrical contact and physical support is obtained through aluminum or copper rods welded or bolted to steel stubs. The stubs are set in the anode sockets and molten cast iron is poured around them to produce a strong joint with low electrical resistance. GOLDENDALE SMELTER. The smelter in Goldendale, Washington was built in 1971, making it the most recently constructed aluminum smelter in the Pacific Northwest, and was expanded in 1981. The total annual production capacity of the Goldendale smelter is 168,000 metric tons of primary aluminum output. The Goldendale smelter employs vertical pin Soderberg technology and consists of 526 reduction cells organized into three pot lines. The Goldendale smelter has undergone a number of technology upgrades during its lifetime. These upgrades have resulted in a significant improvement in production efficiencies over the years as measured by energy consumption, carbon consumption and cell life. The Goldendale smelter was constructed from engineering plans based on Norsk Hydro ASA's Karmoy, Norway facility, and as such is similar in terms of layout, smelter design and operating processes. The Goldendale smelter was also designed to operate in tandem with our smelter located in The Dalles, Oregon. NORTHWEST SMELTER. Located across the Columbia River and approximately 35 miles west of the Goldendale smelter, our smelter in The Dalles produces primary aluminum. Built in 1958, The Dalles smelter consists of 300 vertical pin Soderberg reduction cells organized into two pot lines. The smelter's production capacity is about 82,000 metric tons of primary aluminum per year. We also operate a carbon plant at The Dalles facility. The plant produces approximately 40,000 metric tons of carbon briquettes, which are consumed during the alumina reduction process. We have surplus capacity in the plant and recently have begun selling briquettes to a non-affiliated aluminum producer. CELL RELINING. Each smelter's cells are grouped into series electrical circuits varying from 150 to 186 cells. Each cell must be relined on average every 2,300 to 2,600 days. When a cell is relined, it is removed from the production process by electrically isolating the cell, allowing the electricity to flow past the cell to the next cell in the circuit. The cell is allowed to cool and the lower half of the cell, known as the cathode, is removed and taken from the cell lines to our cell relining area. The residual cooled and hardened electrolyte and aluminum and the spent pot liner, which consists of carbon blocks and insulating brick, are removed from the steel cell casing. The steel casing is then straightened and patched if necessary. The cell is then relined with new insulating brick, carbon blocks and other material and supplies, including ramming paste and collector bars. The total cell relining costs are approximately $75,000 per cell. The number of cells relined each year varies based on the quality of materials used, operating conditions and the number of cells that have been relined over the years. THE HYDRO TOLLING AGREEMENT. Goldendale and Hydro Aluminum Louisville, Inc. entered into a ten-year contract effective January 1, 1997. The Hydro tolling agreement has been extended another seven years, until December 2013. 5 9 Under the terms of the Hydro tolling agreement, Goldendale must use its smelter exclusively to produce at least 157,000 metric tons of aluminum annually from the alumina supplied to it by Hydro, and Hydro is required to supply sufficient alumina to enable Goldendale to produce that amount of aluminum. Hydro supplies the alumina at no cost to Goldendale, and at all times the alumina and aluminum inventory is owned by Hydro. Goldendale bears the entire cost of unloading and storing the alumina and transporting it to the smelter from Goldendale's unloading facility. Hydro pays a tolling fee to Goldendale for converting the alumina to aluminum based on a percentage of the price of aluminum on the London Metal Exchange. Pursuant to its tolling agreement with Hydro, Goldendale receives an additional tolling fee for casting the aluminum into value-added "casthouse products" such as extrusion billet, foundry "T" or sheet ingot. In addition, Goldendale shares premiums that Hydro is able to realize on sales of value-added products in the market. Hydro is required to place orders for at least 70,000 metric tons of value-added products each year. The tolling agreement also specifies quality and efficiency requirements. If the products or production schedules do not meet the required specifications, the parties have agreed to work together to identify and correct the problem; however, Hydro may terminate the agreement if Goldendale's production were to continue to fall below the product or schedule specifications. The Hydro agreement also requires Goldendale to use any additional smelter capacity resulting from the installation of new point feeder technology under the facilities investment program, discussed below, exclusively to produce aluminum products for Hydro, subject to some maximum volumes. Hydro is required to supply sufficient alumina to enable Goldendale to produce the additional volume. However, Hydro's commitment to place orders for value-added products remains at 70,000 metric tons and has not been increased to reflect the additional casthouse capacity expected to result from the facilities investment program. Hydro has informed us that it will utilize the additional casthouse capacity. Hydro would like to receive more of the primary aluminum produced at the Goldendale smelter in the form of billet rather than ingot. In contrast to ingot, billet is a casthouse product. If Hydro's demand for billet does not use the full capacity of the Goldendale casthouse, we anticipate using the excess capacity to cast primary aluminum from the smelter at The Dalles into commodity billet for other value-added customers. In December of 2000, we entered into a "Side Agreement to Agreement to Toll Convert Alumina into Aluminum" with Hydro. As a consequence of the current power market conditions in the Pacific Northwest, we had curtailed production at the Goldendale smelter and allowed the Bonneville Power Administration to remarket the excess power made available because of the curtailment. We agreed with Hydro that for the period from October 1, 2000 through December 31, 2002, we would curtail the production level at the Goldendale smelter by 53,000 metric tons annually, to a production level of 105,000 metric tons annually. For the period from December 24, 2000 through September 30, 2001, we agreed to further curtail the production level at the Goldendale smelter by an additional 83,000 metric tons annually. During that period a total of approximately 16,500 metric tons of aluminum would be delivered to Hydro. We agreed to pay a cancellation fee of $38.8 million in connection with these adjustments in the tolling agreement. We paid $9.2 million of this amount on March 1, 2001 and will pay the remainder in monthly installments through September 30, 2001. These qualify as expenditures that are reimbursable under the Addendum. THE GLENCORE TOLLING AGREEMENT. Northwest was a party to a tolling contract with Glencore, Ltd. until the contract expired in December 1999. Under the Glencore tolling agreement, Glencore provided alumina to Northwest for conversion into primary aluminum. Glencore supplied enough alumina to support the full production capacity of the Northwest smelter, and Northwest used its best efforts to produce 82,000 metric tons of aluminum ingot and other finished products for Glencore in exchange for a tolling fee based on a certain percentage of the London Metal Exchange price for aluminum. Due to the growth of its value-added operations, Northwest had increased its purchases of primary aluminum from Glencore and others to such an extent that it was purchasing more primary aluminum from Glencore and others than the production capacity of the Northwest smelter. Glencore's tolling contract allowed us to operate The Dalles smelter at full capacity while we had no developed market for our smelter production. The success of our non-tolled products, however, reduced the importance of this contract, and we did not renew it when it expired in December 1999. We have, however, entered into an agreement with Glencore to have Glencore supply the smelter at The Dalles with all of its alumina requirements from October 1, 1999 to December 31, 2004. Amendments have been made to that agreement to accommodate the recent curtailments in production levels. We have agreed to pay 6 10 Glencore cancellation fees totaling $3.2 million. These fees qualify as expenditures that are reimbursable under the Addendum. UNLOADING FACILITIES. We receive raw alumina at our Portland, Oregon unloading facility. A ship channel maintained by the U.S. Army Corps of Engineers serves the facility. Three steel silos are located on the property with the capacity to store 42,000 metric tons of alumina. Alumina is delivered to the facility by ship and is then transferred into silos for short-term storage and delivered to our smelters by rail. The unloading facility has sufficient capacity to handle our unloading and storage requirements. FACILITIES INVESTMENT PROGRAM Both we and previous owners of our facilities have periodically made major investments in new plant and equipment. From 1978 to 1981, Martin Marietta Corporation made a major investment in both smelters by implementing new anode and cathode technology, modernizing electrical and environmental control systems and adding the third cell line at the Goldendale smelter. In 1991 and 1997, Northwest Aluminum Specialties added new casting capability. We have undertaken the facilities investment program to expand capacity and enhance operating efficiency. With the financial and technical support of Hydro, we plan to expand the casthouse at Goldendale and upgrade the cell lines at Goldendale and at The Dalles. We have borrowed $20.0 million from Hydro under a note purchase agreement to partially finance the facilities investment program. We intend to implement the facilities investment program over the next five years, in two stages. In the first stage we modernized the Goldendale casthouse. The Goldendale casthouse expansion is designed to increase the facility's capacity to produce value-added billet from 13 million pounds per month to an initial capacity of 22 million pounds per month, with the option to expand capacity to over 30 million pounds per month. The additional value-added production will be sold by Hydro under the tolling agreement, with the same sharing of market premiums in excess of costs. As discussed below, our share of any incremental earnings from the facilities investment program will be used to repay the debt owed to Hydro. Hydro has informed us that its own U.S. extrusion plants should be able to use a significant portion of this additional capacity. The expansion was completed in 2000 at a total cost of $12.6 million, which was somewhat less than our estimate of the project's total cost of $13.5 million. The first stage also includes a 12 to 18-month demonstration of the planned cell line improvements in a 34-cell section at Goldendale. Conversion of this section and the demonstration are budgeted to cost $6.4 million. Cell improvements include point feeders to control alumina additions, magnetic compensation to stabilize cell operations, cathode redesign to optimize heat balance, new computer controls and other related technologies. The technology for the cell line improvements has been licensed from Hydro, which already has implemented these changes at a similar smelter in Norway. Based upon Hydro's experience, we expect the improvements to increase smelter production, reduce average unit costs of production, increase production efficiencies and significantly reduce air emissions. The improvements are underway, and were expected to be substantially complete by the end of 2000. The curtailment of operations has necessitated a delay in the completion until the end of 2001. Through December 2000, expenditures related to this conversion totaled $3.5 million, which is consistent with our estimate of the project's total cost. Results of this test phase obtained thus far are positive. We have temporarily suspended Phase II of the Facilities Investment Program because of our recent curtailments and uncertainties in our long-term supply of competitively priced electric power. We plan to begin the second stage of converting the remaining cells at both smelters when our long-term power supply is secure and we complete the demonstration of our cell line upgrades and obtain all necessary permits. The conversion can be performed cell by cell, with minimal disruption of operations, and can be accelerated or slowed for market or other reasons. We estimate that conversion of the remaining cells at both smelters will cost approximately $55.0 million, and estimate that the cost of conversion of a cell will be recovered in about 3.5 years. Hydro has agreed, subject to certain conditions, to provide an additional $10.0 million of subordinated financing if we decide to convert the remaining cells at Goldendale. We expect the remaining $45.0 million, and any additional costs of the facilities investment program, will be funded through cash from operations and borrowings under our revolving credit facility. 7 11 RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY We have traditionally placed emphasis on innovation and research and development. We have laboratory facilities dedicated to environmental compliance, quality testing and research and development. We engage in several research and development activities designed to improve earnings by increasing value-added margins or reducing costs. Expenditures for activities designated as research and development were $0.8 million in 2000, $2.1 million in 1999, and $1.2 million in 1998. We also have received grants from state and federal governments for certain research and development activities. Our research and development encompasses five broad initiatives: - First, we undertake research and development to develop new alloys and casting and homogenizing practices that improve the characteristics of metal sold to customers. We endeavor to protect our proprietary interest in our products and processes by filing patent applications where appropriate and otherwise by seeking to protect them as trade secrets. This research has resulted in several proprietary products and an issued patent for a new alloy. - Second, we have focused research in the area of semi-solid metalworking ("SSM"). SSM is intended to give automotive and other parts the physical properties of forgings with the production cost of die-castings. We have obtained a patent for the casting and transformation of aluminum to produce SSM parts. - Third, we have undertaken an initiative to further develop a process to recycle Spent Pot Lining ("SPL"). We believe this process may allow SPL to be recycled into several marketable products rather than being treated and land filled at a significant cost. We have a patent on our method of treating SPL from aluminum reduction cells and have applications for other patents on SPL recycling. - Fourth, our subsidiary, Northwest Aluminum Technologies, has acquired and expects to develop a new technology to smelt aluminum in a low temperature bath using inert metallic anodes and titanium diboride cathodes. In our pursuit of this technology, we have acquired four patents and intend to file additional patent applications. We also have received three grants from the U.S. government to fund additional research to develop new smelting technologies. - Fifth, we engage in several other research and development projects to continuously improve our smelting and casting operations. We have eight patents and two trademarks. We have set out a description and the termination date of each in the following table. We also have a number of patents pending.
DESCRIPTION OF PATENT OR TRADEMARK TERMINATION DATE - ---------------------------------- ---------------- A patent for a method and apparatus for the electrolytic reduction of alumina................................................... October 25, 2014 A patent for the electrolytic reduction of alumina..................... August 31, 2008 A patent for the electrolytic reduction of alumina..................... February 13, 2010 A patent for a point feeder and a method for Soderberg aluminum reduction cells........................................................ October 4, 2010 A patent for non-consumable anode and lining for aluminum electrolytic reduction cell............................................ April 17, 2012
8 12
A patent for casting, thermal transformation and semi-solid forming of aluminum alloys............................................. April 14, 2015 A patent for a high strength aluminum alloy............................ September 12, 2014 A patent for a method of treating SPL from aluminum reduction cells........................................................ December 8, 2015 A trademark for "Direct Forge", the name under which Northwest Aluminum Specialties markets its small diameter billet................. December 15, 2002; automatically renewed for subsequent 10 year terms if still in use A trademark for "Direct Form".......................................... April 18, 2007; automatically renewed for subsequent 10 year terms if still in use
SALES AND MARKETING Hydro and Glencore have been our largest customers, accounting for 43% and 5% of our revenues in 2000 and 37% and 17% of our revenues in 1999, respectively. The Glencore tolling arrangement expired on December 31, 1999. We directly sell value-added aluminum products to approximately 100 extruders, forgers, casters, traders and other customers throughout the United States and abroad. Our Vice President of Sales and Marketing oversees a small sales and customer service group that makes and supports these direct sales. SUPPLIERS The major raw materials we use are alumina, petroleum coke and coal tar pitch, aluminum ingot, scrap aluminum and alloying elements and electricity. We obtain our raw materials either through annual contracts or on the spot market. Our recent curtailments have altered the delivery schedules of our longer term supply arrangements. Alumina consumed in the production of aluminum is supplied by Hydro for all the alumina requirements of the smelter operations at Goldendale under the tolling agreement. Glencore supplies all of the alumina requirements of the smelter at The Dalles under a long-term supply agreement. The other raw materials involved in the reduction of alumina are petroleum coke, coal tar pitch and carbon lining. Petroleum coke is used to make anodes and carbon lining and is sourced locally from a large producer of quality coke, which is one of several suppliers. Coal tar pitch is available from several suppliers. Carbon lining, which acts as the cathode in the smelting cells, is purchased from various suppliers. We annually purchase aluminum to supplement our smelter production. Prior to December 31, 1999, we were buying back from Glencore almost the entire 82,000 metric tons of our smelter production at The Dalles. Additionally, we were purchasing approximately 45,000 metric tons from other producers, including Hydro, at market prices in the form of primary ingot, primary molten metal and scrap metal. Primary suppliers include Hydro, Vanalco and Alcoa. The other major inputs in the making of aluminum products are alloying elements, such as magnesium and silicon, which are provided by various suppliers. HEDGING ACTIVITIES Our revenues and earnings are sensitive to changes in the price of primary aluminum and in the premiums for, and mix of, our value-added products. For example, the tolling fees we receive are tied to the London Metal Exchange price of aluminum. The premiums that we must pay for base metal that we do not produce in our own smelters fluctuates within an historical range of minus $0.01/lb to plus $0.075/lb. This premium is dependent on the geographic location of the source materials and the destination, as well as the general availability of metal inventory and demand. 9 13 Primary aluminum prices historically have been subject to significant cyclical price fluctuations. The timing of changes in the market price of aluminum are largely unpredictable. Aluminum prices historically have shown long periods of average, or below average, prices followed by sudden, relatively short periods of above average prices. The sudden rise of prices is generally the result of some unforeseen event that changes the fundamental dynamic of the existing marketplace. The fall of communism and the resultant excess of Russian metal on world markets was one such event and the massive shortage of electricity in the western United States is another such event. Over the thirteen-year period between January 1, 1988 and December 31, 2000, the three month price of aluminum on the London Metal Exchange has ranged between a low of approximately $0.47 per pound to a high of approximately $1.26 per pound. During this period prices averaged $0.72 per pound. In general when we engage in fixed price forward sales contracts, we also purchase the base material at a fixed price and premium for delivery or settlement during the time period when the sale occurs. In general we do not hedge our smelter production, preferring to utilize that production for formula based sales, since we have some degree of control in reducing our manufacturing costs. Because our curtailments left us exposed to obligations to sell value-added primary aluminum products without a corresponding production capability, we acquired a limited number of call options over the expected period of the curtailment to hedge our sales obligations. In order to manage the risk of market aluminum prices and continue to service our customer commitments, the strategic use of options on aluminum were employed. When we initially curtailed our smelter operations in October 2000, we purchased the same tonnage of options (3500 mt per month) for the expected period of curtailment that we would normally have purchased. When we further curtailed our smelter operations in December 2000, we then purchased an additional tonnage of options. Historically, we have agreed to sell our value-added products from two to six months before the start of the calendar year. The current year was no different because there was little information regarding the ultimate severity of electricity shortages. BACKLOG The only sales for which we have a backlog are those for which an absolute price has been agreed. The amount of backlog expands and contracts throughout the year depending on (1) fixed price orders our customers receive from their customers and (2) our customers' beliefs regarding the future direction of aluminum pricing. Another major factor that is affecting backlog this year is the decline in the truck trailer market and the reduction of fixed forward orders placed by two of our customers that supply that market. For these reasons as well as the timing of shipments, backlog may not be a reliable indicator of future sales activity. Our fixed price backlog at December 31, 2000 was $27.7 million as compared to $31.7 million at December 31, 1999. At March 22, 2001 our fixed price backlog was $24.6 million as compared to $62.4 million at March 22, 2000. COMPETITION Competition within the aluminum industry is intense. We compete with both domestic and foreign producers of primary aluminum and with primarily domestic producers of extrusion billet and other value-added products and with primarily domestic producers of other products such as copper, steel, glass and plastic. Many of our competitors have greater financial resources than we do, which may adversely affect our ability to compete effectively. Primary aluminum is a commodity with standard qualities. Competition generally is based upon the ability to produce primary aluminum at a cost below the market price, which generally is established through trading on the London Metal Exchange. We also compete with various aluminum producers, casting companies, extruders and other fabricators in the production of extrusion billet, sheet ingot, small diameter ingot and other value-added products. In the extrusion billet market, we compete primarily with Alcan and Alumax, a subsidiary of Alcoa. Northwest Aluminum Specialties' major competition in the small diameter billet segment comes from Alcoa, Kaiser, Pimalco, a large, efficient extruder and subsidiary of Alcoa, Newman and Allgoods, which are both punched plate producers. Competition in the sale of these value-added products generally is based upon price, quality, availability, service and other factors. We concentrate on the sale of value-added products in which we believe we have production expertise, cost, quality, geographic and other competitive advantages. 10 14 ENVIRONMENTAL AND HEALTH MATTERS We are subject to federal, state and local environmental laws. From time to time, these environmental laws are amended and new ones are adopted. These laws regulate, among other things, air emissions and water discharges; the use, generation, storage, treatment, transportation and disposal of solid and hazardous materials and wastes; and the release of hazardous or toxic substances or other contaminants into the environment. In addition, we are subject to various federal, state and local workplace health and safety laws and regulations. The environmental and health laws are administered by the U.S. Environmental Protection Agency, and various other federal, state and local agencies. To operate our business in compliance with environmental and health laws, we must obtain and maintain in effect permits for each of our facilities for a variety of operations. These permits include without limitation permits for discharges of wastewater, emission of air pollutants and management of hazardous wastes. As a result, we sometimes are required to make expenditures for pollution control equipment or for other purposes related to our permits and compliance with the environmental and health laws. We have been fined or penalized for breaches or alleged breaches of the environmental and health laws and subjected to claims and litigation brought by federal, state or local agencies and by private parties seeking remedial or other enforcement action under the environmental and health laws or damages related to injuries or alleged injuries to health or to the environment. The Dalles smelter, the Goldendale smelter and the Portland unloading facility were subject to an environmental compliance assessment by an independent environmental consultant in 1996 that was updated in the summer of 1998. In both cases, we hired and paid the consultant. These assessments were intended to evaluate our compliance with the environmental laws regulating discharges of wastewater, emission of air pollutants and the management of hazardous wastes. These assessments identified no condition of non-compliance that we believe would have a material adverse effect on our financial condition or results of operations, nor are we aware of any such material condition. Our manufacturing facilities have been in operation for several decades, and these facilities have used substances and generated and disposed of wastes that are or may be considered hazardous. For example, these facilities have in the past stored or disposed of wastewater treatment sludge in on-site surface impoundments such as ponds and lagoons and have handled spent pot liner and disposed of spent pot liner and other wastes in on-site regulatorily-approved waste piles. Martin Marietta Corporation, a prior owner of The Dalles smelter, conducted an investigation of soil and groundwater at the smelter and implemented clean-up measures at the smelter site, including the removal of hazardous substances from groundwater and certain areas of the site and the encapsulation of other areas where hazardous substances were disposed or released. Martin Marietta performed this work under the supervision of the U.S. Environmental Protection Agency. In 1996, Martin Marietta completed the investigations and clean-up measures required by the EPA at The Dalles smelter site. Although the purpose of the Martin Marietta investigation was to identify all areas at the smelter where hazardous substances had been disposed or released, some affected areas may not have been identified or the clean-up measures may not perform as expected in the future. Hazardous substances have also been released at the Goldendale facility, and the site was listed in the EPA's Comprehensive Environmental Response, Compensation, and Liability Information System database in 1980. We expect expenditures will be necessary at the Goldendale smelter to investigate and clean up releases of hazardous substances disposed or released at the Goldendale smelter. We have requested the State of Washington Department of Ecology to approve a plan to close an on-site surface impoundment at the Goldendale facility by 2005-2006. We expect to receive a response from the State of Washington. As of December 31, 2000, the estimated cost of the surface impoundment closure and post-closure actions was $1.9 million. We have established a trust fund of approximately $1.3 million as of December 31, 2000, to help pay these costs, and we have procured insurance coverage to provide funds to the State of Washington for closure if we default. The actual closure costs may exceed our estimate. Under a contract with the former owners of the Goldendale smelter, the former owners have agreed to reimburse Goldendale Aluminum Company for certain anticipated expenditures. We do not assure you the former owners of the Goldendale smelter will contribute their contractually allocated share of the costs necessary to investigate and cleanup hazardous substances disposed or released at the Goldendale smelter site or to obtain regulatory closure of surface impoundments at the site. 11 15 Due to continuing environmental regulations regarding spent pot liner disposal, over the past few years we have experienced substantial increases in costs associated with the disposal of SPL from our smelters. We presently dispose of SPL under a contract with a chemical waste treatment company, which expires on February 14, 2003. EPA has proposed but not published a new treatment standard for SPL. The Company cannot predict if or when EPA will publish the proposed rule nor can the Company predict what, if any, impact the proposed rule would have on the Company's SPL disposal practices. In December 2000, the Company was designated as a potentially responsible party (PRP) by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, and by the State of Oregon under applicable state laws with respect to the Portland Harbor Superfund site in Portland, Oregon. Other PRP's also have been so designated. The Company, along with other PRP's, is participating in the funding of a remedial investigation/feasibility study. Management does not anticipate selection of a remedy for several years and is of the opinion that the Company will be found to have a de minimus liability, if any, in the outcome of the matter. An environmental condition that we do not know about could exist as to one or more of our properties and could have an adverse effect on our results of operations or financial condition. Future environmental or health laws could have an adverse effect on our results of operation or financial condition. EMPLOYEES As of December 31, 2000, we employed 1,084 workers, 494 of which are members of Local 8147 and 366 of which are members of Local 9170 of the United Steelworkers of America (USW). Goldendale Aluminum Company is signatory to a collective bargaining agreement with the USW for the period May 24, 1996 through May 31, 2001. Northwest Aluminum Company is a signatory to a collective bargaining agreement with the USW for the period July 1, 1996 through June 30, 2001. Because of uncertainties surrounding our future power supply and rates and operating levels after October 2001, the Company and the USW are in discussions to extend the expiration date of current labor agreements until September 2001. Both labor agreements provide for a 4% wage increase each year of the contract. During the contract period there is a no strike/no lockout agreement. We provide a profit sharing program in addition to the base compensation for all employees, and a fully paid medical, dental and vision health care plan. We have a 401(k) plan but no defined benefit plan. In conjunction with our agreement with BPA to remarket excess power resulting from the December 2000 curtailment, we reached an agreement with the United Steelworkers of America concerning the use of the proceeds from the remarketing of power. We are required to obtain the USW's consent in order to use the remarketing proceeds for nonemployee-related qualified expenditures. The USW has agreed that its consent will not be unreasonably withheld. We believe we have a good relationship with the union and an employee involvement process that encourages creativity, productivity and positive employer-employee relations. FORWARD-LOOKING STATEMENTS This Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to our goals, plans and expectations regarding: the future availability of low-cost power, the facilities investment program, the regulation of the disposal of spent pot liner, the development of new smelting technology by Northwest Aluminum Technologies, and capital expenditures. Risk factors related to these forward looking statements are discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements." 12 16 ITEM 2. PROPERTIES We own all of our facilities. The following table shows (1) each facility, (2) its square footage, (3) its annual production capacity and (4) its use. FACILITIES
SQUARE ANNUAL FACILITY FOOTAGE CAPACITY USE -------- ------- -------- --- GOLDENDALE Smelter 1,209,730 168,000 mt Alumina reduction Casthouse Included in above 168,000 mt Produce sow, billet, sheet Unloading Facility 7.9 acres 42,000 mt (Portland) Shipments Paste Plant 37,711 85,000 mt Carbon briquette production Laboratory 18,995 Quality control, R & D Real Property 6,473 acres NORTHWEST Smelter 636,000 82,000 mt Alumina reduction Casthouse 122,000 99,800 mt Produce sow, billet, ingot Paste Plant 108,000 85,000 mt Carbon briquette production Real Property 390 acres SPECIALTIES Casthouse 160,000 Up to 54,500 mt Value-added billet depending on product mix Sawing/Turning 100,000 Saw: Semi-fabrication 130,000 mt Turning: 1,000,000 logs
We believe these facilities are adequate to meet our current needs. We are expanding or upgrading some of our facilities as a result of the facilities investment program. Most of our facilities are subject to mortgages and other claims held by our creditors to secure our 12% first mortgage notes and our indebtedness to Hydro. See Item 1, "Business -- Facilities Investment Program." ITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various legal proceedings arising from our normal business activities. We believe these legal proceedings, individually or combined, will not have a material adverse effect on our financial condition, results of operations or cash flows. In December 1999, Goldendale settled a dispute with the Internal Revenue Service relating to proposed adjustments in its taxable income for prior years. In August 1999, Northwest settled a similar dispute with the IRS. Goldendale and Northwest have agreed to capitalize certain expenditures for prior years. As a result, we paid a dividend of $1.9 million to our shareholder for payment of these taxes. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2000. 13 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for our common stock. There is one holder of our common stock. We are a subchapter S corporation and pay dividends to our sole shareholder. In 1999 and 2000, we paid cash dividends of $1.9 million and $0, respectively, to our sole shareholder. With certain exceptions, we will not, and will not permit our subsidiaries to, create or otherwise allow to exist any consensual restrictions on the ability of any subsidiaries to pay dividends or make any other distributions on their capital stock or pay any indebtedness owed to us or any of our other subsidiaries or to make loans or advances or transfer any of their assets to us or any of our other subsidiaries. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below includes the accounts of Northwest Aluminum Company, Northwest Aluminum Technologies and Northwest Aluminum Specialties for all periods presented. It also includes the accounts of Goldendale Holding Company and Goldendale Aluminum Company from May 22, 1996, the date Goldendale was acquired by Brett Wilcox, our sole shareholder. This data should be read in conjunction with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this document.
FISCAL YEAR ENDED ------------------------------------------------------------------------- DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, 1996 1997 1998 1999 2000 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) INCOME STATEMENT DATA: Revenues ...................................... $ 376,946 $ 504,024 $ 479,276 $ 452,491 $ 423,800 Cost of revenues .............................. 333,647 442,663 447,883 438,101 394,776 General and administrative expenses ........... (9,746) (17,115) (18,119) (16,672) (19,431) Net gains on power sales ...................... -- -- -- -- 13,980 Reimbursement of expenditures ................. -- -- -- -- 40,795 Curtailment expenses .......................... -- -- -- -- (42,944) Interest expense .............................. (9,454) (16,723) (14,180) (21,977) (23,701) Other income (expense), net ................... 1,442 4,246 614 603 (157) Income (loss) before income taxes ............. 25,541 31,769 (292) (23,656) (2,434) Income tax expense (benefit) .................. 6,636 13,274 3,009 (3,745) (4,408) Net income (loss) ............................. 18,905 18,495 (4,853) (19,911) (6,842) Net income (loss) per share of common stock ....................................... 16,686 14,847 (8,501) (23,559) (10,490) Ratio of earnings to fixed charges ............ 2.8x 2.1x --(1) --(1) --(1) BALANCE SHEET DATA: Cash and cash equivalents ..................... $ 6,345 $ 1,251 $ 37,633 $ 1,929 $ 1,982 Working capital ............................... 61,908 36,398 79,292 53,606 40,250 Total assets .................................. 350,815 347,011 364,634 370,631 408,493 Total long-term debt .......................... 185,441 134,941 192,955 200,662 195,702 Goldendale Holding Company preferred .......... 29,663 29,663 29,663 29,663 29,663 Total shareholder's equity .................... 103,615 115,680 77,516 52,081 41,591 OTHER DATA: EBITDA ........................................ $ 47,137 $ 63,315 $ 33,616 $ 20,241 $ 46,564 Dividend per common share ..................... 67,587 2,932 -- 1,876 --
- --------- (1) For the years ended December 31, 1998, 1999 and 2000, earnings were insufficient to cover fixed charges. The earnings deficiency was $2,390, $27,880 and $8,409 in 1998, 1999 and 2000, respectively. 14 18 EBITDA represents operating income before deductions for depreciation and amortization. EBITDA has been presented because we believe it is commonly used by investors to analyze operating performance and to determine a company's ability to take on additional indebtedness or service indebtedness. EBITDA should not be considered in isolation or as a substitute for net income, cash flow from operations or any other measure of income or cash flow that is prepared as generally accepted accounting principles require, or as a measure of a company's profitability or liquidity. In addition, our definition of EBITDA may not be identical to similarly entitled measures used by other companies. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements included elsewhere in this document. For purposes of the computation of the ratio of earnings to fixed charges, fixed charges consist of interest expense, amortization of deferred financing costs and dividends accrued on the Goldendale preferred stock. Earnings consist of income before income taxes plus fixed charges. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to reading this section, you should read the consolidated financial statements and related notes that begin on page F-1. That section contains all of our detailed financial information including our results of operations. BASIS OF PRESENTATION We were incorporated in the state of Oregon in June 1998 for the purposes of becoming the holding company of Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC and Goldendale Holding Company and its wholly owned subsidiary, Goldendale Aluminum Company. For purposes of this section only, the term "Northwest" refers to Northwest Aluminum Company and Northwest Aluminum Specialties, Inc., the term "Goldendale" refers to Goldendale Holding Company and Goldendale Aluminum Company and the term "Technologies" refers to Northwest Aluminum Technologies, LLC. We, along with Goldendale and Technologies, report on a December 31 fiscal year basis. Northwest reports on a September 30 fiscal year basis. Included in intercompany payable at December 31, 2000 is $4.2 million representing the portion of intercompany transactions that do not eliminate due to the differing year-ends. All other significant intercompany accounts and transactions have been eliminated. We do not believe seasonal or other factors materially affect the consolidation of these differing fiscal periods. During 2000 we curtailed operations at our facilities. Refer to discussion of this matter included in Item 1, "Business". OVERVIEW Our revenues have historically come from two primary sources: (1) fees received from smelting alumina into aluminum and casting that aluminum into primary and value-added aluminum products under tolling contracts with Hydro and until December 31, 1999 with Glencore, and (2) the sale of non-tolled value-added aluminum products to other customers. Revenue from fees for the conversion of alumina and processing of aluminum under tolling arrangements is recognized upon completion of the tolling process. Under the tolling arrangements, alumina suppliers deliver their alumina to us. The alumina is converted to aluminum in reduction cells by putting it in liquid form by dissolving it in an "electrolyte" solution and then passing electric current through the electrolyte to separate the alumina into its two parts, aluminum and oxygen. This process is continuous and is nearly instantaneous as the alumina is dissolved in the electrolyte. The molten aluminum is withdrawn from the cells and cast or formed into finished products. Revenue from the sale of non-tolled value-added aluminum products is recognized upon shipment to the customer. Because our tolling fees are a percentage of prices of aluminum on the London Metal Exchange, the amount of revenue from tolling activities varies depending on market aluminum prices, especially LME prices and gross smelter production volumes. The tolling fees are based on prior three-month average LME prices and not current market aluminum prices. Additional revenue for tolled value-added products is dependent on the volume of value- 15 19 added production and the cost of production versus the dollar amount of pricing premiums. The amount of revenue from non-tolled value-added sales varies depending on market aluminum prices, demand for our value-added products and the pricing premiums we are able to realize for these products. Our revenues from non-tolled value-added products may not be as strongly affected by lower LME prices as is the case with tolling fees because of increased demand for value-added products at lower prices. The aluminum industry is highly cyclical, with market prices fluctuating widely based on global supply and demand factors, most of which are beyond our control. As shown below, for 2000, the average price per pound of aluminum on the London Metal Exchange was higher than the average price in 1999 and 1998. The average three-month LME prices per pound of aluminum over the last six 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 2000.............................................................. $0.71
The timing and magnitude of an increase or decrease in aluminum prices is uncertain. As of December 31, 2000, the three-month LME price per pound of aluminum was $0.71, and more recently LME prices have fluctuated around $0.68 per pound. One of our primary costs is electrical power and prior to 2000, those costs had been relatively stable. The source of the majority of our power has been through the Bonneville Power Administration (BPA). We have supplemented the BPA power with purchases of market power during time periods that have historically had lower cost than our cost through BPA. Beginning in the latter part of 2000, the market price of electric power began to increase dramatically because of an extreme shortage of supply and other factors. As an example, our average cost of power per pound of aluminum produced was $.16 and $.18 in 1999 and 2000. The average market price of power for the last six months has been approximately $245 per megawatt, equating to $1.95 per pound of aluminum produced. These changes in power prices made it apparent that we needed to change our strategies to obtain affordable power long term. While most of our power supply during the 4th quarter of 2000 and the first three quarters of 2001 were under fixed price contracts with BPA, a portion was not covered during the late Spring 2001 when market power prices historically have been very low. Because of the dramatic increase in forward power prices that occurred in 2000 it became uneconomic to purchase power to meet our open requirements during the Spring 2001. We therefore chose to reduce our production level to approximately 60% of normal beginning October 2000 and "reshape" or sell power where we had excess over operational need because of reduced production level and "reshape" or buy power for any open periods. By the end of December 2000, market prices for electrical power had further escalated to the point that the financially prudent option was to have all electrical power available to us remarketed by BPA instead of producing aluminum with it. Late in December, we shut down essentially all remaining smelter production capacity, leaving only approximately 25 metric tons of capacity on line at the Goldendale facility and none at Northwest. We entered into an agreement with BPA, which allows BPA to remarket the power available to us and use these proceeds to reimburse us for defined qualified expenditures. Additionally, agreements were made with the United Steelworkers of America in regard to employee lay-offs, with Norsk Hydro in regard to readjusting our tolling agreement with Hydro and with Glencore in regard to readjusting the alumina supply contract. We entered into a Remarketing Addendum (the "Addendum") with BPA in December 2000. Under the Addendum, our operating subsidiaries, Goldendale Aluminum Company and Northwest Aluminum Company, 16 20 agreed to curtail smelter production and assist BPA in remarketing the electric power that they had the right to purchase. BPA agreed to use the proceeds from the remarketing to reimburse Goldendale Aluminum Company and Northwest Aluminum Company or their designees for specified qualified expenditures, including, among others, expenses associated with debt service and workforce reductions resulting from the curtailment, and expenditures for the planning, licensing, siting, acquisition and/or construction of conventional or renewable resources to provide power for future operations of our smelters. For a given sale of remarketed power, the net proceeds are equal to the revenue received by BPA in the sale, minus the price we would have been obligated to pay had we purchased the power, minus a specified amount retained by BPA, plus any interest costs BPA avoids as a result of the net proceeds. We estimate that from December 29, 2000 through September 30, 2001, $285.0 million of net proceeds will be available for reimbursement of qualified expenditures. The Addendum is effective through the earlier of the date on which all of the net proceeds have been paid by BPA or September 30, 2010. In October 2000, we entered into a new power sale agreement with BPA that will be effective from October 1, 2001 through September 30, 2006. The contract will allow us to direct available power to either or both of our operating facilities. Approximately 50% of our power requirements will be met through the contract. Last summer, BPA completed a rate proceeding to determine the base rate under this new power contract. The base rate adopted by BPA was $23.5 per megawatt-hour. The rate adopted by BPA also included a "Cost Recovery Adjustment Clause," which allows BPA to adjust rates under certain defined circumstances. While past BPA rates also contained a similar adjustment clause, rate adjustments had never been implemented in the past. But because of dramatically higher power market prices for the power BPA needed to purchase to meet its supply obligations, BPA indicated during the fall of 2000 and winter of 2001 that it probably would need to impose a significant surcharge on rates effective after October 1, 2001. In March 2001, BPA proposed a revised and expanded "Cost Recovery Adjustment Clause" that would grant BPA very broad discretion to adjust rates every six months to ensure that it could recover all its costs and repay its obligations to the U.S. Treasury under almost any circumstances. This revised "Cost Recovery Adjustment Clause" and the initial rate adjustment is subject to a new BPA rate proceeding that is scheduled to be completed by June 2001 and to review by the Federal Energy Regulatory Commission ("FERC"). While the outcome of these proceedings is uncertain, we expect the resulting power costs to be significantly higher than under our current power sale agreements with BPA. Because the rate for BPA power will not be determinable until the conclusion of the rate case, we have a unilateral right to terminate the contract within a specified period after FERC approves the new rates. We anticipate FERC approval by September 2001. Under the new contract, we will not be able to reshape or have BPA remarket our procurements of power. In addition, the BPA Administrator may have broad discretion to temporarily or permanently limit or terminate our purchases of power in circumstances in which the Administrator determines that we are not in compliance with all applicable federal, state and local laws and regulations. We do not expect to receive any cost-based firm power service directly from BPA after our new contract expires on September 30, 2006. Our long-term power strategy is now one of self-reliance, severing our dependence on BPA and becoming a power supplier as well as a power consumer. This posture will allow us opportunities to choose between producing aluminum when aluminum prices are high and power prices low or selling power when aluminum prices are low and power prices high. Our cash flow and earnings are highly sensitive to aluminum prices and now to market power prices because the balance of our production costs are largely fixed. At low market aluminum prices and/or high market power 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), and therefore such changes in market prices will cause declines in earnings. Conversely, increased market aluminum prices and/or decreased market power prices will cause increases in earnings. To reduce our reliance on market-priced primary aluminum and to improve overall profitability, we have pursued a strategy of increasing both our "tolled" and "non-tolled" value-added production through specialty casting and processing operations. Through these operations, we are able to realize premiums over market LME prices, the amount of which varies with the degree of value-added content of the product and uniqueness of the product in the marketplace. Our volume of value-added production has increased significantly over the past decade relative to the volume of our primary production. Our continued investment in value-added production operations is designed to further increase our value-added production capabilities. As a consequence of this strategy, the volume of non-tolled value-added production at Northwest has grown from 153.7 million pounds in 1993 to 266.6 million pounds in 2000. Prior to January 1, 2000, the smelter operation at The Dalles was under a tolling contract with Glencore. 17 21 The Glencore tolling contract allowed Northwest to operate the smelter at The Dalles at full capacity while it developed value-added products. The success of our non-tolled products, however, reduced the importance of this contract, and it was not renewed upon its expiration in December 1999. The effect of this non-renewal was the elimination of revenue and cost of revenue related to tolling aluminum for Glencore. The underlying cost for primary aluminum is now our own production cost rather than the market price we were paying Glencore and others for aluminum for our value added operation. THE BUSINESS COMBINATION On December 18, 1998, Brett Wilcox contributed to Golden Northwest Aluminum, Inc. his membership interest in Technologies and all of the outstanding shares of common stock of Northwest and Goldendale. This business combination was treated for accounting purposes as a combination of entities under common control in a manner similar to a pooling of interests. The business combination has not had and we do not expect it to have a significant impact on our financial position, results of operations or cash flows. In accordance with generally accepted accounting principles, however, the amount recorded as Goldendale preferred stock has been reclassified and recorded as a minority interest of our company. RESULTS OF OPERATIONS The following table sets forth the consolidated statement of operations data as a percentage of revenues for 1998, 1999 and 2000.
YEAR ENDED DECEMBER 31, ----------------------- 1998 1999 2000 ------ ------ ------ Revenues .................................... 100.0% 100.0% 100.0% Cost of revenues ............................ 93.4 96.8 93.2 ------ ------ ------ Gross margin ................................ 6.6 3.2 6.8 Net gains on power sales .................... 0.0 0.0 3.3 Reimbursement of expenditures ............... 0.0 0.0 9.6 Curtailment expenses ........................ 0.0 0.0 (10.1) General and administrative expenses ......... (3.8) (3.7) (4.6) ------ ------ ------ Operating income (loss) ..................... 2.8 (0.5) 5.0 Interest expense ............................ (3.0) (4.9) (5.6) Other income, net ........................... 0.2 0.2 0.0 ------ ------ ------ Net other expenses .......................... (2.8) (4.7) (5.6) ------ ------ ------ Loss before income taxes .................... 0.0 (5.2) (0.6) Income tax expense (benefit) ................ 0.7 (0.8) 1.0 ------ ------ ------ Loss before extraordinary item .............. (0.7) (4.4) (1.6) Extraordinary item .......................... (0.3) (0.0) 0.0 ------ ------ ------ Net loss .................................... (1.0)% (4.4)% (1.6)% ====== ====== ======
2000 COMPARED TO 1999 Total revenues decreased from $452.5 million to $423.8 million for the years ended December 31, 1999 and December 31, 2000, respectively, a decrease of $28.7 million, or 6.3%. Revenues were primarily influenced by the cessation of the Glencore tolling agreement, by a partial curtailment of operations to facilitate the opportunity to sell electrical power into the marketplace and by changes in the market prices of aluminum and power. The cessation of the Glencore tolling agreement eliminated approximately 500,000 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 beginning April 1, 2000. For the year ended December 31 tolling revenues decreased $54.3 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, increasing from $166.6 million to $180.1 million for the years ended December 31, 1999 and December 31, 2000, respectively. 18 22 Total revenues from tolling agreements decreased from $241.6 million to $200.8 million for the years ended December 31, 1999 and December 31, 2000, respectively, a decrease of $40.8 million, or 16.9%. Volumes produced under tolling contracts decreased from 527.9 million pounds to 373.6 million pounds for the years ended December 31, 1999 and December 31, 2000, respectively, a decrease of 154.3 million pounds, or 29.2%. The decrease in production volume due to the non-renewal of the Glencore tolling agreement was 137.8 million pounds, with a related decrease in revenues of $56.7 million. Other than the decrease due to the non-renewal of the Glencore tolling agreement, the decrease in production level under tolling arrangements was due to a partial curtailment beginning in October 2000 of production capacity to facilitate the reshaping of electrical power procurement to open periods. The production capacity of the Goldendale facility was cut to approximately two-thirds of normal capacity for the final three months of 2000, resulting in a decrease in production volume of 16.5 million pounds, with a related decrease in revenues from tolling agreements of $8.0 million. Offsetting the impact of volume changes, increases in average effective LME aluminum prices from $.60 per pound to $.71 per pound for the years ended December 31, 1999 and December 31, 2000, respectively, increased revenues from tolling contracts by $23.8 million. Sales of non-tolled products increased from $202.6 million to $219.6 million for the years ended December 31, 1999 and December 31, 2000, respectively, an increase of $17.0 million, or 8.4%. The primary factors affecting revenues from sales of non-tolled products were the rise in market prices of aluminum and changes in volumes shipped. An increase in average selling price of $.07 per pound because of the overall rise in the market price of aluminum provided an increase in non-tolling revenues of $18.1 million from 1999 to 2000. Somewhat offsetting this positive impact was a slight decrease in shipments of non-tolled aluminum products from 268.1 million pounds to 266.6 million pounds for the years ended December 31, 1999 and December 31, 2000, respectively, a decrease of 1.5 million pounds, or approximately one-half of one percent. Other revenues, primarily from the sale of carbon briquettes, decreased from $8.3 million for the year ended December 31, 1999 to $3.4 million for the year ended December 31, 2000. Cost of revenues decreased from $438.1 million to $394.8 million for the years ended December 31, 1999 and December 31, 2000, respectively, a decrease of $43.3 million, or 9.9%. As a percentage of revenues, cost of revenues declined from 96.8% to 93.2% for the years ended December 31, 1999 and December 31, 2000, respectively. The primary influences on cost of revenue were the cessation of the Glencore tolling agreement, a partial curtailment of production to facilitate the opportunity to have BPA remarket electrical power into the market place, an increase in market aluminum prices and an increase in our cost of power. 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 $57.9 million of cost of revenues for the year ended December 31, 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. The production capacity of the Goldendale facility was cut to approximately two-thirds of normal capacity during the last three months of 2000. This resulted in a decrease in production volume of 16.5 million pounds and a decrease in cost of revenues of $7.8 million. The increased market price of aluminum from 1999 to 2000 resulted in an increase of $15.5 million in our purchased metal costs over the prior year. For the years ended December 31, 1999 and December 31, 2000, respectively, power costs increased $4.8 million from $86.0 million in 1999 to $90.8 million in 2000. If we had been at full operation for the entire year our cost of power would have increased by approximately $9.4 million, but our reduced levels of production decreased our usage, thus decreasing our cost $4.6 million. 19 23 Gross margin increased from $14.4 million for the year ended December 31, 1999, to $29.0 million for the year ended December 31, 2000, an increase of $14.6 million, or 101.4%. As a percentage of revenues, gross margin rose from 3.2% to 6.8% for the years ended December 31, 1999 and December 31, 2000, respectively. The increase in gross margin resulted primarily from the changes in revenues and cost of revenues (discussed above). Sales of the power made available from the curtailment in October 2000 generated $18.3 million, less the cost of the power, resulting in net proceeds of $14.0 million. The employee and contract costs related to the production curtailments at Goldendale during 2000 totaled $42.9 million, of which $40.8 million is reimbursable from the remarketing proceeds. The employee and contract costs related to the production curtailments at Northwest totaled $6.6 million, of which $5.4 million is reimbursable from the remarketing proceeds. Due to differing year-ends, the statement of operations does not include the Northwest costs or reimbursements. General and administrative expenses increased from $16.7 million to $19.4 million, for the years ended December 31, 1999 and December 31, 2000, respectively. As a percentage of revenues, general and administrative expenses increased from 3.7% to 4.6% for the years ended December 31, 1999 and December 31, 2000, respectively. The increase resulted primarily from the recognition of a $2.0 million provision for the possible non-collection of an account receivable. Interest expense increased from $22.0 million to $23.7 million for the years ended December 31, 1999 and December 31, 2000, respectively. The increase from 1999 to 2000 is due to increased borrowings under our revolving credit facility. Income tax benefit decreased from $3.7 million to an income tax expense of $4.4 million for the years ended December 31, 1999 and December 31, 2000, respectively. This change was due primarily to an increase in taxable income of Goldendale, a C corporation, for the year ended December 31, 2000 compared to 1999. As a result of the foregoing factors, we reported a net loss of $6.8 million for the year ended December 31, 2000 versus a net loss of $19.9 million for the year ended December 31, 1999. 1999 COMPARED TO 1998 Primary and value-added aluminum produced under tolling contracts increased slightly from 526.3 million pounds in 1998 to 527.9 million pounds in 1999. Shipments of non-tolled value-added aluminum products were 270.5 million pounds and 268.1 million pounds for 1998 and 1999, respectively, a decrease of less than 1%. Revenues decreased from $479.3 million in 1998 to $452.5 million in 1999, a decrease of $26.8 million, or 5.6%. Revenues from tolling contracts decreased 9.3% from $266.3 million in 1998 to $241.6 million in 1999, primarily due to the decrease in average effective LME aluminum prices from $.67 per pound in 1998 to $.60 per pound in 1999. Sales on non-tolled value-added products decreased slightly from $204.6 million in 1998 to $202.6 million in 1999, due to the slight decrease in shipments from 1998 to 1999. Tolling revenues earned in 1998 and 1999 under the Hydro and Glencore tolling contracts were $178.1 million and $166.6 million, and $88.2 million and $75.0 million, respectively. Cost of revenues decreased from $447.9 million in 1998 to $438.1 million in 1999, a decrease of $9.8 million, or 2.2%. The cost of revenues decreased due to the decrease in the effective market aluminum prices in 1999 and reduced power costs from the liquidation of a power contract for $3.5 million. Gross margin decreased from $31.4 million in 1998 to $14.4 million in 1999, a decrease of 54.1%. As a percentage of revenues, gross margin declined from 6.6% to 3.2%. Gross margin declined due primarily to the decrease in revenues of $26.8 million, offset by a decrease in cost of revenues of $9.8 million. 20 24 General and administrative expenses decreased from $18.1 million in 1998 to $16.7 million in 1999, primarily due to the $1.5 million write-off of a long-term trade receivable in 1998. As a percentage of revenues, general and administrative expenses decreased from 3.8% in 1998 to 3.7% in 1999. Interest expense increased from $14.2 million in 1998 to $22.0 million in 1999, or 54.9%, primarily as a result of the first mortgage notes that have a substantially greater interest rate than our prior borrowings and because of increased indebtedness. Our debt load during 1999 included the 12% first mortgage notes, the Hydro note, and beginning in the fourth quarter, borrowings against our revolving credit facility. Income tax expense decreased from $3.0 million in 1998 to an income tax benefit of $3.7 million in 1999, primarily as a result of Goldendale's loss before income taxes of $13.0 million. As a result of the foregoing factors, we reported a net loss of $19.9 million in 1999 versus a net loss of $4.9 million in 1998. LIQUIDITY AND CAPITAL RESOURCES During this period of curtailment, our cash flow and liquidity from operations will be supplemented by reimbursements for "qualified expenditures" from the remarketing proceeds received by BPA. "Qualified expenditures" include reimbursements for curtailment related employee costs, contract breakage fees, and operational inefficiencies, for capital expenditures and for debt service. For the period January 1, 2001 through September 30, 2001, these reimbursements are estimated to be $100 million, however no assurance can be given that such amounts will be realized. Historically, our cash and capital requirements have been satisfied through cash generated from operating activities and borrowings under our primary credit facilities. Before December 21, 1998, Goldendale and Northwest operated under independent credit facilities which were scheduled to mature in 2001 and consisted of total borrowings at December 21, 1998 of $125.2 million under term loans and revolving credit facilities. See Note 4 to the consolidated financial statements. We repaid these credit facilities with proceeds from the sale of our 12% first mortgage notes. Our current credit facility with Fleet Capital (previously BankBoston) is a $75.0 million senior secured revolving credit facility collateralized by all of the inventory, accounts receivable and other rights to payment of our subsidiaries. Availability under the revolving line of credit is controlled by a borrowing base formula based on eligible receivables and inventory, and there must always be at least $15 million available for borrowing at any given time. Based on this formula, we had net availability of approximately $62.5 million under the revolving line of credit at December 31, 2000, against which we had borrowed $47.2 million. Our liquidity and capital needs relate primarily to payment of principal and interest on borrowings, capital expenditures, including our facilities investment program, and distributions to our sole shareholder to pay income taxes. 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 has been completed. We have borrowed $20.0 million from Hydro under a note purchase agreement to partially finance this facilities investment program. Our liquidity and capital needs also relate to working capital and other general corporate requirements. 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 will be drawn from our revolving credit facility with Fleet Capital. The redemption price for the Goldendale preferred stock at December 31, 2000 was $30.0 million plus any accrued but unpaid dividends, which totaled $16.8 million at December 31, 2000. We intend to pay a portion of accrued dividends (approximately $8.5 million) in 2001 to fund distributions from the Goldendale Retirement Plan, the holder of the Preferred Stock. Furthermore, we are subject to a number of contingencies and uncertainties. 21 25 Our statement of cash flows for the periods indicated is summarized below:
Year Ended December 31, ----------------------- 1998 1999 2000 -------- -------- -------- (Dollars in thousands) Net cash provided by (used in) operating activities ......... $ 28,263 $(24,093) $ 8,557 Net cash used in investing activities ....................... (18,718) (32,609) (30,430) Net cash provided by financing activities ................... 26,837 20,998 21,926 Increase (decrease) in cash and cash equivalents ............ 36,382 (35,704) 53
Net cash provided by (used in) operating activities was $28.3 million, $(24.1) million and $8.6 million for 1998, 1999 and 2000, respectively. The net cash provided by operating activities during 2000 of $8.6 million was primarily attributable to cash provided by our net loss, as adjusted for non-cash charges, of $24.1 million. Additionally, changes in working capital used net cash of $15.5 million. The decrease 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. The decrease in intercompany receivable was primarily due to the normalization of working capital needs of Northwest during the year and the net proceeds from sales of remarketed power that otherwise would have been used by Northwest in the fourth quarter of 2000. The net cash used in operating activities during 1999 of $24.1 million was primarily attributable to cash provided by our net loss, as adjusted for non-cash charges, of $8.2 million, offset by cash used in operating activities of $32.3 million attributable to changes in working capital needs. The changes in working capital requirements were primarily due to the rise in market aluminum prices and Northwest's transition from tolling to non-tolling. Net cash used in investing activities was $30.4 million in 2000, compared to net cash used in investing activities of $32.6 million in 1999 and $18.7 million in 1998. Cash used in investing activities in 2000 was primarily attributable to capital expenditures of $27.2 million. Cash used in investing activities in 1999 was primarily attributable to capital expenditures of $33.1 million. Net cash provided by financing activities was $21.9 million in 2000, compared to net cash provided by financing activities of $21.0 million in 1999, and net cash provided by financing activities of $26.8 million in 1998. Net cash provided from financing activities in 2000 was primarily attributable to net borrowings of $22.0 million under our credit facility. Net cash provided from financing activities in 1999 was primarily attributable to net borrowings of $25.3 million under our credit facility and $1.9 million paid in dividends. We believe cash flow from operations, available borrowings under our revolving credit facility and under our note purchase agreement with Hydro, reimbursements from BPA for "qualified expenditures" and cash on hand will provide adequate funds for our foreseeable working capital needs, planned capital expenditures and debt service and other obligations through 2001. Our ability to fund operations, make planned capital expenditures, such as our facilities investment program, make principal and interest payments on the notes, and remain in compliance with all of the financial covenants under our debt agreements will be dependent on our future operating performance. Our future operating performance is dependent on a number of factors, including aluminum and power prices, many of which are beyond our control. These factors include prevailing economic conditions and financial, competitive, regulatory and other factors affecting our business and operations, and may be dependent on the availability of borrowings under our revolving credit facility or other borrowings. We do not assure you our cash flow from operations, together with other sources of liquidity, will be adequate - to make required payments of principal and interest on the notes and our other debt; - to finance anticipated capital expenditures; - to fund working capital requirements; or - to fund the possible redemption of all outstanding shares of the Goldendale preferred stock. 22 26 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 changes in the cost of electricity caused by weather related factors. We do not believe inflation has had a material effect on the consolidated 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 adopted SFAS No. 133 and No. 138 as of the beginning of the fiscal year 2001. Management does not believe that the adoption of SFAS No. 133 and No. 138 will have any initial impact on its consolidated financial statements. As prescribed in EITF 00-10, "Accounting for Shipping and Handling Fees and Costs", we began reclassifying shipping and handling costs from a component of revenues to cost of revenues in the fourth quarter of 2000. This change required a restatement of revenues and cost of revenues for all periods presented. 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" and "Business"). Such statements can be identified by the use of forward looking terminology such as "believes," "expects," "may," "estimates," "will," "should," "plans," or "anticipates" or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors include the following: - fluctuations in the price of primary aluminum; - fluctuations in the market price of electricity; - our ability to obtain an affordable and reliable supply 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; 23 27 - the continued viability of the technology used in our smelters; - our ability to operate effectively with and without tolling agreements, including the Hydro and Glencore tolling agreement; - retaining and recruiting key personnel; - changes in labor relations with the unions representing our employees; - the timing of the restart of our smelter operations; and - our ability to create or locate cost effective supplies of power. 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 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We manage interest rate risk through the strategic use of fixed and variable interest rate debt and, to a limited extent, interest rate derivatives. At December 31, 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 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. In order to manage the risk of market aluminum prices and continue to service our customer commitments, the strategic use of options on aluminum were employed. During the curtailment, we are purchasing the 7,500 tons per month of aluminum that normally would be provided through our Northwest smelter operation. Options covering from 3,400 tons to 6,800 tons per month have been employed to protect against high aluminum prices. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The financial statements and supplemental data required by this item are included in this Report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 24 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information about our directors, executive officers and certain other key employees as of the date of this document.
NAME AGE POSITIONS WITH THE COMPANY - ---- --- -------------------------- Brett E. Wilcox............................ 47 Chairman, President and Director Allen Barkley.............................. 45 Deputy Chief Operations Officer William R. Reid............................ 52 Chief Financial Officer Daniel J. Gnall............................ 43 Vice President -- Sales and Marketing Muhsin (Mac) Seyhanli...................... 56 Chief Operations Officer Gerald Miller.............................. 59 Vice President, General Counsel and Secretary Jessie Casswell............................ 51 Vice President -- Purchasing Stephen E. Babson.......................... 50 Director David Bolender............................. 68 Director Mark O. Hatfield........................... 78 Director Michael G. Psaros.......................... 33 Director
Brett E. Wilcox has served as our President since our inception in June 1998. Mr. Wilcox is also the President of Northwest Aluminum Company, which he founded in 1986, and since 1996 has served as the President of Goldendale Aluminum Company. Before founding Northwest in 1986, Mr. Wilcox was the Executive Director of Direct Service Industries, a trade association of ten large aluminum and other energy-intensive companies that purchase electricity from the Bonneville Power Administration. Before 1986, Mr. Wilcox was an attorney with Preston and Gates in Seattle, Washington, concentrating in energy and general business matters. Mr. Wilcox is chairman of the Oregon Economic Development Commission, Vice Chair of the Oregon Progress Board and active in various civic and business organizations. Allen Barkley joined Northwest in June 1995 as Production Engineering Manager and became Vice President and General Manager in October 1996. He became Deputy Chief Operations Officer of Golden Northwest Aluminum in October 2000 when the management groups of Northwest and Goldendale consolidated. Before joining Northwest, Mr. Barkley spent 18 years at a primary aluminum smelter facility in Columbia Falls, Montana where he served in a variety of capacities, including production, engineering, maintenance and public affairs. William R. Reid joined Northwest in 1986, became its Controller in 1993 and was appointed Chief Financial Officer of Northwest in 1996 and of Golden Northwest Aluminum in August 1998. Before joining Northwest, Mr. Reid was a senior auditor with Touche Ross & Co. Daniel J. Gnall joined Northwest in August 1991 as a metal trader, and in 1992 became Vice President -- Sales and Marketing responsible for metal purchasing and sales. He became Vice President - Sales and Marketing of Golden Northwest Aluminum in October 2000 when the management groups of Northwest and Goldendale consolidated. Before joining Northwest, Mr. Gnall was an account executive with Martin Marietta Corporation and worked for Cassmet International, Inc., a metals trading company where he served as its General Manager in charge of physical operations and non-ferrous metal purchasing and sales. 25 29 Muhsin (Mac) Seyhanli became Chief Operations Officer of Golden Northwest Aluminum in August 1998. He was one of the founders of Columbia Aluminum Company, the predecessor of Goldendale, and since 1994 has been the general manager for all operations at Goldendale, becoming its Vice President and General Manager in 1996. Before his current position, Mr. Seyhanli was a cell line manager for both Columbia and Commonwealth Aluminum. Mr. Seyhanli has over 29 years of experience in the aluminum industry. Gerald Miller became Vice President, General Counsel and Secretary of Golden Northwest Aluminum in August 1998. He joined Columbia Aluminum Company in 1989 as General Counsel and Corporate Secretary. In 1996, Mr. Miller was named to the additional post of Vice President -- Energy and Government Affairs of Goldendale. Before joining Goldendale, Mr. Miller was a trial lawyer in private practice in the state of Washington. Mr. Miller is a member of the Board of Directors of the State of Washington Economic Development Finance Authority. Jessie Casswell became Vice President - Purchasing of Golden Northwest Aluminum in October 2000 when the management groups of Northwest and Goldendale consolidated. Prior to October 2000, she had been the Chief Financial Officer of Goldendale since 1998 and the Controller since 1984. She has served as Chief Financial Officer of Technologies since 1999. From 1972 to 1984, Ms. Casswell served as the Controller of Northwest. Ms. Casswell is also a member of the Executive Committee of the Goldendale profit sharing plan and is the Chairperson of the Trustees of the profit sharing plan. Stephen E. Babson became a director of Golden Northwest Aluminum in 1998. Since 1996, he has served as a director of Goldendale. Mr. Babson is the Chairman and a partner in the Portland office of Stoel Rives LLP, which acts as our counsel, since 1984. Mr. Babson is also a director of Roseburg Forest Products Co. and TechTracker.com, Inc., and serves on the advisory boards of several Pacific Northwest based technology companies. He is the general partner of Babson Capital Partners, LP, a private investment fund, and the secretary and director of the Oregon Symphony Association. David Bolender became a director of Golden Northwest Aluminum in 1998. Since 1996, he has served as a director of Goldendale. Since 1991, Mr. Bolender has served as Chairman of the Board of Electro Scientific Industries, Inc., a manufacturer of machine tools for the electronics industry. From May 1998 to 2000, Mr. Bolender served as Chief Executive Officer and Chairman of the Board of Protocol Systems, a manufacturer of medical vital sign monitoring instrumentation. From 1982 to 1991, Mr. Bolender was President of Pacific Power and Light Company and PacifiCorp Electric Operations Group. Before joining PacifiCorp in 1982, Mr. Bolender spent 12 years with Westinghouse Electric Corporation, where he managed the construction and operation of power plants around the world. He is a member of the board of directors of Benson Industries. Mark O. Hatfield became a director of Golden Northwest Aluminum and Goldendale in 1999. Since 1997, he has served as an administrative consultant to the Lasker Foundation, and as Chairman of Funding First, a medical and health research program of the Mary Woodward Lasker Trust. From 1967 to 1997, Mr. Hatfield served in the United States Senate as senator from the state of Oregon. From 1959 to 1967, he served as Governor of the state of Oregon. Mr. Hatfield serves on the board of directors of Lattice Semiconductor Corporation, a developer of high-performance programmable logic devices. Mr. Hatfield also serves on the Boards of Directors of Oregon Health Sciences University, the Bonneville Environmental Foundation, and GeoTrust Corp. Mr. Hatfield also is the Chairman of the Board of Directors of the Northwest Health Foundation. Michael G. Psaros became a director of Golden Northwest Aluminum in 1998. Since 1996, he has served as a director of Goldendale. Since 1991, Mr. Psaros has been a Principal of Keilin & Co. LLC, a New York investment bank. In 1998, Mr. Psaros became a founding Principal of KPS (Keilin, Psaros, Shapiro) Special Situations Fund, L.P., a private equity fund focused on investing in underperforming, distressed and troubled companies. Before joining Keilin and founding KPS, Mr. Psaros worked in the investment banking department of Bear, Stearns & Co. Inc. Mr. Psaros serves on the board of directors of United Road Services, Inc. Mr. Psaros was originally nominated to Goldendale's board by the President of the United Steelworkers of America. 26 30 ITEM 11. EXECUTIVE COMPENSATION COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In the last fiscal year, our board of directors utilized the services of Messrs. Babson, Bolender, Hatfield and Psaros, our four outside directors, as a compensation committee. With the advice of the compensation committee, Brett Wilcox made the compensation decisions for executive officers. EXECUTIVE COMPENSATION Compensation Summary. The following table sets forth compensation information for the President and our other six most highly compensated executives, each of whose total annual compensation exceeded $100,000 in 2000. Summary Compensation Table
Annual Compensation Other Annual Salary Bonus Compensation ------ ----- ------------ Brett E. Wilcox, Chairman, President and Director 2000 ....................................... $701,506 $500,000 $ 0 1999 ....................................... $603,581 $ 532 $ 0 1998 ....................................... $601,806 $903,001 $ 0 Muhsin (Mac) Seyhanli, Chief Operations Officer 2000 ....................................... $154,846 $ 50,000 $ 0 1999 ....................................... $150,000 $100,573 $ 0 1998 ....................................... $150,000 $253,380 $ 0 Gerald Miller, Vice President, General Counsel and Secretary 2000 ....................................... $123,877 $ 25,000 $211,034 1999 ....................................... $120,000 $ 50,869 $211,043 1998 ....................................... $120,000 $ 49,101 $211,043 Jessie Casswell, Vice President - Purchasing 2000 ....................................... $ 98,187 $ 15,000 $211,034 1999 ....................................... $ 92,800 $ 50,989 $211,043 1998 ....................................... $ 88,615 $ 68,718 $211,043 Allen Barkley, Deputy Chief Operations Officer 2000 ....................................... $116,096 $ 35,000 $ 0 1999 ....................................... $108,810 $ 1,316 $ 0 1998 ....................................... $106,950 $100,000 $ 0 Daniel J. Gnall, Vice President - Sales and Marketing 2000 ....................................... $116,096 $ 35,000 $ 0 1999 ....................................... $108,810 $ 1,316 $ 0 1998 ....................................... $106,950 $100,000 $ 0 William R. Reid, Chief Financial Officer 2000 ....................................... $116,096 $ 50,000 $ 0 1999 ....................................... $108,810 $ 1,316 $ 0 1998 ....................................... $106,950 $100,000 $ 0
The salaries of the above-named executive officers will be the same in fiscal 2001. Any increases in bonuses or other annual compensation will be dependent upon operating results and performance in fiscal 2001. 27 31 In connection with the acquisition of Goldendale, we entered into deferred compensation agreements with certain employees in exchange for the employees waiving their rights under stock-based compensation and other employment agreements which existed at the time. Payments made under those agreements are included above under Other Annual Compensation. LIMITATION OF LIABILITY AND INDEMNIFICATION Our articles of incorporation eliminate, to the fullest extent permitted by Oregon law, liability of our directors for monetary damages for conduct as a director. Although liability for monetary damages has been eliminated, equitable remedies such as injunctive relief or rescission remain available. In addition, a director is not relieved of his responsibilities under any other law, including the federal securities laws. Our articles of incorporation require us to reimburse the directors for any liabilities and related expenses arising from our operations to the fullest extent not prohibited by law. We believe that the limitation of liability provisions in our articles of incorporation may enhance our ability to attract and retain qualified individuals to serve as directors. DIRECTORS' COMPENSATION Directors who are not our employees receive a fee of $5,000 per board meeting attended. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 27, 2001, 1,000 shares of common stock were outstanding, held of record by Brett E. Wilcox. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We sell semi-solid metalworking and other value-added products to Hot Metal Technologies, Inc. and Hot Metal Moldings, Inc. under annual purchase orders. Hot Metal Technologies and Hot Metal Moldings, suppliers of automotive parts, are each wholly owned by Brett Wilcox, our President and sole shareholder. Our sales to these companies under these purchase orders totaled approximately $5.8 million for the year ended December 31, 1999 and $6.4 for the year ended December 31, 2000. The terms of these sales were comparable to similar sales to non-affiliates. We also made advances to Hot Metal Technologies and Hot Metal Moldings during the years ended December 31, 1999 and 2000 by way of payroll and benefits expenses paid by Northwest Aluminum Company for Northwest employees on loan to these companies. On December 31, 1997, $4.0 million of the total amount then owed by Hot Metal Technologies and Hot Metal Moldings to us for accounts receivable and advances was converted to a note receivable. The note bears interest at 9.25% per year and is payable in quarterly installments beginning April 1, 1998 through September 2005. As of December 31, 2000, a combined total of approximately $4.1 million was owed by these companies to us, consisting of approximately $2.4 million on the note receivable and accounts receivable of approximately $1.7 million. The highest amount of total indebtedness of Hot Metal Technologies and Hot Metal Moldings to us since January 1, 1997 was $6.5 million. In 1998, the federal government made a grant of $750,000 to Hot Metal Technologies as contractor, and Northwest Aluminum Specialties as subcontractor, for semi-solid metalworking research. In 1999, we paid $1.9 million to Mr. Wilcox to pay taxes owed by him as a result of Internal Revenue Service adjustments for taxes owed for earlier periods for Northwest, which files as a Subchapter S corporation. In 1997, Northwest Aluminum Company paid $4.9 million to Mr. Wilcox to pay taxes owed by him as a result of Northwest's status as a Subchapter S corporation. The amount paid was in excess of actual tax liabilities and, of this amount, $2.9 million was recorded as a dividend. The remaining $2.0 million is recorded as a receivable on our consolidated balance sheet and is outstanding. No interest is payable upon the receivable. Mr. Wilcox has entered into an agreement with Northwest, Northwest Aluminum Specialties and us under which we have agreed not to file any amended income tax return or change any election or accounting method without the consent of Mr. Wilcox if the filing or change would increase any tax liability of Mr. Wilcox. In 28 32 addition, the companies have agreed to reimburse Mr. Wilcox for any adjustment for taxes owed for earlier periods, including interest on any such payments, and for certain other fees and costs relating to periods before December 18, 1998. Under a voting agreement effective May 17, 1996, Mr. Wilcox must cause Goldendale Holding Company to vote the shares of Goldendale Aluminum Company common stock held by it to ensure that (1) the Goldendale Aluminum Company board of directors consists of not more than five directors; (2) not less than one director is a nominee designated by the President of the United Steel Workers of America; and (3) not less than two directors are nominees of Mr. Wilcox who have no significant continuing business relationship with Mr. Wilcox or any entity controlled by him. The voting agreement will remain in force so long as the USW represents the collective bargaining unit of the Goldendale facility, except that clauses (1) and (3) of the preceding sentence will continue only until the termination of the initial term of the Collective Bargaining Agreement dated April 7, 1996 between Goldendale Aluminum Company and the USW. We are negotiating a plan and agreement with Northwest Energy Development, LLC, of which Mr. Wilcox is the sole member, pursuant to which we will be able to purchase at cost up to 100% of the power generated by the facilities to be built by Northwest Energy for the first 20 years after each facility begins commercial operation. See "Business - Access to Electric Power." 29 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS Page in this Report. -------------------- Report of Independent Certified Public Accountants........................... F-2 Consolidated Balance Sheets.................................................. F-3 Consolidated Statements of Operations........................................ F-4 Consolidated Statements of Shareholder's Equity.............................. F-5 Consolidated Statements of Cash Flows........................................ F-6 Summary of Significant Accounting Policies................................... F-7 Notes to Consolidated Financial Statements................................... F-12 2. FINANCIAL STATEMENT SCHEDULES: NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. Report of Independent Certified Public Accountants........................... S-2 Combined Balance Sheets...................................................... S-3 Combined Statements of Operations............................................ S-4 Combined Statements of Shareholder's Equity.................................. S-5 Combined Statements of Cash Flows............................................ S-6 Summary of Significant Accounting Policies................................... S-7 Notes to Combined Financial Statements ...................................... S-10 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY Report of Independent Certified Public Accountants........................... S-17 Consolidated Balance Sheets.................................................. S-18 Consolidated Statements of Operations........................................ S-19 Consolidated Statements of Shareholders' Equity ............................. S-20 Consolidated Statements of Cash Flows........................................ S-21 Summary of Significant Accounting Policies................................... S-22 Notes to Consolidated Financial Statements .................................. S-26
30 34 3. EXHIBITS: (a) The exhibits listed below are filed as part of this report Exhibit Number 3.1 Articles of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.1 Indenture, dated as of December 21, 1998, between Registrant, as Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum Company, Northwest Aluminum Technologies, LLC, Goldendale Holding Company, and Goldendale Aluminum Company, as Guarantors, and U.S. Trust Company, N.A., as Trustee. Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.2 Credit Agreement, dated December 21, 1998, among the Financial Institutions named therein, BancBoston, N.A., as Administrative Agent, U.S. Bank National Association, as Documentation Agent, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Goldendale Aluminum Company, and Northwest Aluminum Technologies, as amended by the Agreement and Amendment No. 1, dated as of January 21, 1999. Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.3 Registration Rights Agreement, dated as of December 21, 1998, by and among the Registrant, the Subsidiary Guarantors party to this Agreement; and BancBoston Robertson Stephens Inc., and Libra Investments, Inc. Incorporated by reference to Exhibit 4.3 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.4 Certificate of Incorporation of Goldendale Holding Company. Incorporated by reference to Exhibit 4.4 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22, 1996, between Hydro Aluminum Louisville, Inc., and Goldendale Aluminum Company. Incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). (Confidential treatment of portions of this document has been granted by order of the Commission. The information omitted from this exhibit has been filed with the Commission.) 10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum, dated December 21, 1998. Incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.3 Tax Indemnification Agreement, dated as of December 21, 1998, between Registrant, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., and Brett E. Wilcox. Incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.4 General Transmission Agreement, dated April 7, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. Incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.5 Power Sale Agreement, dated September 28, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. Incorporated by reference to Exhibit 10.10 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.6 Voting Agreement dated May 17, 1996, by Brett Wilcox for the benefit of the United Steelworkers of America, Local 8147. Incorporated by reference to Exhibit 10.11 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 31 35 10.7 General Transmission Agreement, dated May 4, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Columbia Aluminum Company. Incorporated by reference to Exhibit 10.12 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.8 Power Sales Agreement, dated September 18, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Columbia Aluminum Company. Incorporated by reference to Exhibit 10.13 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.9 Cancelable Swap Agreement dated January 21, 1999, between Goldendale Aluminum Company and BankBoston, N.A. Incorporated by reference to Exhibit 10.14 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.10 Alumina Supply Agreement dated October 15, 1999 by Glencore Ltd. and Northwest Aluminum Company. Incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 1999. (Confidential treatment of portions of this document has been requested. The information omitted from this exhibit has been filed with the Commission.) 10.11 Phantom Stock Termination Agreement dated August 1, 1996 between Goldendale Aluminum Company and Jessie Casswell. Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the year ended December 31, 1999.* 10.12 Block Power Sales Agreement, effective October 1, 2001, between the Bonneville Power Administration and the Registrant. 10.13 Amendment to Alumina Supply Agreement, dated as of October 23, 2000, between Glencore Ltd. and Northwest Aluminum Company. 10.14 Agreement on the Use of Net Proceeds from Remarketing, dated December 27, 2000, between the Registrant and the United Steelworkers of America. 10.15 Remarketing Addendum to the 1996 Agreements, dated effective December 29, 2000, executed by the Bonneville Power Administration and the Registrant, Goldendale Aluminum Company and Northwest Aluminum Company. 10.16 Side Agreement to Agreement to Toll Covert Alumina into Aluminum (Tolling Contract) between Hydro Aluminum Metal Products North America, Inc. and Goldendale Aluminum Company. 10.17 Second Amendment to Alumina Supply Agreement, dated January 5, 2001, between Glencore Ltd. and Northwest Aluminum Company. 10.18 Memorandum of Understanding, Curtailment of Operations due to Power Sale, dated January 11, 2001, between the Bargaining Units of the United Steelworkers of America and the Registrant, Northwest Aluminum Company and Goldendale Aluminum Company. 12.1 Statements re Computation of Ratios. 21.1 Subsidiaries of the Registrant. 24.1 Powers of Attorney (included on signature pages of the Registration Statement). - -------------------- * Management contract or compensatory arrangement. (b) Reports on Form 8-K Not applicable. 32 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Golden Northwest Aluminum, Inc., and the Co-Registrants named below, have duly caused this Report to be signed on their behalf by the undersigned, thereunto duly authorized, in The Dalles, Oregon, on March 30, 2001. GOLDEN NORTHWEST ALUMINUM, INC. By: /s/ BRETT E. WILCOX ------------------------------------ Brett E. Wilcox President and Chairman of the Board CO-REGISTRANTS GOLDENDALE HOLDING COMPANY GOLDENDALE ALUMINUM COMPANY NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM SPECIALTIES, INC. By /s/ BRETT E. WILCOX ------------------------------------- Brett Wilcox President NORTHWEST ALUMINUM TECHNOLOGIES, L.L.C. By /s/ WILLIAM R. REID ------------------------------------- William R. Reid Vice President 33 37 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Brett E. Wilcox and William R. Reid his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on March 30, 2001 on behalf of the Registrant and in the capacities indicated: REGISTRANT OFFICERS AND DIRECTORS
Signature Title - ---------------------------------------- ------------------------------------------------------ /s/ BRETT E. WILCOX President, Chairman of the Board and Director - ---------------------------------------- (Principal Executive Officer) Brett E. Wilcox /s/ WILLIAM R. REID Chief Financial Officer - ---------------------------------------- (Principal Financial Officer and Principal Accounting William R. Reid Officer) /s/ STEPHEN E. BABSON Director - ---------------------------------------- Stephen E. Babson Director - ---------------------------------------- David Bolender Director - ---------------------------------------- Mark O. Hatfield /s/ MICHAEL G. PSAROS Director - ---------------------------------------- Michael G. Psaros
CO-REGISTRANT OFFICERS AND DIRECTORS
Signature Title - ---------------------------------------- ------------------------------------------------------ GOLDENDALE HOLDING COMPANY NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM SPECIALTIES, INC. /s/ BRETT E. WILCOX President and Director - ---------------------------------------- (Principal Executive Officer) Brett E. Wilcox /s/ WILLIAM R. REID Chief Financial Officer - ---------------------------------------- (Principal Financial Officer and Principal Accounting William R. Reid Officer) GOLDENDALE ALUMINUM COMPANY /s/ BRETT E. WILCOX President and Chairman of the Board - ---------------------------------------- (Principal Executive Officer and Principal Financial Brett E. Wilcox Officer and Principal Accounting Officer) /s/ STEPHEN E. BABSON Director - ---------------------------------------- Stephen E. Babson
34 38
Director - ------------------------------------ David Bolender Director - ------------------------------------ Mark O. Hatfield Director - ------------------------------------ Michael G. Psaros NORTHWEST ALUMINUM TECHNOLOGIES, L.L.C. /s/ BRETT E. WILCOX Director - ------------------------------------ (Principal Executive Officer) Brett E. Wilcox /s/ WILLIAM R. REID Chief Financial Officer - ------------------------------------ (Principal Financial Officer and Principal Accounting William R. Reid Officer)
35 39 INDEX TO FINANCIAL STATEMENTS
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants...................................................F-2 Consolidated Balance Sheets as of December 31, 1999 and 2000.........................................F-3 Consolidated Statements of Operations for the years ended December 31, 1998, 1999 and 2000.........................................................................................F-4 Consolidated Statements of Shareholder's Equity for the years ended December 31, 1998, 1999 and 2000..............................................................................F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000.........................................................................................F-6 Summary of Significant Accounting Policies...........................................................F-7 Notes to Consolidated Financial Statements...........................................................F-12
F-1 40 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Golden Northwest Aluminum, Inc. and Subsidiaries The Dalles, Oregon We have audited the accompanying consolidated balance sheets of Golden Northwest Aluminum, Inc. and Subsidiaries as of December 31, 1999 and 2000 and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As disclosed in Note 15 to the consolidated financial statements, during the year ended December 31, 2000 Golden Northwest Aluminum, Inc. and Subsidiaries temporarily curtailed the production of aluminum at its two smelter facilities. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Golden Northwest Aluminum, Inc. and Subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ BDO SEIDMAN, LLP Spokane, Washington March 9, 2001 F-2 41 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- ASSETS (Note 4) 1999 2000 --------- --------- (IN THOUSANDS) Current assets: Cash and cash equivalents ..................................................... $ 1,929 $ 1,982 Trade accounts receivable, less allowance for doubtful accounts of $100 (Note 14) .................................................................. 54,752 41,768 Reimbursement receivable (Note 15) ............................................ -- 40,795 Current portion of receivable due from related company (Note 13) .............. 2,639 2,141 Inventories (Note 1) .......................................................... 65,618 89,316 Intercompany receivable ....................................................... 13,106 -- Income taxes refundable (Note 10) ............................................. 3,121 811 Deferred income taxes (Note 10) ............................................... -- 2,825 Other current assets (Note 5) ................................................. 666 2,149 --------- --------- Total current assets ................................................. 141,831 181,787 --------- --------- Property, plant and equipment, net (Note 2) ........................................ 132,961 139,147 Goodwill, net of accumulated amortization of $14,241 and $18,829 (Note 10) ........ 81,348 74,186 Advances to shareholder ............................................................ 2,000 2,000 Receivable due from related company, less current portion (Note 13) ................ 1,824 1,985 Other assets, net (Notes 3 and 14) ................................................. 10,667 9,388 --------- --------- $ 370,631 $ 408,493 ========= ========= LIABILITIES, PREFERRED STOCK AND SHAREHOLDER'S EQUITY Current liabilities: Current portion of long-term debt (Notes 4 and 5) ............................. $ 25,279 $ 47,233 Trade accounts payable ........................................................ 45,925 21,744 Accrued expenses (Note 8) ..................................................... 16,806 16,986 Accrued curtailment expenses (Note 15) ........................................ -- 42,833 Deferred income taxes (Note 10) ............................................... 215 -- Current portion of dividends payable (Note 11) ................................ -- 8,500 Intercompany payable .......................................................... -- 4,241 --------- --------- Total current liabilities ............................................ 88,225 141,537 --------- --------- Long-term debt, less current portion (Notes 4 and 5) .......................... 170,000 170,000 Deferred income taxes (Note 10) ............................................... 15,012 15,498 Deferred compensation notes payable (Note 7) .................................. 662 -- Other long-term liabilities (Note 9) .......................................... 1,825 1,893 Dividends payable (Note 11) ................................................... 13,163 8,311 --------- --------- Total liabilities .................................................... 288,887 337,239 --------- --------- Commitments and contingencies (Notes 6, 7, 9 and 11) Preferred stock of subsidiary (Note 11) ............................................ 29,663 29,663 Shareholder's equity: Common stock, no par value; 350,000 shares authorized; 1,000 shares issued and outstanding ..................................................... -- -- Additional paid-in capital .................................................... 63,628 63,628 Accumulated deficit ........................................................... (11,547) (22,037) --------- --------- Total shareholder's equity ........................................... 52,081 41,591 --------- --------- $ 370,631 $ 408,493 ========= =========
See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-3 42 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1999 2000 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues (Notes 6 and 13) ................................... $ 479,276 $ 452,491 $ 423,800 Cost of revenues (Note 13) .................................. 447,883 438,101 394,776 --------- --------- --------- Gross margin ................................................ 31,393 14,390 29,024 Net gains on power sales (Note 15) .......................... -- -- 13,980 Reimbursement of expenditures (Note 15) ..................... -- -- 40,795 Curtailment expenses (Note 15) .............................. -- -- (42,944) General and administrative expenses ......................... (18,119) (16,672) (19,431) --------- --------- --------- Operating income (loss) ..................................... 13,274 (2,282) 21,424 --------- --------- --------- Other income (expense): Interest expense (Notes 4 and 10) ........................ (14,180) (21,977) (23,701) Other income (expense), net .............................. 614 603 (157) --------- --------- --------- Net other expense ........................................... (13,566) (21,374) (23,858) --------- --------- --------- Loss before income taxes .................................... (292) (23,656) (2,434) Income tax expense (benefit) (Note 10) ...................... 3,009 (3,745) 4,408 --------- --------- --------- Loss before extraordinary item .............................. (3,301) (19,911) (6,842) Extraordinary item - loss on extinguishment of debt (net of income tax benefit of $513) (Note 4) ............. (1,552) -- -- --------- --------- --------- Net loss .................................................... $ (4,853) $ (19,911) $ (6,842) ========= ========= ========= Loss before extraordinary item .............................. $ (3,301) $ (19,911) $ (6,842) Dividends accrued on preferred stock of subsidiary .......... (3,648) (3,648) (3,648) --------- --------- --------- Loss to common shareholder .................................. (6,949) (23,559) (10,490) Extraordinary item .......................................... (1,552) -- -- --------- --------- --------- Net loss to common shareholder .............................. $ (8,501) $ (23,559) $ (10,490) ========= ========= ========= Loss per share - basic and diluted: Loss before extraordinary item .............................. $ (6,949) $ (23,559) $ (10,490) Extraordinary item .......................................... (1,552) -- -- --------- --------- --------- Net loss per share of common stock .......................... $ (8,501) $ (23,559) $ (10,490) ========= ========= ========= Weighted average shares of common stock outstanding ......... 1,000 1,000 1,000 ========= ========= =========
See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-4 43 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
RETAINED EARNINGS TOTAL COMMON STOCK ADDITIONAL (ACCUMU- SHARE- ---------------------- PAID-IN LATED) HOLDER'S SHARES AMOUNT CAPITAL DEFICIT) EQUITY -------- -------- -------- -------- -------- (IN THOUSANDS EXCEPT SHARE DATA) Balance at January 1, 1998 ............................ 1,000 $ -- $ 65,504 $ 20,513 $ 86,017 Dividends accrued on preferred stock .................. -- -- -- (3,648) (3,648) Net loss .............................................. -- -- -- (4,853) (4,853) -------- -------- -------- -------- -------- Balance at December 31, 1998 .......................... 1,000 -- 65,504 12,012 77,516 Dividends accrued on preferred stock .................. -- -- -- (3,648) (3,648) Dividends paid on common stock ........................ -- -- (1,876) -- (1,876) Net loss .............................................. -- -- -- (19,911) (19,911) -------- -------- -------- -------- -------- Balance at December 31, 1999 .......................... 1,000 -- 63,628 (11,547) 52,081 Dividends accrued on preferred stock .................. -- -- -- (3,648) (3,648) Net loss .............................................. -- -- -- (6,842) (6,842) -------- -------- -------- -------- -------- Balance at December 31, 2000 .......................... 1,000 $ -- $ 63,628 $(22,037) $ 41,591 ======== ======== ======== ======== ========
See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-5 44 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1999 2000 --------- --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net loss ...................................................... $ (4,853) $ (19,911) $ (6,842) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization ............................... 20,342 22,523 25,140 Amortization of financing costs ............................. 29 1,049 1,059 Loss (gain) on disposal of assets ........................... (38) 197 480 Provision for bad debts ..................................... 1,500 -- 2,037 Unrealized loss on derivative financial instruments ......... -- -- 1,567 Extraordinary loss .......................................... 2,065 -- -- Deferred income taxes ....................................... 487 4,376 610 Change in assets and liabilities, net of effect of Trade accounts receivable ............................... 13,198 (6,588) 10,947 Reimbursement receivable ................................ -- -- (40,795) Inventories ............................................. 5,809 (10,535) (23,698) Prepaid expenses ........................................ (259) 120 525 Income taxes refundable ................................. (955) (5,318) 2,310 Other assets ............................................ 527 (1,676) 194 Trade accounts payable .................................. (6,878) 4,890 (24,181) Accrued expenses ........................................ (3,214) 220 (1,044) Accrued curtailment expenses ............................ -- -- 42,833 Intercompany payable/receivable ......................... 418 (13,524) 17,347 Other liabilities ....................................... 85 84 68 --------- --------- --------- Net cash provided by (used in) operating activities .............. 28,263 (24,093) 8,557 --------- --------- --------- Cash flows from investing activities: Proceeds from disposal of assets .............................. 1,210 -- 43 Acquisition of property, plant and equipment .................. (19,010) (33,098) (27,235) Premiums paid for derivative financial instruments ............ -- -- (3,575) Net payments from (advances to) related company ............... (918) 489 337 --------- --------- --------- Net cash used in investing activities ............................ (18,718) (32,609) (30,430) --------- --------- --------- Cash flows from financing activities: Borrowings under revolving credit facilities .................. 300,772 57,000 404,926 Repayments under revolving credit facilities .................. (299,762) (31,721) (382,972) Principal repayments of term loan facilities .................. (11,904) -- -- Proceeds from long-term borrowings ............................ 45,953 -- -- Deferred finance costs ........................................ (7,035) -- -- Principal payments on deferred compensation notes ............. (1,662) (1,072) (1,074) Dividends paid on common stock ................................ -- (1,876) -- Increase (decrease) in bank overdraft ......................... 475 (1,333) 1,046 --------- --------- --------- Net cash provided by financing activities ........................ 26,837 20,998 21,926 --------- --------- --------- Net increase (decrease) in cash and cash equivalents ............. 36,382 (35,704) 53 Cash and cash equivalents, beginning of year ..................... 1,251 37,633 1,929 --------- --------- --------- Cash and cash equivalents, end of year ........................... $ 37,633 $ 1,929 $ 1,982 ========= ========= =========
Supplemental Disclosures of Cash Flow Information (Note 12) See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-6 45 GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) OPERATIONS, PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The operations of Golden Northwest Aluminum, Inc. ("Golden" or the "Company") consist primarily of the smelting conversion of alumina to aluminum, processing of aluminum into primary products, and the sale of those products within one business segment (Note 15). 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. Goldendale Aluminum Company smelting operations are under a tolling agreement that has been amended and now expires December 31, 2013. The operations are located in the Pacific Northwest on the Columbia River. Approximately 80% of the labor force of the Company's subsidiaries is subject to collective bargaining agreements. The agreement with Goldendale's labor force is due to expire June 1, 2001 and the agreement with Northwest's labor force is due to expire July 1, 2001. The Company and the collective bargaining units are in discussions to extend the expiration dates of current labor agreements until September 2001. The Company was incorporated in the state of Oregon on June 3, 1998 for the purposes of becoming the holding company of Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., (collectively "Northwest"), Goldendale Holding Company and its wholly owned subsidiary, Goldendale Aluminum Company (collectively "Goldendale") and Northwest Aluminum Technologies, LLC ("Technologies"). The sole shareholder of the Company also owned all of the outstanding shares of common stock of Northwest, Goldendale and Technologies. On December 18, 1998, the sole shareholder of Golden contributed all of the issued and outstanding shares of common stock of Northwest, Goldendale and Technologies to the Company. The transaction was accounted for as a merger of entities under common control in a manner similar to a pooling of interests. Accordingly, the financial statements give retroactive effect to this transaction. The consolidated financial statements include the accounts of Northwest, Goldendale and Technologies. The Company, Goldendale and Technologies report on a December 31 year basis; Northwest reports on a September 30 fiscal year basis. Included in current assets at December 31, 1999 is $13,106, and included in current liabilities at December 31, 2000 is $4,241, representing the portion of intercompany advances which do not eliminate due to the differing year-ends. All other significant intercompany accounts and transactions have been eliminated. Consolidated and separate results of Northwest, Goldendale and Technologies are as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1999 2000 --------- --------- --------- Revenues: Northwest ......................... $ 300,724 $ 283,609 $ 238,866 Goldendale ........................ 178,552 168,882 184,934 --------- --------- --------- $ 479,276 $ 452,491 $ 423,800 ========= ========= ========= Net income (loss): Northwest ......................... $ (3,483) $ (8,278) $ (7,662) Goldendale ........................ (111) (9,220) 4,009 Technologies ...................... (336) (551) (903) Golden ............................ -- -- (1,567) Consolidating adjustments ......... (923) (1,862) (719) --------- --------- --------- $ (4,853) $ (19,911) $ (6,842) ========= ========= =========
F-7 46 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) REVENUE RECOGNITION Revenues for the conversion of alumina and processing of aluminum under tolling arrangements are recognized upon completion of the tolling process. Under the tolling arrangements, alumina suppliers deliver their alumina to the Company. The alumina is converted to aluminum in reduction cells by putting it in liquid form by dissolving it in an "electrolyte" solution and then passing electric current through the "electrolyte" to separate the alumina into its two parts, aluminum and oxygen. This process is continuous and is nearly instantaneous as the alumina is dissolved in the "electrolyte". Revenues from the processing and sale of aluminum products are recognized upon shipment. Net gains from the sale of power are recognized during the period that the associated power is provided. Revenues billed to customers from shipping and handling are included in revenues for financial reporting purposes. Costs for the related shipping and handling expenses have been included in cost of revenues. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the weighted-average cost method. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates (Note 5). The Company does not invest in financial instruments or derivatives for trading purposes. From time to time, as part of its risk management strategy, the Company uses derivative financial instruments to hedge exposure to changes in the price of aluminum. If the financial instrument qualifies for hedge accounting, changes in market value of the instrument and the premium paid are deferred until the gain or loss is recognized on the hedged commodity. If the contract is not a hedge or does not qualify for hedge accounting, changes in market value are recorded currently in cost of revenues. Goldendale has entered into an interest rate swap agreement for purposes of minimizing exposure to interest rate risk. The differential between the floating interest rate and the fixed interest rate, which is to be paid or received, is recognized in interest expense as the floating interest rate changes over the life of the agreement. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment including cell relining costs are stated at cost, less accumulated depreciation and amortization. For financial reporting purposes, the costs of plant and equipment are depreciated over the estimated useful lives of the assets, which range from three to forty years, using the straight-line method. F-8 47 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) GOODWILL Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized on a straight-line basis over twenty years. The Company periodically evaluates the recoverability of goodwill. The measurement of possible impairment is based primarily on the Company's ability to recover the unamortized balance of the goodwill from expected future operating cash flows on an undiscounted basis (Note 10). ASSET IMPAIRMENT The Company evaluates its long-lived assets for financial impairment, and continues to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. INTEREST COSTS The Company follows the policy of capitalizing interest as a component of the cost of property, plant and equipment constructed for its own use. Interest costs of $44, $576 and $498 were capitalized during the years ended December 31, 1998, 1999 and 2000, respectively. INCOME TAXES Both the Company and its Northwest and Technologies subsidiaries have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company, including these subsidiaries, does not pay federal or state corporate income taxes on its taxable income. Instead, the Company's shareholder is liable for individual federal and state income taxes on its taxable income. It is the Company's intention to pay dividends to the shareholder in an amount no less than the sum of these federal and state income taxes. The Company's other subsidiary, Goldendale, accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 uses the liability method so that deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws and tax rates. Deferred income tax expense or benefit is based on the changes in the financial statement basis versus the tax basis in Goldendale's assets or liabilities from period to period. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-9 48 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with various high quality financial institutions; these deposits may exceed federally insured limits at various times throughout the year. Northwest sells its products to various customers involved in the manufacturing of aluminum products located throughout the United States. Credit risk arising from these receivables is controlled through credit approval, credit limit and monitoring procedures. Receivables due from the Company's two primary tolling customers prior to December 1999 comprise 41% of the Company's total trade accounts receivable at December 31, 1999. Receivables due from the Company's one tolling customer after December 1999 comprise 30% of the Company's total trade accounts receivable at December 31, 2000. All of the reimbursement receivable is due from Bonneville Power Administration. In management's opinion the credit risk associated with non-payment of the reimbursement receivable is considered minimal as the Bonneville Power Administration is an agent of the government of the United States of America. RESEARCH AND DEVELOPMENT COSTS Expenditures associated with research and development for existing product process improvements are expensed as incurred. These costs amounted to $1,194, $2,070 and $853 during the years ended December 31, 1998, 1999 and 2000, respectively. Depreciation on equipment used for research and development amounted to $0, $47 and $14 during the years ended December 31, 1998, 1999 and 2000. CASH AND CASH EQUIVALENTS For purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. ENVIRONMENTAL MATTERS The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company records a liability for an environmental matter when it is probable and can be reasonably estimated. The liability is adjusted as further information develops or circumstances change. The Company's estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. RECLASSIFICATIONS Certain reclassifications of 1998 and 1999 amounts have been made to conform to classifications used in 2000. As prescribed in EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company began reclassifying shipping and handling costs from a component of revenues to cost of revenues in the fourth quarter of 2000. This change required a restatement of revenues and cost of revenues for all periods presented. F-10 49 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) 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 138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133 and No. 138 as of the beginning of the fiscal year 2001. Management does not believe that the adoption of SFAS No. 133 and No. 138 will have any initial impact on its consolidated financial statements. EARNINGS (LOSS) PER SHARE Basic earnings per share includes no dilution and is calculated by dividing income (loss) available to common shareholders after preferred stock dividends accrued, by the average number of shares actually outstanding during the period. Diluted earnings per share reflects the potential dilution of securities (such as stock options, warrants and securities convertible into common stock) that could share in the earnings of an entity. The Company has no dilutive securities as of December 31, 2000. F-11 50 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. INVENTORIES Inventories consist of the following:
DECEMBER 31, ---------------------- 1999 2000 -------- -------- Purchased metals and tolling in process .................................. $ 42,880 $ 60,425 Supplies and alloys ...................................................... 13,619 15,303 Carbon plant materials ................................................... 5,414 4,844 Alumina .................................................................. 3,705 8,744 -------- -------- $ 65,618 $ 89,316 ======== ========
3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, ---------------------- 1999 2000 -------- -------- Land and improvements .................................................... $ 7,814 $ 7,821 Machinery and equipment .................................................. 148,993 165,939 Buildings and improvements ............................................... 40,679 41,263 Capital projects in process .............................................. 12,133 18,817 -------- -------- 209,619 233,840 Less accumulated depreciation ............................................ 76,658 94,693 -------- -------- $132,961 $139,147 ======== ========
During 1998, the Company changed its method of accounting for cell relining costs from expensing such costs as incurred to capitalizing and amortizing these costs over future periods. As a result of relining the cells with improved materials, the useful life of the individual cells has increased. In addition, the cell relining activity and related expenditures vary each year. The Company believes that the new method improves the matching of revenues and costs as technological improvements have extended the estimated period of economic benefit realized from cell relining. The change was applied by retroactively restating the previously issued consolidated financial statements. F-12 51 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 3. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, ---------------------- 1999 2000 -------- -------- Long-term trade receivable, less allowance for doubtful accounts of $900 .............................................. $ 1,572 $ 1,316 Debt issue costs, net of accumulated amortization of $1,078 and $2,137 ................................................... 6,522 5,463 Restricted cash ........................................................... 1,844 1,906 Power project assets held for sale ........................................ 543 543 Other ..................................................................... 186 160 -------- -------- $ 10,667 $ 9,388 ======== ========
Restricted cash consists of cash held in trust and committed for environmental cleanup and workers compensation self-insurance as required by the State of Washington. These monies will be disbursed at a future date as allowed by the State. 4. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ---------------------- 1999 2000 -------- -------- First mortgage notes ...................................................... $150,000 $150,000 Subordinated credit agreement ............................................. 20,000 20,000 Revolving credit facility ................................................. 25,279 47,233 -------- -------- Long-term debt ............................................................ 195,279 217,233 Less current portion ...................................................... 25,279 47,233 -------- -------- 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. (See Note 5.) 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. Borrowings under the credit facility bear interest at a floating base rate plus from 0.50% to 1.00% (10.50% at December 31, 2000) or the LIBOR rate plus from 2.00% to 2.50% (9.18% at December 31, 2000). The additional F-13 52 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) margin is dependent upon the consolidated ratio of earnings before interest, income taxes, depreciation and amortization to interest expense. The credit facility provides for the payment of a commitment fee of 0.50% per annum based on the unused portion of the credit facility. The credit agreement contains restrictive covenants, including a minimum net worth requirement, a minimum excess availability requirement and limitations on capital expenditures, dividends, additional indebtedness, mergers and other business combinations, assets sales, encumbrances, investments and transactions with affiliates. The Company was in compliance with these covenants at December 31, 2000. Also in December 1998, the Company entered into a subordinated credit agreement with Norsk Hydro USA, Inc. pursuant to which $20 million was advanced. The debt bears interest at LIBOR plus two percent (8.82% at December 31, 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 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 21, 1999, the Company terminated at no cost its existing interest rate swap agreements and entered into a new swap agreement that expires in 2003. The fixed interest rate paid on the new swap is 6.4% and covers $20 million of notional principal amount of floating rate (LIBOR) indebtedness of the Company. Although the Company is exposed to credit loss on the interest rate swap in the event of nonperformance by the counterparties, the Company estimates the likelihood of such nonperformance to be remote. At December 31, 1999 and 2000, the fair value of the interest rate swap was approximately $92 and $350, respectively, which reflects the estimated amount that the Company would pay to terminate the contracts. 5. FINANCIAL INSTRUMENTS Derivative Financial Instruments The Company holds call options for the purpose of mitigating the risk of market price fluctuations of anticipated aluminum purchases. These options required the payment of an upfront premium in return for the right to receive the amount, if any, by which the price at the settlement date exceeds the strike price. At December 31, 2000, the Company had option contracts that established a price range for 3,400 to 6,800 metric tons of primary aluminum per month over an 11-month period beginning January 1, 2001. For the year ended December 31, 2000, there was a loss as a result of these positions of $1,567. At December 31, 2000, the fair value of these options of $2,008 is included in other current assets. Fair Value of Financial Instruments For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, certain long-term debt, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. Consequently, such financial instruments are not included in the following table that provides information about the carrying amounts and estimated fair values of the first mortgage notes based on quoted market prices (Note 4): F-14 53 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS)
DECEMBER 31, ---------------------- 1999 2000 -------- -------- Carrying amount ............. $150,000 $150,000 Estimated fair value ........ $150,000 $135,000
6. ALUMINA TOLLING CONVERSION AGREEMENTS Both Goldendale and Northwest had agreements with alumina suppliers for the conversion of alumina to aluminum for a tolling charge under which the entire production capacity of the smelting facilities is dedicated to the tolling of its supplier's alumina. The supplier is obligated to supply, without charge, alumina sufficient to meet the requirements for full operation. The tolling fees set forth in the contracts are a percentage of the price of aluminum quoted on the London Metal Exchange. Goldendale's agreement, as amended, continues through December 31, 2011, and Northwest's agreement terminated on December 31, 1999. These two tolling customers accounted for 19% and 37% of the Company's consolidated revenues in 1998, 17% and 37% of the Company's consolidated revenue in 1999, and 5% and 43% of the Company's consolidated revenue in 2000. In December 2000, Goldendale entered into an agreement modifying the terms of its alumina tolling agreement. The modification allows for a reduction in the amount of aluminum production through September 2001 to a level of approximately 15% of Goldendale's capacity and extends the tolling arrangement to December 31, 2013. In connection with the modification, Goldendale incurred modification charges of $38,750, which is included in curtailment expenses in the statement of operations (Note 15). In October 1999, Northwest entered into an agreement to purchase alumina from a supplier at a cost based on a percentage of the price of aluminum quoted on the London Metals Exchange with deliveries scheduled over a 5-year period. In October 2000 and again in December 2000, the Company entered into agreements modifying the terms of their alumina supply contract. The modifications allow for a reduction in the amount of alumina to be purchased through 2001. The modifications are reflected in the commitment schedule (Note 9). In connection with the modifications, Northwest incurred charges of $3,200 (Note 15). 7. EMPLOYEE BENEFIT PLANS Profit Sharing Bonus Plans Northwest has entered into a contractual agreement, which continues through June 30, 2001, with the United Steelworkers of America, AFL-CIO, to pay annually as additional compensation 20% of the combined net income of Northwest, as adjusted in accordance with the agreement. Northwest's total additional compensation bonuses under this agreement amounted to approximately $829, $298 and $698 during the fiscal years ended September 30, 1998, 1999 and 2000, respectively. Goldendale has a profit sharing plan for its hourly and salaried employees. All Goldendale employees are eligible participants in this plan upon completion of a probationary period. The plan provides for payments equal to a percentage of Goldendale's profits, as defined. These amounts are to be distributed to eligible participants on or before March 31 following Goldendale's year-end. For the years ended December 31, 1998, 1999 and 2000, Goldendale recorded approximately $380, $0 and $1,488, respectively, of expense related to this plan. F-15 54 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) Retirement Benefit Plans Northwest has a defined contribution 401(k) profit sharing plan (the "401(k) Plan") covering substantially all Northwest employees under which employees may elect to defer pay subject to statutory limits. Northwest is committed to contribute the greater of $.25 per eligible hour worked or 5% of the combined adjusted net income of Northwest. In addition, Northwest is required to make matching contributions of 25% of elective deferrals. Northwest may also make discretionary contributions to the 401(k) Plan. Total contributions by Northwest to the 401(k) Plan amounted to approximately $341, $694 and $964 during the fiscal years ended September 30, 1998, 1999 and 2000, respectively. Goldendale has a 401(k) profit sharing plan under which employees may elect to defer pay subject to statutory limits. Goldendale also makes matching contributions for nonbargaining employees on the basis of percentages specified in the plan and discretionary contributions as determined on an annual basis. Goldendale also maintained a separate profit sharing retirement plan (the "DC Plan") which provided retirement benefits for substantially all of its employees. Goldendale is committed to contribute the greater of 5% of net income or $.25 per eligible hour worked. During 1999, the separate profit sharing retirement plan was merged into the 401(k) profit sharing plan. For the periods ended December 31, 1998, 1999 and 2000, Goldendale recorded approximately $290, $514 and $384 of expense for plan contributions. Deferred Compensation Notes Payable In connection with the acquisition of Goldendale in 1996, the Company entered into deferred compensation agreements with certain employees in exchange for the employees waiving their rights under stock-based compensation and other employment agreements which existed at that date. The notes are payable in monthly installments of approximately $115, including interest at 8.75%, through 2001. 8. ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 31, -------------------- 1999 2000 ------- ------- Bonuses and employee benefits ......... $ 4,275 $ 5,762 Salaries and related expenses ......... 3,956 5,322 Interest .............................. 3,163 1,548 Bank overdraft ........................ 1,574 2,620 Other ................................. 3,838 1,734 ------- ------- $16,806 $16,986 ======= =======
9. 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. During 1999, the Company contracted for the design and construction of a bath reclaim facility at Goldendale. In connection therewith, a dispute has arisen over contract change orders to an engineering F-16 55 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) and construction contract. The Company has accrued an estimate of the costs to settle the claim in the amount of $520. If the settlement offer is not accepted, the ultimate cost to the Company may exceed this accrual. As of December 31, 1999 and 2000, the Company had a liability of approximately $1,825 and $1,893, respectively, for estimated environmental remediation activities to be taken on the Company'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 is estimated at $3 million; however, under a court decree the Company is only responsible for approximately one-half of the total. The remaining cost is the responsibility of prior owners. 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. In December 2000, the Company was designated as a potentially responsible party (PRP) by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, and by the State of Oregon under applicable state laws with respect to the Portland Harbor Superfund site in Portland, Oregon. Other PRPs also have been so designated. The Company, along with other PRPs, is participating in the funding of a remedial investigation/feasibility study. Management does not anticipate selection of a remedy for several years and is of the opinion that the Company will be found to have a de minimus liability, if any, in the outcome of the matter. The Company has entered into various agreements for the purchase of power, alumina, and aluminum, including agreements with the Bonneville Power Administration (BPA) for the purchase of electrical power at fixed rates. Contracts with BPA expiring on September 30, 2001, were modified in December 2000 (Note 15). Future estimated minimum payments under non-cancelable agreements at December 31, 2000 are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------------------ -------- 2001 ............................... $ 66,781 2002 ............................... 32,022 2003 ............................... 32,022 2004 ............................... 32,022 -------- $162,847 ========
In October 2000, the Company entered into a new electrical power sale agreement with BPA that will be effective from October 1, 2001 through September 30, 2006. The Company expects that 50% of its electrical power requirements will be met through this contract. The new contract allows the Company to direct the available power to the facilities. The power rates set forth under the new contract are subject to review by the Federal Energy Regulatory Commission. Because the rate for BPA power will not be determinable until the conclusion of the review, the Company has the right to terminate the contract within a specified time period after the review. Under the new contract, the BPA Administrator may have broad discretion to temporarily or permanently limit or terminate purchases of power in circumstances in which the Administrator determines that the Company is not in compliance with all applicable federal, state and local laws and regulations. 10. INCOME TAXES Income tax expense (benefit) consists of the following:
YEAR ENDED DECEMBER 31, ------------------------------------ 1998 1999 2000 --------- --------- --------- Current .................................................. $ 2,009 $ (7,338) $ 3,798 Deferred ................................................. 487 3,593 610 --------- --------- --------- Income tax expense (benefit) ............................. $ 2,496 $ (3,745) $ 4,408 ========= ========= =========
F-17 56 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) The difference between the federal statutory tax rate and the effective tax rate resulted from the following:
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1999 2000 ------ ------ ------ Federal statutory tax rate ........................... 35.0% (35.0)% 35.0% Loss from entities not subject to income taxes ....................................... (70.4) 15.8 (156.0) Amortization of goodwill ............................. (70.5) 7.0 (66.0) Other items, net ..................................... -- (3.6) 5.9 ------ ------ ------ Effective tax rate ................................... (105.9)% (15.8)% (181.1)% ====== ====== ======
Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ----------------------- 1999 2000 -------- -------- Current: Accrued expenses ............................... $ (1,805) $ 1,226 Accrued curtailment expenses ................... -- 1,301 Inventory ...................................... 55 53 Other .......................................... 1,535 245 -------- -------- $ (215) $ 2,825 ======== ======== Non-current: Property, plant and equipment .................. $(16,286) $(16,565) Power project assets ........................... 404 404 Deferred compensation .......................... 231 -- Other .......................................... 639 663 -------- -------- $(15,012) $(15,498) ======== ========
In 1999, as a result of an audit by the Internal Revenue Service, the Company entered into an agreement to capitalize certain expenditures for income tax purposes. As a result of the agreement, goodwill and interest expense were reduced by approximately $2 million and $1 million, respectively, during 1999. The sole shareholder of the Company incurred additional taxes and interest associated with this agreement. In December 1999, the Company made a dividend distribution of approximately $1.9 million to reimburse the shareholder for such amounts. In 2000, as a result of the resolution of an estimated deferred tax liability arising from the acquisition of the Company, the Company reduced goodwill and interest expense by approximately $2.6 million and $.5 million, respectively. 11. PREFERRED STOCK OF SUBSIDIARY Goldendale has authorized 150,000 shares of $.01 par value Series A cumulative, nonconvertible preferred stock. At December 31, 2000 and 1999, 131,836.1 shares were issued and outstanding. The shares were issued in connection with the acquisition of Goldendale in 1996 and are stated at their per share fair value when issued of $225. The liquidation preference on the preferred stock is $225 per share plus accumulated dividends. F-18 57 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) Terms of the Goldendale preferred stock provide for dividends accruing quarterly and payable in cash as declared by the Board of Directors according to the following schedule:
YEAR ENDING DECEMBER 31, AMOUNT ------------------------ ------------ 2001.......................................................... $27.68/share 2002.......................................................... $29.93/share 2003.......................................................... $32.18/share Thereafter.................................................... $34.43/share
Commencing on January 1, 2002, the preferred shareholders have the option of receiving additional shares of preferred stock in satisfaction of any cumulative dividend in arrears that may exist at that time. At December 31, 1999 and 2000, dividends payable on preferred stock were $13,163 ($99.85 per share) and $16,811 ($127.53 per share), respectively. The Company plans to pay a portion of dividends payable in 2001 in order to fund distributions from the Goldendale Retirement Plan. The Company may redeem any or all outstanding shares of Series A Preferred Stock at the following redemption prices:
YEAR ENDING DECEMBER 31, AMOUNT ------------------------ ------- 2001........................................................ $227.25 Thereafter.................................................. $225.00
The shares of preferred stock and shares of common stock vote together as a single class on all matters submitted to a vote of shareholders of Goldendale. The holders of shares of preferred stock are entitled to one vote per share and have full voting rights and power equal to those of the holders of common stock. 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Supplemental disclosures of cash flow information is as follows:
DECEMBER 31, ------------------------------------ 1998 1999 2000 --------- --------- --------- Cash paid (received) during the period for: Interest ............................................... $ 13,273 $ 21,779 $ 22,231 Income taxes ........................................... $ 2,900 $ (2,796) $ 4,492 Non-cash investing and financing activities: Principal balance of debt refinanced ................... $ 124,047 $ -- $ -- Reduction to acquisition contingency accrual: Goodwill ............................................. $ -- $ 2,045 $ 2,574 Deferred income tax benefit .......................... $ -- $ 783 $ 3,164 Interest expense ..................................... $ -- $ 1,262 $ 590 Dividends accrued on preferred stock ................... $ 3,648 $ 3,648 $ 3,648
13. RELATED PARTY TRANSACTIONS Sales to a company related by common ownership amounted to $6,406, $5,766, and $6,380 for the years ended December 31, 1998, 1999 and 2000, respectively. The receivable due from the related company includes the balance due from those sales, together with cash advances, of which $4,000 was F-19 58 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) converted to a note receivable on December 31, 1997. The note bears interest at 9.25% and is payable in quarterly installments through September 2005. Interest income from this related company amounted to $263, $304 and $230 for the years ended December 31, 1998, 1999 and 2000, respectively. Purchases from this related company amounted to $1,998 and $3,216 for the years ended December 31, 1999 and 2000, respectively, of which $189 is included in trade accounts payable at December 31, 1999. There were no purchases from this related company in 1998. A member of the Company's board of directors is a partner in a law firm which performs legal services for the Company. Fees paid to this firm amounted to $959, $96 and $153 for the years ended December 1998, 1999 and 2000. Included in trade accounts payable is $3 and $45 due to this firm at December 31, 1999 and 2000, respectively. 14. VALUATION AND QUALIFYING ACCOUNTS Allowance for doubtful accounts activity was as follows:
DECEMBER 31, ------------------------------------ 1998 1999 2000 --------- --------- --------- Balance, beginning of year ............................... $ 1,000 $ 1,000 $ 1,000 Charged to expense ....................................... 1,500 -- 2,037 Write-offs, net of recoveries ............................ (1,500) -- (2,037) --------- --------- --------- Balance, end of year ..................................... $ 1,000 $ 1,000 $ 1,000 ========= ========= =========
Northwest has an arrangement with a third party to distribute aluminum throughout Texas. In addition to providing distribution services, the third party was a long-term customer of Northwest purchasing aluminum products for resale. In 1998, because the third party was experiencing financial problems, Northwest entered into an arrangement to extend the terms of repayment and provide a method for the third party to repay its debt to Northwest by direct retention of a portion of earned services. Northwest also ceased selling aluminum products to this third party. In September 2000, Northwest determined that, primarily due to the third party's increasingly limited earnings potential, the financial condition of the third party was worsening and an impairment of the long-term trade receivable had occurred. As a result, Northwest took a write-down on the receivable and recognized a loss of $2,037. 15. POWER SALES AND CURTAILMENT In September 2000, the Company curtailed smelter production levels to 60% of capacity as a result of significant increases in the spot market price of electrical power. At reduced production levels, the Company was able to sell excess electrical power contractually available under its existing power contracts with the Bonneville Power Administration (BPA). As a result of these power sales, the Company recorded a net gain from power sales of approximately $13,980 in 2000, which was composed of gross proceeds of $18,277 offset by incremental excess power costs. In December 2000, the Company curtailed smelter production further, to a level of approximately 15% of capacity at Goldendale and ceased smelting production at Northwest. This second curtailment was done in conjunction with a modification to the Company's existing electrical power contracts with BPA. The modification to the contracts allows BPA to remarket the electrical power that the Company would have used. The proceeds from the remarketed power will become available to the Company as reimbursement for "qualified expenditures" through December 2010. As defined in the remarketing agreement, "qualified expenditures" are costs related to curtailing production (including employee layoff F-20 59 GOLDEN NORTHWEST ALUMINUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) expenditures, contract cancellation fees, unabsorbed fixed costs and debt service payments), costs incurred pursuant to plans to secure a future power supply and enhance operations of the facilities, and payment of tax liabilities related to these reimbursements. Revenue from reimbursement of expenditures is recognized in the period that the qualified expenditures are incurred to the extent that such expenditures will be reimbursed. Revenue from reimbursable expenditures by Goldendale amounted to $40,795 during 2000 and is included in the statement of operations. Due to differing year-ends, revenue from reimbursable expenditures does not include revenue from reimbursable expenditures by Northwest during 2000. Such revenue amounted to $5,439. In connection with these curtailments, the Company reduced its active workforce by 471 hourly employees. Terminated and inactive employees were provided severance packages that included either a severance payment or compensation continuation for a period time. In addition, these employees received a continuation of medical benefits for a period ranging from nine to twelve months. Costs related to the curtailments, including contract cancellation charges of $38,750 and workforce reduction costs of $4,219, incurred by Goldendale are included in the statement of operations. Due to differing year-ends, the statement of operations does not include curtailment costs incurred by Northwest during 2000. Northwest incurred contract cancellation charges of $3,200 and workforce reduction costs of $3,371. During the curtailment, the Company's recycling, remelt and casting operations will continue to operate and supply existing customers. The Company expects to return to full production levels once power is available at acceptable price levels. However, no assurances can be given that the Company's plans for restarting its smelter operations will occur as currently planned, if at all. 16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table presents a condensed summary of quarterly results of operations for the years ended December 31, 1999 and 2000 (dollars in thousands, except per share data). As prescribed in EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company began reclassifying shipping and handling costs from a component of revenues to cost of revenues in the fourth quarter of 2000. This change required a restatement of revenues and cost of revenues for all periods presented.
DECEMBER 31, 1999 ------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- --------- Revenues $ 104,342 $ 109,121 $ 114,825 $ 124,203 $ 452,491 Gross Margin 2,008 4,862 7,093 427 14,390 Net Loss (6,067) (4,874) (2,340) (6,630) (19,911) Per common share: Net Loss (6,979) (5,786) (3,251) (7,543) (23,559)
DECEMBER 31, 2000 ------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- --------- Revenues $ 127,892 $ 105,393 $ 102,369 $ 88,146 $ 423,800 Gross Margin 8,605 9,023 9,740 1,656 29,024 Net Loss (2,299) (1,880) (3,018) 355 (6,842) Per common share: Net Loss (3,211) (2,792) (3,932) (555) (10,490)
F-21 60 INDEX TO FINANCIAL STATEMENT SCHEDULES
NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. Report of Independent Certified Public Accountants...................................................S-2 Combined Balance Sheets..............................................................................S-3 Combined Statements of Operations....................................................................S-4 Combined Statements of Shareholder's Equity..........................................................S-5 Combined Statements of Cash Flows....................................................................S-6 Summary of Significant Accounting Policies...........................................................S-7 Notes to Combined Financial Statements............................................................ S-10 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY Report of Independent Certified Public Accountants...................................................S-17 Consolidated Balance Sheets..........................................................................S-18 Consolidated Statements of Operations................................................................S-19 Consolidated Statements of Shareholders' Equity......................................................S-20 Consolidated Statements of Cash Flows................................................................S-21 Summary of Significant Accounting Policies...........................................................S-22 Notes to Consolidated Financial Statements........................................................ S-26
S-1 61 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Northwest Aluminum Company and Northwest Aluminum Specialties, Inc. The Dalles, Oregon We have audited the accompanying combined balance sheets of Northwest Aluminum Company and Northwest Aluminum Specialties, Inc. as of September 30, 1999 and 2000, and the related combined statements of operations, shareholder's equity (deficit), and cash flows for each of the three years in the period ended September 30, 2000. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Northwest Aluminum Company and Northwest Aluminum Specialties, Inc. as of September 30, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ BDO SEIDMAN, LLP Spokane, Washington November 3, 2000, except for Note 12 as to which the date is December 27, 2000 S-2 62 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. COMBINED BALANCE SHEETS
ASSETS (Note 4) SEPTEMBER 30, ------------------------- 1999 2000 --------- --------- (IN THOUSANDS) Current assets: Cash and cash equivalents ................................................. $ 194 $ 1,371 Trade accounts receivable, less allowance for doubtful accounts of $100 ................................................................ 38,313 27,058 Current portion of receivable due from related company (Note 10) .......... 2,639 2,141 Inventories (Notes 1 and 10) .............................................. 41,267 65,591 Other current assets (Note 2) ............................................. 500 1,649 --------- --------- Total current assets ............................................. 82,913 97,810 --------- --------- Property, plant and equipment, net (Note 3) .................................... 37,802 40,559 Advances to shareholder ........................................................ 2,000 2,000 Receivable due from related company, less current portion (Note 10)............. 1,824 1,985 Long-term trade receivable, less allowance for doubtful accounts of $900 (Note 11) ............................................................ 1,572 1,316 --------- --------- $ 126,111 $ 143,670 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) Current liabilities: Trade accounts payable (Note 10) ........................................... $ 33,415 $ 18,385 Accrued expenses (Notes 7 and 10) .......................................... 4,815 7,843 --------- --------- Total current liabilities ........................................ 38,230 26,228 Long-term debt due to parent (Note 4) .......................................... 79,743 118,842 --------- --------- Total liabilities ................................................ 117,973 145,070 --------- --------- Commitments and contingencies (Notes 5, 6 and 8) Shareholder's equity (deficit): Common stock, no par value; 2,000 shares authorized, Issued and outstanding ................................................ 38 38 Additional paid-in capital ................................................. 20,736 18,860 Accumulated deficit ........................................................ (12,636) (20,298) --------- --------- Total shareholder's equity (deficit) ............................. 8,138 (1,400) --------- --------- $ 126,111 $ 143,670 ========= =========
See accompanying summary of significant accounting policies and notes to combined financial statements. S-3 63 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 1998 1999 2000 --------- --------- --------- (IN THOUSANDS) Revenues (Notes 5 and 10) ............................. $ 301,826 $ 283,939 $ 238,933 Cost of revenues (Note 10) ............................ 289,835 275,806 224,217 --------- --------- --------- Gross margin .......................................... 11,991 8,133 14,716 General and administrative expenses ................... (8,293) (6,026) (9,274) --------- --------- --------- Operating income ...................................... 3,698 2,107 5,442 --------- --------- --------- Other income (expense): Interest expense (Notes 4 and 10) .................. (7,463) (10,269) (13,471) Other income, net .................................. 282 433 367 --------- --------- --------- Other expense, net .................................... (7,181) (9,836) (13,104) --------- --------- --------- Net loss before extraordinary item .................... (3,483) (7,729) (7,662) Extraordinary item-loss on extinguishment of debt (Note 4) ........................................ -- 549 -- --------- --------- --------- Net loss .............................................. $ (3,483) $ (8,278) $ (7,662) ========= ========= =========
See accompanying summary of significant accounting policies and notes to combined financial statements. S-4 64 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
TOTAL SHARE- COMMON STOCK ADDITIONAL (ACCUMU- HOLDER'S ---------------------- PAID-IN LATED EQUITY SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT) -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance at October 1, 1997 ...................... 2,000 $ 38 $ 20,736 $ (875) $ 19,899 Net loss ........................................ -- -- -- (3,483) (3,483) -------- -------- -------- -------- -------- Balance at September 30, 1998 ................... 2,000 38 20,736 (4,358) 16,416 Net loss ........................................ -- -- -- (8,278) (8,278) -------- -------- -------- -------- -------- Balance at September 30, 1999 ................... 2,000 38 20,736 (12,636) 8,138 Net loss ........................................ -- -- -- (7,662) (7,662) Distributions to parent ......................... -- -- (1,876) -- (1,876) -------- -------- -------- -------- -------- Balance at September 30, 2000 ................... 2,000 $ 38 $ 18,860 $(20,298) $ (1,400) ======== ======== ======== ======== ========
See accompanying summary of significant accounting policies and notes to consolidated financial statements. S-5 65 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. COMBINED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 1998 1999 2000 --------- --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net loss ................................................... $ (3,483) $ (8,278) $ (7,662) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization ............................ 6,865 7,301 7,413 Loss on disposal of assets ............................... 68 22 458 Provision for bad debts .................................. 1,500 -- 2,037 Extraordinary loss ....................................... -- 549 -- Changes in assets and liabilities: Trade accounts receivable ............................ 7,419 (2,548) 11,218 Inventories .......................................... 4,925 (6,121) (24,324) Other current assets ................................. (93) (137) 473 Other assets ......................................... 962 (758) (1,744) Trade accounts payable ............................... (6,990) 890 (15,030) Accrued expenses ..................................... 446 (8) 3,028 --------- --------- --------- Net cash provided by (used in) operating activities ........... 11,619 (9,088) (24,133) --------- --------- --------- Cash flows from investing activities: Proceeds from sale of assets ............................... 10 -- 43 Acquisition of property, plant and equipment ............... (7,655) (6,560) (10,671) Receivable due from related company ........................ (918) 489 337 Premiums paid for derivative financial instruments ......... -- -- (1,622) --------- --------- --------- Net cash used in investing activities ......................... (8,563) (6,071) (11,913) --------- --------- --------- Cash flows from financing activities: Borrowings under revolving credit facilities ............... 191,166 31,733 -- Repayments under revolving credit facilities ............... (189,702) (28,624) -- Principal repayment of term loan facilities ................ (4,404) (1,250) -- Net borrowings from parent ................................. -- 14,935 39,099 Advances to parent ......................................... -- (2,055) -- Distribution paid .......................................... -- -- (1,876) Loan fees paid ............................................. (50) -- -- --------- --------- --------- Net cash provided by (used in) financing activities ........... (2,990) 14,739 37,223 --------- --------- --------- Net increase (decrease) in cash and cash equivalents .......... 66 (420) 1,177 Cash and cash equivalents, beginning of year .................. 548 614 194 --------- --------- --------- Cash and cash equivalents, end of year ........................ $ 614 $ 194 $ 1,371 ========= ========= =========
Supplemental Disclosures of Cash Flow Information (Note 9) S-6 66 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) PRINCIPLES OF COMBINATION, BASIS OF PRESENTATION, AND OPERATIONS The financial statements are presented on a combined basis as Northwest Aluminum Company and Northwest Aluminum Specialties, Inc. (the "Companies") are under common ownership and common management. All intercompany transactions have been eliminated in combination. On December 18, 1998, the sole shareholder of the Companies transferred all of the issued and outstanding shares of common stock of the Companies to Golden Northwest Aluminum, Inc. (GNA), a company also wholly-owned by the shareholder. The operations of the Companies consist primarily of the smelting conversion of alumina to aluminum, processing of aluminum into primary products, and the sale of those products. The Companies' smelting operations were under a tolling agreement with an alumina supplier through December 1999. In December 1999, the Companies' tolling agreement expired. The operations are located in the Pacific Northwest on the Columbia River. Approximately 80% of the Companies' labor force is subject to collective bargaining agreements. The Companies' agreement with its labor force is set to expire July 1, 2001. The Company and the collective bargaining unit are in discussions to extend the expiration date of the current labor agreement until September 2001. REVENUE RECOGNITION Revenues from the sale of aluminum products are recognized upon shipment. Revenues for the conversion of alumina and processing of aluminum under a tolling arrangement through December 1999 were recognized upon completion of the tolling process. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method, except for certain supply inventories that are based upon the weighted average cost method. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. It is management's belief that financial instruments held by the Companies approximate fair market value. The Companies do not invest in derivatives for trading purposes. From time to time, as part of its risk management strategy, the Companies use derivative financial instruments to hedge exposure to changes in the price of aluminum. If the financial instrument qualifies for hedge accounting, changes in the market value of the instrument and the premium paid are deferred until the gain or loss is recognized on the hedged commodity. If the contract is not a hedge or does not qualify for hedge accounting, changes in market value are recorded currently. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. For financial reporting purposes, the costs of plant and equipment are depreciated over the estimated useful lives of the assets, which range from five to twenty-five years, using the straight-line method. S-7 67 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) ASSET IMPAIRMENT The Companies evaluate their long-lived assets for financial impairment and continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Companies evaluate the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. INTEREST COSTS The Companies follow the policy of capitalizing interest as a component of the cost of property, plant and equipment constructed for its own use. Interest costs of $147, $76 and $35 were capitalized during the years ended September 30, 1998, 1999 and 2000, respectively. INCOME TAXES The Companies have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Companies do not pay federal or state corporate income taxes on their taxable income. Instead, the shareholder is liable for individual federal and state income taxes on the Companies' taxable income. It is the Companies' intention to pay distributions to the shareholder in an amount no less than the sum of these federal and state income taxes. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Companies to a concentration of credit risk consist of cash and cash equivalents and trade accounts receivable. The Companies place their cash and cash equivalents with various high quality financial institutions; these deposits may exceed federally insured limits at various times throughout the year. The Companies sell their products to various customers involved in the manufacturing of aluminum products located throughout the United States. Credit risk arising from these receivables is controlled through credit approval, credit limit and monitoring procedures. Receivables due from the Companies' primary tolling customer prior to December 1999 comprised 18% and 17% of the Companies' total trade accounts receivable at September 30, 1998 and 1999, respectively. S-8 68 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) RESEARCH AND DEVELOPMENT COSTS Expenditures associated with research and development for existing product process improvements are expensed as incurred. These costs amounted to $71, $111 and $109 during the years ended September 30, 1998, 1999 and 2000, respectively. CASH AND CASH EQUIVALENTS For purposes of balance sheet classification and the statements of cash flows, the Companies consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. ENVIRONMENTAL MATTERS The Companies expense environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Companies record a liability for an environmental matter when it is probable and can be reasonably estimated. RECLASSIFICATIONS Certain reclassifications of 1999 amounts have been made to conform to classifications used in 2000. As prescribed in EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," the Companies began reclassifying shipping and handling costs from a component of revenues to cost of revenues in the fourth quarter of 2000. This change required a restatement of revenues and cost of revenues for all 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. The Companies are currently analyzing the financial impact (if any) the adoption of SFAS No. 133 and No. 138 will have on their combined financial statements. S-9 69 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. INVENTORIES Inventories consist of the following:
1999 2000 -------- -------- Manufactured metals and tolling in process ................. $ 33,633 $ 50,508 Supplies and alloys ........................................ 5,795 6,131 Carbon plant materials ..................................... 1,449 2,275 Alumina .................................................... 390 6,677 -------- -------- $ 41,267 $ 65,591 ======== ========
2. DERIVATIVE FINANCIAL INSTRUMENTS The Companies hold call options for the purpose of mitigating the risk of market price fluctuations of anticipated aluminum purchases. These options required the payment of an upfront premium in return for the right to receive the amount, if any, by which the price at the settlement date exceeds the strike price. At September 30, 2000, the Companies had option contracts that established a price range for 3,400 metric tons of primary aluminum per month over a 6-month period beginning January 1, 2001. For the year ended September 30, 2000, there was no gain or loss as a result of these positions. At September 30, 2000, the fair value of these options of $1,622 is included in other current assets. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
1999 2000 -------- -------- Land and improvements ...................................... $ 2,974 $ 2,974 Machinery and equipment .................................... 57,760 62,833 Buildings and improvements ................................. 21,273 21,555 Capital projects in process ................................ 4,241 6,711 -------- -------- 86,248 94,073 Less accumulated depreciation .............................. 48,446 53,514 -------- -------- Property, plant and equipment, net ......................... $ 37,802 $ 40,559 ======== ========
4. LONG-TERM DEBT On December 21, 1998, GNA issued $150 million of 12% first mortgage notes due on December 15, 2006. Interest is payable semi-annually on June 15 and December 15, commencing June 15, 1999. Payment of the notes is guaranteed by the Companies and by other subsidiaries of GNA. The debt is collateralized by substantially all of the real property, plant and equipment of the Companies and by a pledge of all of the issued and outstanding capital stock of GNA. On or after December 15, 2002 the notes are redeemable at the option of GNA at specified redemption prices. There are no sinking fund requirements. The net proceeds from the sale of the notes were used to repay all amounts then outstanding under the Companies' then existing credit facility and term loan, to fund capital expenditures S-10 70 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) and for working capital and other general corporate purposes. In connection with the extinguishment of its existing debt, the Companies recognized an extraordinary loss of $549 in fiscal 1999. The indenture agreement limits principal payments on subordinated debt, dividends or shareholder distributions, and investments in subsidiaries. On December 21, 1998, the Companies, together with GNA's other subsidiaries, entered into a $75 million bank revolving credit facility, collateralized by inventory, accounts receivable and related intangibles, including a security interest in Northwest Aluminum Company's tolling agreement with Glencore, which matured on December 31, 1999 (see Note 5). Borrowings under the credit facility bear interest at a floating base rate specified in the credit agreement plus 0.50% to 1.00% or LIBOR plus 2.00% to 2.50%, depending on the consolidated ratio of earnings before interest, income taxes, depreciation and amortization to interest expense. The credit facility provides for the payment of a commitment fee of 0.50% per annum based on the unused portion of the credit facility. The credit agreement contains restrictive covenants, including a minimum net worth requirement, a minimum excess availability requirement and limitations on capital expenditures, dividends, additional indebtedness, mergers and other business combinations, asset sales, encumbrances, investments and transactions with affiliates. Also on December 21, 1998, GNA entered into a subordinated credit agreement for $20 million. The debt bears interest at LIBOR plus 2.00% (8.32% at September 30, 2000) and is due in December 2005. The debt is secured by a second lien and pledge on the collateral securing the first mortgage notes and is guaranteed by the Companies and by other subsidiaries of GNA. Except for the collateral security, the guarantees by the Companies are subordinate to the indebtedness under the bank revolving credit facility. The credit agreement provides for additional borrowings of $10 million on or prior to December 31, 2001. The long-term debt due to parent represents the Companies' allocable share of the proceeds from the first mortgage notes and is repayable to GNA under the same terms and conditions as the first mortgage notes described above. The total outstanding debt of GNA co-guaranteed by the Companies at September 30, 2000 amounted to:
1999 2000 -------- -------- First Mortgage Notes ........................... $150,000 $150,000 Subordinated Credit Agreement .................. 20,000 20,000 Revolving Credit Facility ...................... 25,279 41,593 -------- -------- $195,279 $211,593 ======== ========
S-11 71 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 5. ALUMINA SUPPLY Northwest Aluminum Company had an agreement with Glencore, Ltd. (Glencore), which continued through December 31, 1999, for the conversion of alumina to aluminum for a tolling charge under which the entire production capacity of the smelting facility was dedicated to the tolling of its supplier's alumina. The supplier was obligated to supply, without charge, alumina sufficient to meet the requirements for full operation. The tolling fee set forth in the contract was a percentage of the price of aluminum quoted on the London Metals Exchange. This tolling customer accounted for 30%, 27% and 9% of the Companies' combined revenues in fiscal 1998, 1999 and 2000, respectively. On October 15, 1999, Northwest Aluminum Company entered into an agreement to purchase alumina from a supplier at a cost based on a percentage of the price of aluminum quoted on the London Metals Exchange with deliveries scheduled over the next 5 years. Subsequent to September 30, 2000, Northwest Aluminum Company entered into an agreement modifying the terms of their alumina supply contract. The modification includes a reduction in the amount of alumina to be purchased and requires a fee to be paid for reduced purchases. This modification has been included in the commitment schedule (Note 8). 6. EMPLOYEE BENEFIT PLANS Profit Sharing Bonus Plan The Companies have entered into a contractual agreement, which continues through 2001, with the United Steelworkers of America, AFL-CIO, to pay annually as additional compensation 20% of the combined net income of the Companies, as adjusted in accordance with the agreement. The Companies' total additional compensation bonuses under this agreement amounted to approximately $829, $298 and $698 in fiscal 1998, 1999 and 2000, respectively. Retirement Benefit Plan The Companies have also established a defined contribution 401(k) profit sharing plan (the "401(k) Plan") covering substantially all employees under which employees may elect to defer pay subject to statutory limits. The Companies are committed to contribute the greater of $.25 per eligible hour worked or 5% of the combined adjusted net income of the Companies. In addition, the Companies are required to make matching contributions of 25% of elective deferrals. The Companies may also make discretionary contributions to the 401(k) Plan. Total contributions by the Companies to the 401(k) Plan amounted to approximately $341, $694 and $964 in fiscal 1998, 1999 and 2000, respectively. S-12 72 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 7. ACCRUED EXPENSES Accrued expenses consist of the following:
1999 2000 -------- -------- Profit sharing and bonuses ..................... $ 620 $ 1,304 Salaries and related expenses .................. 1,200 2,085 Interest (Note 10) ............................. 2,798 3,151 Bank overdraft ................................. -- 1,106 Other .......................................... 197 197 -------- -------- $ 4,815 $ 7,843 ======== ========
8. COMMITMENTS AND CONTINGENCIES In 1998, as a result of an audit by the Internal Revenue Service, the Companies entered into an agreement to capitalize certain expenditures. Because the Companies have Subchapter S tax reporting status, the sole shareholder of the Companies incurred additional taxes and interest associated with the agreement. As a result, the Companies declared and paid a distribution of $1,876 to GNA, the parent of the Companies, to reimburse the shareholder for such amounts. The Companies, in the regular course of business, are involved in investigations and claims by various regulatory agencies. The Companies are engaged in various legal proceedings incidental to its normal business activities. The Companies' management does not believe that the ultimate resolution of these investigations, claims and legal proceedings will have a material effect on its financial position, results of operations or cash flows. The Companies have entered into various agreements for the purchase of power, alumina, and aluminum, including an agreement with the Bonneville Power Administration (BPA) for the purchase of electrical power at fixed rates. The contract with BPA expires September 30, 2001. Subsequent to year-end, a new contract with BPA was entered into (Note 12). Future estimated minimum payments under these non-cancelable agreements at September 30, 2000 are as follows:
Year ending September 30, Amount ----------------------------------------------------------------- ------------ 2001 $ 34,169 2002 29,785 2003 33,888 2004 33,888 2005 8,472 ------------ $ 140,202 ============
S-13 73 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Supplemental disclosures of cash flow information are as follows:
Year ended September 30, ------------------------------------ 1998 1999 2000 --------- --------- --------- Cash paid during the year for: Interest ............................... $ 6,904 $ 8,165 $ 13,118 Non-cash investing and financing activities: Repayments of revolving credit facilities with new debt ......... $ -- $ 50,238 $ -- Repayment of term loan facilities with new debt .................... $ -- $ 16,221 $ --
10. RELATED PARTY TRANSACTIONS GNA, the parent of the Companies, allocates substantially all of its costs to its subsidiaries based on the ratio of each subsidiary's borrowings (Note 4) to the total borrowings by all subsidiaries. For the year ended September 30, 1999, the Company incurred $8,308 and $485 in interest charges and other expenses, respectively, which were charged to the Companies by GNA. For the year ended September 30, 2000, the Company incurred $11,310 and $1,972 in interest charges and other expenses, respectively, which were charged to the Companies by GNA. Accrued expenses include $2,798 and $3,151 of interest payable to GNA at September 30, 1999 and 2000, respectively. Sales to a company related by common ownership amounted to $6,406, $5,766 and $6,380 for the years ended September 30, 1998, 1999 and 2000, respectively. The receivable due from related company includes the balance due from those sales, together with cash advances, of which $4,000 was converted to a note receivable on December 31, 1997. The note bears interest at 9.25% and is payable in quarterly installments through September 2005. Interest income from this related company amounted to $263, $304 and $230 for the years ended September 30, 1998, 1999 and 2000, respectively. Purchases from this related company amounted to $1,998 and $3,216 for the years ended September 30, 1999 and 2000, respectively, of which $189 is included in trade accounts payable at September 30, 1999. Sales to another company related by common ownership amounted to $294, $330 and $67, for the years ended September 30, 1998, 1999 and 2000, respectively. Purchases from this related company amounted to $1,181, $1,573 and $1,562 for the years ended September 30, 1998, 1999 and 2000, respectively. Trade accounts payable includes balances due this company amounting to $900 and $1,890 at September 30, 1999 and 2000, respectively. S-14 74 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 11. LONG-TERM TRADE RECEIVABLE The Companies have an arrangement with a third party to distribute aluminum throughout Texas. In addition to providing distribution services, the third party was a long-term customer of the Companies, purchasing aluminum products for resale. In 1998, because the third party was experiencing financial problems, the Companies entered into an arrangement to extend the terms of repayment and provide a method for the third party to repay its debt to the Companies by direct retention of a portion of earned services. The Companies also ceased selling aluminum products to this third party. In September 2000, the Companies determined that primarily due to the third party's increasingly limited earnings potential, the financial condition of the third party was worsening and an impairment of the long-term trade receivable had occurred. As a result, the Companies took a write-down on the receivable and recognized a loss of $2,000. 12. SUBSEQUENT EVENTS In late September 2000, the Companies reduced smelter production levels to 50% of capacity as a result of significant increases in the spot market price of electrical power. At reduced production levels, the Companies will be able to reshape or sell electrical power contractually available under its existing power contracts with the Bonneville Power Administration (BPA) to minimize the effect of high market power prices. In connection with this partial curtailment, the Companies reduced its workforce by 66 employees and provided a severance package to employees that were terminated. Costs related to the curtailment and related workforce reduction of approximately $1 million were recognized in October 2000. In October 2000, GNA, the parent of the Companies, entered into a new electrical power sale agreement with BPA that will be effective from October 1, 2001 through September 30, 2006. The Companies expect that 50% of their electrical power requirements will be met through this contract. The new contract allows GNA to direct the available power to the Companies' facility as well as to a facility related by common ownership. The power rates set forth under the new contract are subject to review by the Federal Energy Regulatory Commission. Because the rate for BPA power will not be determinable until the conclusion of the review, GNA has the right to terminate the contract within a specified time period after the review. Under the new contract, the BPA Administrator may have broad discretion to temporarily or permanently limit or terminate purchases of power in circumstances in which the Administrator determines that the Companies are not in compliance with all applicable federal, state and local laws and regulations. In late December 2000, the Companies curtailed all remaining smelter production. This further curtailment was done in conjunction with a modification to the Companies' existing electrical power contract with BPA. The modification to the contract allows BPA to remarket the electrical power that the Companies would have used. The proceeds from the remarketed power will become available to the Companies as reimbursement for costs defined in the remarketing agreement as "qualified expenditures". "Qualified expenditures" are costs related to curtailing production (including employee layoff expenditures, contract cancellation fees, unabsorbed fixed costs and debt service payments), costs incurred pursuant to plans to secure a future power supply and enhance operations of the facilities, and payment of tax liabilities related to these reimbursements. During the curtailment, the Companies' recycling, remelt and casting operations will continue to operate and supply their existing customers. Costs related to this subsequent workforce reduction will be recognized in December 2000. The Companies expect to resume smelter production once power is available at acceptable price levels. S-15 75 NORTHWEST ALUMINUM COMPANY AND NORTHWEST ALUMINUM SPECIALTIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) However, no assurances can be given that the Companies' plans for restarting its smelter operations will occur as currently planned, if at all. S-16 76 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Goldendale Holding Company and Subsidiary Goldendale, Washington We have audited the accompanying consolidated balance sheets of Goldendale Holding Company and Subsidiary as of December 31, 1999 and 2000 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As disclosed in Note 13 to the consolidated financial statements, during the year ended December 31, 2000 Goldendale Holding Company and Subsidiary temporarily curtailed the production of aluminum. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Goldendale Holding Company and Subsidiary as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ BDO SEIDMAN, LLP Spokane, Washington February 22, 2001 S-17 77 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
ASSETS (Note 4) DECEMBER 31, ---------------------- 1999 2000 -------- -------- (IN THOUSANDS) Current assets: Cash and cash equivalents ..................................................... $ 244 $ 140 Trade accounts receivable (Note 12) ........................................... 17,707 16,717 Reimbursement receivable (Note 13) ............................................ -- 40,795 Inventories (Note 1) .......................................................... 24,351 23,725 Prepaid expenses .............................................................. 166 114 Income taxes refundable (Note 9) .............................................. 3,121 811 Deferred income taxes (Note 9) ................................................ -- 2,825 -------- -------- Total current assets ................................................. 45,589 85,127 -------- -------- -------- Property, plant and equipment, net (Note 2) ........................................ 95,075 98,516 Goodwill, net of accumulated amortization of $14,241 and $18,829 (Note 9) ............................................... 81,348 74,186 Other assets, net (Note 3) ......................................................... 2,387 2,449 -------- -------- $224,399 $260,278 ======== ======== LIABILITIES, PREFERRED STOCK AND SHAREHOLDER'S EQUITY Current liabilities: Current portion of long-term debt due to parent (Note 4) ...................... $ 8,916 $ 8,955 Trade accounts payable ........................................................ 13,184 5,097 Accrued expenses (Note 7) ..................................................... 13,981 11,388 Accrued curtailment expenses (Note 13) ........................................ -- 42,833 Deferred income taxes (Note 9) ................................................ 215 -- Current portion of dividends payable (Note 10) ................................ -- 8,500 -------- -------- Total current liabilities ............................................ 36,296 76,773 -------- -------- Long-term debt due to parent, less current portion (Note 4) ................... 78,327 78,328 Deferred income taxes (Note 9) ................................................ 15,012 15,498 Deferred compensation notes payable (Note 6) .................................. 662 -- Other long-term liabilities (Note 8) .......................................... 1,825 1,893 Dividends payable (Note 10) ................................................... 13,163 8,311 -------- -------- Total liabilities .................................................... 145,285 180,803 -------- -------- Commitments and Contingencies (Notes 5, 6, 8 and 10) Preferred stock, cumulative, nonconvertible, $.01 par value; 150,000 shares authorized, 131,836.1 issued and outstanding (aggregate liquidation preference $42,826 in 1999 and $46,474 in 2000 (Note 10)) .................................................................... 29,663 29,663 Shareholders' Equity (Note 10): Common stock, $.01 par value, 350,000 shares authorized, 197,688.82 issued and outstanding ........................................................... 2 2 Additional paid-in capital .................................................... 44,478 44,478 Retained earnings ............................................................. 4,971 5,332 -------- -------- Total shareholder's equity ......................................................... 49,451 49,812 -------- -------- $224,399 $260,278 ======== ========
See accompanying summary of significant accounting policies and notes to combined financial statements. S-18 78 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1999 2000 --------- --------- --------- (IN THOUSANDS) Revenues (Notes 5 and 12) ........................................ $ 177,456 $ 169,319 $ 185,322 Cost of revenues (Note 12) ....................................... 159,329 163,926 170,653 --------- --------- --------- Gross margin ..................................................... 18,127 5,393 14,669 Net gains on power sales (Note 13) ............................... -- -- 13,980 Reimbursement of expenditures (Note 13) .......................... -- -- 40,795 Curtailment expenses (Note 13) ................................... -- -- (42,944) General and administrative expenses .............................. (9,776) (10,504) (9,722) --------- --------- --------- Operating income (loss) .......................................... 8,351 (5,111) 16,778 --------- --------- --------- Other income (expense): Interest expense (Notes 9 and 12) ............................. (6,386) (8,938) (9,764) Other income, net ............................................. 1,886 1,084 1,403 --------- --------- --------- Net other expense ................................................ (4,500) (7,854) (8,361) --------- --------- --------- Income (loss) before income taxes ................................ 3,851 (12,965) 8,417 Income tax expense (benefit) (Note 9) ............................ 3,009 (3,745) 4,408 --------- --------- --------- Income (loss) before extraordinary item .......................... 842 (9,220) 4,009 Extraordinary item - loss on extinguishment of debt (net of income tax benefit of $513) (Note 4) ........................ (953) -- -- --------- --------- --------- Net income (loss) ................................................ $ (111) $ (9,220) $ 4,009 ========= ========= =========
See accompanying summary of significant accounting policies and notes to combined financial statements. S-19 79 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TOTAL ------------------------- PAID-IN RETAINED SHAREHOLDER'S SHARES AMOUNT CAPITAL EARNINGS EQUITY ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance at January 1, 1998 ....................... 197,688.82 $ 2 $ 44,478 $ 21,598 $ 66,078 Dividends accrued on preferred stock ............. -- -- -- (3,648) (3,648) Net loss ......................................... -- -- -- (111) (111) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1998 ..................... 197,688.82 2 44,478 17,839 62,319 Dividends accrued on preferred stock ............. -- -- -- (3,648) (3,648) Net loss ......................................... -- -- -- (9,220) (9,220) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1999 ..................... 197,688.82 2 44,478 4,971 49,451 Dividends accrued on preferred stock ............. -- -- -- (3,648) (3,648) Net income ....................................... -- -- -- 4,009 4,009 ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2000 ..................... 197,688.82 $ 2 $ 44,478 $ 5,332 $ 49,812 ========== ========== ========== ========== ==========
See accompanying summary of significant accounting policies and notes to combined financial statements. S-20 80 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1999 2000 --------- --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net income (loss) .............................................. $ (111) $ (9,220) $ 4,009 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ................................ 13,448 15,197 17,689 Loss (gain) on disposal of assets ............................ (106) 175 22 Extraordinary loss ........................................... 1,466 -- -- Deferred income taxes ........................................ 487 4,376 610 Change in assets and liabilities: Trade accounts receivable ................................ 5,588 (5,217) 990 Reimbursement receivable ................................. -- -- (40,795) Inventories .............................................. 884 (4,414) 626 Prepaid expenses ......................................... (166) 257 52 Income taxes refundable .................................. (955) (5,318) 2,310 Other assets ............................................. (285) (282) (62) Trade accounts payable ................................... (579) 5,365 (8,087) Accrued expenses ......................................... (3,662) 1,199 (2,831) Accrued curtailment expenses ............................. -- -- 42,833 Other liabilities ........................................ 85 84 68 --------- --------- --------- Net cash provided by operating activities ......................... 16,094 2,202 17,434 --------- --------- --------- Cash flows from investing activities: Proceeds from sale of assets ................................... 1,200 -- -- Acquisition of property, plant and equipment ................... (11,140) (26,460) (16,564) --------- --------- --------- Net cash used in investing activities ............................. (9,940) (26,460) (16,564) --------- --------- --------- Cash flows from financing activities: Borrowings under revolving credit facility ..................... 107,747 -- -- Repayments under revolving credit facility ..................... (110,060) -- -- Principal repayments of term loan .............................. (7,500) -- -- Net borrowings from parent ..................................... 4,131 25,524 40 Principal payments on deferred compensation notes .............. (1,662) (1,072) (1,074) Increase (decrease) in bank overdraft .......................... 859 (292) 60 --------- --------- --------- Net cash provided by (used in) financing activities ............... (6,485) 24,160 (974) --------- --------- --------- Net decrease in cash and cash equivalents ......................... (331) (98) (104) Cash and cash equivalents, beginning of year ...................... 673 342 244 --------- --------- --------- Cash and cash equivalents, end of year ............................ $ 342 $ 244 $ 140 ========= ========= =========
Supplemental Disclosures of Cash Flow Information (Note 11) S-21 81 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) OPERATIONS, PRINCIPLES OF COMBINATION AND BASIS OF PRESENTATION The operations of the Company consist primarily of the smelting conversion of alumina to aluminum under a tolling arrangement with an alumina supplier. In addition, the Company operates an alumina unloading facility. The Company operates within one business segment. The operations are located in the Pacific Northwest on the Columbia River. During 2000, the Company curtailed a substantial portion of its operations (Note 13). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Goldendale Aluminum Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Approximately 81% of the Company's labor force is subject to collective bargaining agreements. The Company's agreement with its labor force is due to expire June 1, 2001. The Company and the collective bargaining unit are in discussions to extend the expiration date of the current labor agreement until September 2001. REVENUE RECOGNITION Revenues for the conversion of alumina and processing of aluminum under a tolling arrangement is recognized upon completion of the tolling process. Net gains from the sale of power are recognized during the period that the associated power is provided. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the weighted-average cost method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment including cell-relining costs are stated at cost, less accumulated depreciation and amortization. For financial reporting purposes, the costs of plant and equipment are depreciated over the estimated useful lives of the assets, which range from three to thirty years, using the straight-line method. GOODWILL Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized on a straight-line basis over twenty years. The Company periodically evaluates the recoverability of goodwill. The measurement of possible impairment is based primarily on the Company's ability to recover the unamortized balance of the goodwill from expected future operating cash flows on an undiscounted basis (Note 9). ASSET IMPAIRMENT The Company evaluates its long-lived assets for financial impairment, and continues to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the S-22 82 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. INTEREST COSTS The Company follows the policy of capitalizing interest as a component of the cost of property, plant and equipment constructed for its own use. Interest costs of $0, $500 and $463 were capitalized during the years ended December 31, 1998, 1999 and 2000, respectively. INCOME TAXES The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 uses the liability method so that deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws and tax rates. Deferred income tax expense or benefit is based on the changes in the financial statement basis versus the tax bases in assets or liabilities from period to period. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with various high quality financial institutions; these deposits may exceed federally insured limits at various times throughout the year. Receivables due from the Company's primary tolling customer comprised 98% and 96% of the Company's total trade accounts receivable at December 31, 1999 and 2000, respectively. All of the reimbursement receivable is due from Bonneville Power Administration. In management's opinion the credit risk associated with non-payment of the reimbursement receivable is considered minimal as the Bonneville Power Administration is an agent of the government of the United States of America. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. It is management's belief that financial instruments held by the Company approximate fair value. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes. S-23 83 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) The Company has entered into an interest rate swap agreement for purposes of minimizing exposure to interest rate risk. The differential between the floating interest rate and the fixed interest rate which is to be paid or received is recognized in interest expense as the floating interest rate changes over the life of the agreement. RESEARCH AND DEVELOPMENT COSTS Expenditures associated with research and development for existing product process improvements are expensed as incurred. These costs amounted to $789, $1,516 and $0 during the years ended December 31, 1998, 1999 and 2000, respectively. Depreciation on equipment used for research and development amounted to $0, $47 and $14 during the years ended December 31, 1998, 1999 and 2000, respectively. CASH AND CASH EQUIVALENTS For purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. ENVIRONMENTAL MATTERS The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company records a liability for an environmental matter when it is probable and can be reasonably estimated. The Company's estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. RECLASSIFICATIONS Certain reclassifications of 1998 and 1999 amounts have been made to conform to classifications used in 2000. 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 S-24 84 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS) 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 138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133 and No. 138 as of the beginning of the fiscal year 2001. Management does not believe that the adoption of SFAS No. 133 and No. 138 will have any initial impact on its consolidated financial statements. S-25 85 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. INVENTORIES Inventories consist of the following:
DECEMBER 31, ----------------------- 1999 2000 -------- -------- Tolling in process ............................. $ 3,451 $ 4,229 Supplies and alloys ............................ 7,824 9,172 Electrolyte materials .......................... 5,796 5,688 Carbon plant materials ......................... 3,965 2,569 Alumina ........................................ 3,315 2,067 -------- -------- $ 24,351 $ 23,725 ======== ========
2. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, ----------------------- 1999 2000 -------- -------- Land and improvements .......................... $ 4,840 $ 4,847 Machinery and equipment ........................ 91,135 103,008 Buildings and improvements ..................... 19,406 19,708 Capital projects in process .................... 7,892 12,106 -------- -------- 123,273 139,669 Less accumulated depreciation .................. 28,198 41,153 -------- -------- $ 95,075 $ 98,516 ======== ========
During 1998, the Company changed its method of accounting for cell relining costs from expensing such costs as incurred to capitalizing and amortizing these costs over future periods. The Company believes that the new method is preferable since it improves the matching of revenues and costs as technological improvements have extended the estimated period of economic benefit realized from cell relining. The change was applied by retroactively restating the previously issued consolidated financial statements. The effect of this change was to decrease net loss by $2,829 for the year ended December 31, 1998. 3. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, ----------------------- 1999 2000 -------- -------- Restricted cash ................................ $ 1,844 $ 1,906 Power project assets held for sale ............. 543 543 -------- -------- $ 2,387 $ 2,449 ======== ========
S-26 86 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) Restricted cash consists of cash held in trust and committed for environmental cleanup and workers compensation self-insurance as required by the State of Washington. These monies will be disbursed at a future date as allowed by the State. 4. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ----------------------- 1999 2000 -------- -------- Long-term debt due to parent ................... $ 87,243 $ 87,283 Less current portion ........................... 8,916 8,955 -------- -------- Long-term debt less current portion ............ $ 78,327 $ 78,328 ======== ========
On December 18, 1998, the sole common stock shareholder of the Company transferred all of the issued and outstanding shares of common stock of the Company to Golden Northwest Aluminum, Inc. (GNA), a company also wholly-owned by the shareholder. On December 21, 1998, GNA issued $150 million of 12% first mortgage notes due on December 15, 2006. Interest is payable semi-annually on June 15 and December 15, commencing June 15, 1999. Payment of the notes is guaranteed by the Company and by other subsidiaries of GNA. The debt is collateralized by substantially all of the real property, plant and equipment of the Company and by a pledge of all of the issued and outstanding capital stock of GNA. On or after December 15, 2002, the notes are redeemable at the option of GNA at specified redemption prices. There are no sinking fund requirements. The net proceeds from the sale of the notes were used to repay all amounts then outstanding under the Company's existing credit facility and term loans, to fund capital expenditures and for working capital and other general corporate purposes. In connection with the extinguishment of its existing debt, the Company recognized an extraordinary loss, net of income taxes, of $953 in 1998. The indenture agreement limits principal payments on subordinated debt, dividends or shareholder distributions, and investments in subsidiaries. On December 21, 1998, the Company, together with GNA's other subsidiaries, 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. Borrowings under the credit facility bear interest at a floating base rate plus from 0.50% to 1.00% (10.50% at December 31, 2000) or LIBOR plus from 2.00% to 2.50%, (9.18% at December 31, 2000) depending on the consolidated ratio of earnings before interest, income taxes, depreciation and amortization to interest expense. The credit facility provides for the payment of a commitment fee of 0.50% per annum based on the unused portion of the credit facility. The credit agreement contains restrictive covenants, including a minimum net worth requirement, a minimum excess availability requirement and limitations on capital expenditures, dividends, additional indebtedness, mergers and other business combinations, assets sales, encumbrances, investments and transactions with affiliates. The Company was in compliance with these covenants at December 31, 2000. Also on December 21, 1998, GNA entered into a subordinated credit agreement for $20 million. The debt bears interest at LIBOR plus 2.00% (8.82% at December 31, 2000) and is due in December 2005. The debt is secured by a second lien and pledge on the collateral securing the first mortgage notes and is guaranteed by the Company and other subsidiaries of GNA. Except for the collateral security, the S-27 87 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) guarantees by the Company are subordinate to the indebtedness under the bank revolving credit facility. The credit agreement provides for additional borrowings of $10 million on or prior to December 31, 2001. The long-term debt due to parent represents the Company's allocable share of the proceeds from the first mortgage notes, a portion of the proceeds from the subordinated credit agreement and the Company's net borrowings from the $75 million bank revolving credit facility. This debt is repayable to GNA under the same terms and conditions as the first mortgage notes, the subordinated credit agreement and the bank revolving credit facility described above. On January 21, 1999, the Company terminated at no cost its existing interest rate swap agreement and entered into a new swap agreement that expires in 2003. The fixed interest rate paid on the new swap is 6.4% and covers $20 million of notional principal amount of floating rate (LIBOR) indebtedness of the Company. Although the Company is exposed to credit loss on the interest rate swap in the event of nonperformance by the counterparties, the Company estimates the likelihood of such nonperformance to be remote. At December 31, 1999 and 2000, the fair value of the interest rate swap was approximately $92 and $350, respectively, which reflects the estimated amount that the Company would pay to terminate the contracts. The total outstanding debt of GNA co-guaranteed by the Company at December 31, 2000 amounted to:
1999 2000 -------- -------- First Mortgage Notes ........................... $150,000 $150,000 Subordinated Credit Agreement .................. 20,000 20,000 Revolving Credit Facility ...................... 25,279 47,233 -------- -------- $195,279 $217,233 ======== ========
5. ALUMINA TOLLING CONVERSION AGREEMENT The Company has an agreement with an alumina supplier for the conversion of alumina to aluminum for a tolling charge under which the entire production capacity of the smelting facilities is dedicated to the tolling of the supplier's alumina. The supplier is obligated to supply, without charge, alumina sufficient to meet the requirements for full operation. The tolling fees set forth in the contract are a percentage of the price of aluminum quoted on the London Metal Exchange. The agreement, as amended, continues through December 31, 2011. This tolling customer accounted for 99% of the Company's consolidated revenue in 1998, 1999 and 2000. In December 2000, the Company entered into an agreement modifying the terms of its alumina tolling agreement. The modification allows for a reduction in the amount of aluminum production through September 2001 to a level of approximately 15% of capacity and extends the tolling arrangement to December 31, 2013. In connection with the modification the Company incurred modification charges of $38,750, which is included in curtailment expenses in the statement of operations (Note 13). S-28 88 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 6. EMPLOYEE BENEFIT PLANS Profit Sharing Bonus Plan The Company has a profit sharing plan for its hourly and salaried employees. All employees are eligible participants in this plan upon completion of a probationary period. The plan provides for payments equal to a percentage of profits, as defined. Allocation of the payments is based upon hours worked. These amounts are to be distributed to eligible participants on or before March 31 following the Company's year-end. For the years ended December 31, 1998, 1999 and 2000, the Company recorded approximately $380, $0 and $1,488, respectively, of expense related to this plan. Retirement Benefit Plans The Company has a 401(k) profit sharing plan under which employees may elect to defer pay, subject to statutory limits; the Company also makes matching contributions for nonbargaining employees on the basis of percentages specified in the plan and discretionary contributions as determined on an annual basis. The Company also maintained a separate profit sharing retirement plan (the "DC Plan") which provided retirement benefits for substantially all of its employees. Goldendale is committed to contribute the greater of 5% of net income or $.25 per eligible hour worked. During 1999, the separate profit sharing retirement plan was merged into the 401(k) profit sharing plan. For the years ended December 31, 1998, 1999 and 2000, the Company recorded approximately $290, $514 and $384 of expense for plan contributions. Deferred Compensation Notes Payable In connection with the acquisition of the Company in 1996, the Company entered into deferred compensation agreements with certain employees in exchange for the employees waiving their rights under stock-based compensation and other employment agreements which existed at the acquisition date. The notes are payable in monthly installments of approximately $115, including interest at 8.75%, through 2001. 7. ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 31, ----------------------- 1999 2000 -------- -------- Bonuses and employee benefits .................. $ 3,655 $ 4,458 Salaries and related expenses .................. 2,756 3,237 Interest payable (Note 13) ..................... 2,355 650 Bank overdraft ................................. 1,574 1,514 Other .......................................... 3,641 1,529 -------- -------- $ 13,981 $ 11,388 ======== ========
S-29 89 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 8. COMMITMENTS AND CONTINGENCIES The Company, in the regular course of business, is involved in investigations and claims by various regulatory agencies. The Company is engaged in various legal proceedings incidental to its normal business activities. The Company's management does not believe that the ultimate resolution of these investigations, claims and legal proceedings will have a material effect on its financial position, results of operations or cash flows. During 1999, the Company contracted for the design and construction of a bath reclaim facility. In connection therewith, a dispute has arisen over contract change orders to an engineering and construction contract. The Company has accrued an estimate of the costs to settle the claim in the amount of $520. If the settlement offer is not accepted, the ultimate cost to the Company may exceed this accrual. As of December 31, 1999 and 2000, the Company had a liability of approximately $1,825 and $1,893, respectively, for estimated environmental remediation activities to be taken on the Company'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 is estimated at $3 million; however, under a court decree the Company is only responsible for approximately one-half of the total. The remaining cost is the responsibility of prior owners. In December 2000, the Company was designated as a potentially responsible party (PRP) by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, and by the State of Oregon under applicable state laws with respect to the Portland Harbor Superfund site in Portland, Oregon. Other PRPs also have been so designated. The Company, along with other PRPs, is participating in the funding of a remedial investigation/feasibility study. Management does not anticipate selection of a remedy for several years and is of the opinion that the Company will be found to have a de minimus liability, if any, in the outcome of the matter. The Company has an existing agreement for the purchase of power with the Bonneville Power Administration (BPA) for the purchase of electrical power at fixed rates. The contracts with BPA expiring on September 30, 2001, was modified in December 2000 (Note 13). Future estimated minimum payments under this agreement at December 31, 2000 are $43,676 in 2001. In October 2000, the parent of the Company entered into a new electrical power sale agreement with BPA that will be effective from October 1, 2001 through September 30, 2006. The Company expects that 50% of its electrical power requirements will be met through this contract. The new contract allows GNA to direct the available power to the Company's facility as well as to a facility related by common ownership. The power rates set forth under the new contract are subject to review by the Federal Energy Regulatory Commission. Because the rate for BPA power will not be determinable until the conclusion of the review, GNA has the right to terminate the contract within a specified time period after the review. Under the new contract, the BPA Administrator may have broad discretion to temporarily or permanently limit or terminate purchases of power in circumstances in which the Administrator determines that the Company is not in compliance with all applicable federal, state and local laws and regulations. S-30 90 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 9. INCOME TAXES Income tax expense (benefit) consists of the following:
YEAR ENDING DECEMBER 31, ------------------------------------ 1998 1999 2000 --------- --------- --------- Current .................................................. $ 2,009 $ (7,338) $ 3,798 Deferred ................................................. 487 3,593 610 --------- --------- --------- Income tax expense (benefit) ............................. $ 2,496 $ (3,745) $ 4,408 ========= ========= =========
The difference between the federal statutory tax rate and the effective tax rate resulted from the following:
YEAR ENDING DECEMBER 31, ------------------------------------ 1998 1999 2000 --------- --------- --------- Federal statutory tax rate ............................... 35.0% (35.0)% 35.0% Amortization of goodwill ................................. 69.6 12.8 19.1 IRS audit settlement ..................................... -- (8.7) -- Other items, net ......................................... 0.1 2.0 (1.8) --------- --------- --------- Effective tax rate ....................................... 104.7% (28.9)% 52.3% ========= ========= =========
Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ----------------------- 1999 2000 -------- -------- Current: Accrued expenses ............................ $ (1,805) 1,226 Accrued curtailment expenses ................ -- 1,301 Inventory ................................... 55 53 Other ....................................... 1,535 245 -------- -------- $ (215) $ 2,825 ======== ======== Noncurrent: Property, plant and equipment ............... $(16,286) (16,565) Power project assets ........................ 404 404 Deferred compensation notes ................. 231 -- Other ....................................... 639 663 -------- -------- $(15,012) $(15,498) ======== ========
S-31 91 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) In 1999, as a result of an audit by the Internal Revenue Service, the Company entered into an agreement to capitalize certain expenditures for income tax purposes. As a result of the agreement, goodwill and interest expense were reduced by approximately $2 million and $1 million, respectively, during 1999. In 2000, as a result of the resolution of an estimated deferred tax liability arising from the acquisition of the Company, the Company reduced goodwill and interest expense by approximately $2.6 million and $.5 million, respectively. 10. SHAREHOLDERS' EQUITY Terms of the Company's preferred stock provide for dividends accruing quarterly and payable in cash as declared by the Board of Directors according to the following schedule:
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------ ------------ 2001......................................... $27.68/share 2002......................................... $29.93/share 2003......................................... $32.18/share Thereafter............................................... $34.43/share
Commencing on January 1, 2002, the preferred shareholders have the option of receiving additional shares of preferred stock in satisfaction of any cumulative dividend in arrears that may exist at that time. At December 31, 1999 and 2000, dividends payable on preferred stock were $13,163 ($99.85 per share) and $16,811 ($127.53 per share), respectively. The Company plans to pay a portion of dividends payable in 2001 in order to fund distributions from the Goldendale Retirement Plan. The Company may redeem any or all outstanding shares of Series A Preferred Stock at the following redemption prices:
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------ ------ 2001................................................... $227.25 Thereafter............................................. $225.00
The shares of preferred stock and shares of common stock vote together as a single class on all matters submitted to a vote of the shareholders of the Company. The holders of shares of preferred stock are entitled to one vote per share and have full voting rights and power equal to those of the holders of common stock. S-32 92 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Supplemental disclosures of cash flow information is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ 1998 1999 2000 --------- --------- --------- Cash paid (received) during the period for: Interest ............................................... $ 6,369 $ 3,345 $ 11,074 Income taxes ........................................... $ 2,900 $ (2,796) 4,492 Non-cash investing and financing activities: Debt refinanced with borrowings from parent ............ $ 57,588 $ -- $ -- Dividends accrued on preferred stock ................... $ 3,648 $ 3,648 $ 3,648 Reduction to acquisition contingency accrual: Goodwill ........................................... $ -- $ 2,045 $ 2,574 Deferred income tax benefit ........................ $ -- $ 783 $ 3,164 Interest expense ................................... $ -- $ 1,262 $ 590
12. RELATED PARTY TRANSACTIONS GNA, the parent of the Company, allocates substantially all of its costs to its subsidiaries based on the ratio of each subsidiary's borrowings to the total borrowings by all subsidiaries. For the years ended December 31, 1999 and 2000, the Company incurred $9,978 and $10,682, respectively, in interest charges and other expenses which were charged to the Company by GNA. Accrued expenses include $704 and $650 of interest payable to GNA at December 31, 1999 and 2000, respectively. Sales to a company related by common ownership amounted to $1,102, $1,750 and $1,621 for the years ended December 31, 1998, 1999 and 2000, respectively. Purchases from this company amounted to $202, $561 and $596 for the years ended December 31, 1998, 1999 and 2000, respectively. Trade accounts receivable includes balances due from this company amounted to $1,214 and $1,435 at December 31, 1999 and 2000, respectively. Also included in trade accounts receivable are balances due from another company related by common ownership amounted to $86 and $704 at December 31, 1999 and 2000, respectively. A member of the Company's board of directors is a partner in a law firm which performs legal services for the Company. Fees paid to this firm amounted to $180, $3 and $54 for the years ended December 1998, 1999 and 2000. S-33 93 GOLDENDALE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (DOLLARS IN THOUSANDS) 13. POWER SALES AND CURTAILMENT In September 2000, the Company curtailed smelter production levels to approximately 67% of capacity as a result of significant increases in the spot market price of electrical power. At reduced production levels, the Company was able to sell excess electrical power contractually available under its existing power contracts with the Bonneville Power Administration (BPA). As a result of these power sales, the Company recorded a net gain from power sales of approximately $13,980 in 2000 which was composed of gross proceeds of $18,277 offset by incremental excess power costs. In connection with the initial curtailment, the Company reduced its workforce by 88 hourly employees and provided a severance package to employees that were either voluntarily or involuntarily terminated. In December 2000, the Company curtailed smelter production further, to a level of approximately 15% of capacity. This second curtailment was done in conjunction with a modification to the Company's existing electrical power contract with BPA. The modification to the contract allows BPA to remarket the electrical power that the Company would have used. The proceeds from the remarketed power will become available to the Company as reimbursement for "qualified expenditures" through December 2010. As defined in the remarketing agreement, "qualified expenditures" are costs related to curtailing production (including employee layoff expenditures, contract cancellation fees, unabsorbed fixed costs and debt service payments), costs incurred pursuant to plans to secure a future power supply and enhance operations of the facilities, and payment of tax liabilities related to these reimbursements. Income from reimbursable costs amounted to $40,795 in 2000. Revenue from reimbursement of expenditures is recognized in the period that the qualified expenditures are incurred to the extent that such expenditures will be reimbursed. Costs related to the curtailments, including contract cancellation charges of $38,750 and workforce reduction costs of $4,219 have been incurred. In connection with this second curtailment, the Company reduced its active workforce by 208 hourly employees. These inactive employees were provided a severance package that includes full wages and benefits to September 30, 2001. The Company expects to return to full production levels once power is available at acceptable price levels. However, no assurances can be given that the Company's plans for restarting its smelter operations will occur as currently planned, if at all. S-34 94 EXHIBIT INDEX Exhibit Number - ------------ 3.1 Articles of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.1 Indenture, dated as of December 21, 1998, between Registrant, as Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum Company, Northwest Aluminum Technologies, LLC, Goldendale Holding Company, and Goldendale Aluminum Company, as Guarantors, and U.S. Trust Company, N.A., as Trustee. Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.2 Credit Agreement, dated December 21, 1998, among the Financial Institutions named therein, BancBoston, N.A., as Administrative Agent, U.S. Bank National Association, as Documentation Agent, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Goldendale Aluminum Company, and Northwest Aluminum Technologies, as amended by the Agreement and Amendment No. 1, dated as of January 21, 1999. Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.3 Registration Rights Agreement, dated as of December 21, 1998, by and among the Registrant, the Subsidiary Guarantors party to this Agreement; and BancBoston Robertson Stephens Inc., and Libra Investments, Inc. Incorporated by reference to Exhibit 4.3 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 4.4 Certificate of Incorporation of Goldendale Holding Company. Incorporated by reference to Exhibit 4.4 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22, 1996, between Hydro Aluminum Louisville, Inc., and Goldendale Aluminum Company. Incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). (Confidential treatment of portions of this document has been granted by order of the Commission. The information omitted from this exhibit has been filed with the Commission.) 10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum, dated December 21, 1998. Incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.3 Tax Indemnification Agreement, dated as of December 21, 1998, between Registrant, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., and Brett E. Wilcox. Incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.4 General Transmission Agreement, dated April 7, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. Incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.5 Power Sale Agreement, dated September 28, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. Incorporated by reference to Exhibit 10.10 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.6 Voting Agreement dated May 17, 1996, by Brett Wilcox for the benefit of the United Steelworkers of America, Local 8147. Incorporated by reference to Exhibit 10.11 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 95 10.7 General Transmission Agreement, dated May 4, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Columbia Aluminum Company. Incorporated by reference to Exhibit 10.12 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.8 Power Sales Agreement, dated September 18, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Columbia Aluminum Company. Incorporated by reference to Exhibit 10.13 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.9 Cancelable Swap Agreement dated January 21, 1999, between Goldendale Aluminum Company and BankBoston, N.A. Incorporated by reference to Exhibit 10.14 to our Registration Statement on Form S-4, as amended (Registration No. 333-72245). 10.10 Alumina Supply Agreement dated October 15, 1999 by Glencore Ltd. and Northwest Aluminum Company. Incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 1999. (Confidential treatment of portions of this document has been requested. The information omitted from this exhibit has been filed with the Commission.) 10.11 Phantom Stock Termination Agreement dated August 1, 1996 between Goldendale Aluminum Company and Jessie Casswell. Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the year ended December 31, 1999.* 10.12 Block Power Sales Agreement, effective October 1, 2001, between the Bonneville Power Administration and the Registrant. 10.13 Amendment to Alumina Supply Agreement, dated as of October 23, 2000, between Glencore Ltd. and Northwest Aluminum Company. 10.14 Agreement on the Use of Net Proceeds from Remarketing, dated December 27, 2000, between the Registrant and the United Steelworkers of America. 10.15 Remarketing Addendum to the 1996 Agreements, dated effective December 29, 2000, executed by the Bonneville Power Administration and the Registrant, Goldendale Aluminum Company and Northwest Aluminum Company. 10.16 Side Agreement to Agreement to Toll Covert Alumina into Aluminum (Tolling Contract) between Hydro Aluminum Metal Products North America, Inc. and Goldendale Aluminum Company. 10.17 Second Amendment to Alumina Supply Agreement, dated January 5, 2001, between Glencore Ltd. and Northwest Aluminum Company. 10.18 Memorandum of Understanding, Curtailment of Operations due to Power Sale, dated January 11, 2001, between the Bargaining Units of the United Steelworkers of America and the Registrant, Northwest Aluminum Company and Goldendale Aluminum Company. 12.1 Statements re Computation of Ratios. 21.1 Subsidiaries of the Registrant. 24.1 Powers of Attorney (included on signature pages of the Registration Statement). - -------------------- * Management contract or compensatory arrangement. (b) Reports on Form 8-K Not applicable. EX-10.12 2 v70819ex10-12.txt EXHIBIT 10.12 1 EXHIBIT 10.12 AUTHENTICATED-PROPRIETARY Contract No. 00PB-12197 BLOCK POWER SALES AGREEMENT EXECUTED BY THE BONNEVILLE POWER ADMINISTRATION AND GOLDEN NORTHWEST ALUMINUM, INC. TABLE OF CONTENTS - -------------------------------------------------------------------------------- SECTION PAGE 1. TERM ............................................................. 2 2. DEFINITIONS ...................................................... 2 3. APPLICABLE RATES ................................................. 3 4. INDUSTRIAL FIRM POWER PRODUCT .................................... 4 5. CURTAILMENT AND LOAD MANAGEMENT .................................. 4 6. TAKE-OR-PAY MITIGATION/RELIEF FROM TAKE-OR-PAY ................... 4 7. SCHEDULING ....................................................... 6 8. DELIVERY ......................................................... 6 9. MEASUREMENT ...................................................... 7 10. BILLING AND PAYMENT .............................................. 7 11. NOTICES .......................................................... 9 12. COST RECOVERY .................................................... 9 13. UNCONTROLLABLE FORCES ............................................ 10 14. GOVERNING LAW AND DISPUTE RESOLUTION ............................. 11 15. STATUTORY PROVISIONS ............................................. 12 16. STANDARD PROVISIONS .............................................. 13 17. TERMINATION ...................................................... 15 18. GOOD CORPORATE CITIZENSHIP CLAUSE ................................ 16 19. SIGNATURES ....................................................... 17 EXHIBIT A RATE COMMITMENTS EXHIBIT B BILLING EXHIBIT C POWER RATE EXHIBIT D ADDITIONAL PRODUCTS, SERVICES, AND SPECIAL PROVISIONS EXHIBIT E SCHEDULING This BLOCK POWER SALES AGREEMENT (Agreement) is executed by the UNITED STATES OF AMERICA, Department of Energy, acting by and through the BONNEVILLE POWER ADMINISTRATION (BPA), and GOLDEN NORTHWEST ALUMINUM, INC. (Golden Northwest). Golden Northwest is a Corporation organized under the laws of the State of Oregon. 2 RECITALS This Agreement will replace Contract No. 95MS-94854 and Contract No. 95MS-94862. BPA has administratively divided its organization into two business lines in order to functionally separate the administration and decisionmaking activities of BPA's power business from the administrative and decisionmaking activities of its transmission business. References in this Agreement to the Power Business Line (PBL) are solely for the purpose of establishing which BPA business line is responsible for the administration of this Agreement. BPA and Golden Northwest agree: 1. TERM This Agreement takes effect on the date signed by the Parties (Execution Date). Performance by the Parties, (except for the preparatory actions for performance) shall commence on October 1, 2001, and shall continue through September 30, 2006 (Expiration Date). 2. DEFINITIONS Capitalized terms in this Agreement shall have the meanings defined below, in the exhibits or in context. All other capitalized terms and acronyms are defined in BPA's applicable Wholesale Power Rate Schedule(s), including the General Rate Schedule Provisions (GRSPs). (a) "Amounts Taken" means an amount deemed equal to the amount of power scheduled by Golden Northwest under section 7 of this Agreement or an amount of power as measured at Points of Measurement, as appropriate. (b) "Contract Year" means the period that begins each October 1 and which ends the following September 30. For instance Contract Year 2002 begins October 1, 2001, and continues through September 30, 2002. (c) "Contracted Power" means Firm Power and Surplus Firm Power provided under this Agreement. (d) "Diurnal" means the division of hours of the day between Heavy Load Hours (HLH) and Light Load Hours (LLH). (e) "Firm Power" means electric power that PBL will make continuously available to Golden Northwest under this Agreement. (f) "Northwest Power Act" means the Pacific Northwest Electric Power Planning and Conservation Act of 1980, P.L. 96-501. (g) "Party" or "Parties" means PBL and/or Golden Northwest. 2 3 (h) "Planned Maintenance Outage" means a reduction in Total Plant Load due to periodic or routine plant maintenance that is typical for Golden Northwest's industry. Planned Maintenance Outages shall not exceed 10 days per year, unless otherwise agreed to by BPA. (i) "Points of Measurement" means the interconnection points between BPA, Golden Northwest and other control areas, as applicable. Electric power amounts are established at these points based on metered amounts or scheduled amounts, as appropriate. (j) "Point of Receipt" means the points of interconnection on the transmission provider's transmission system where Contracted Power will be made available to Golden Northwest's transmission provider by PBL. (k) "Power Business Line" or "PBL" means that portion of the BPA organization or its successor that is responsible for the management and sale of BPA's Federal power. (l) "Region" means the definition established for "Region" in the Northwest Power Act. (m) "Total Plant Load" means all electric power consumption including electric system losses, at Golden Northwest's production facilities as measured at Points of Measurement. No distinction is made between load that is served with Contracted Power and load that is served with electric power from other sources. (n) "Transmission Business Line" or "TBL" means that portion of the BPA organization or its successor that is responsible for the management and sale of transmission service on the Federal Columbia River Transmission System (FCRTS). 3. APPLICABLE RATES (a) Purchases under this Agreement may be subject to more than one rate schedule. The Industrial Firm Power (IP-02) and the Firm Power Products and Services (FPS) rate schedules, including the GRSPs, apply to power purchases under this Agreement. Purchases under each rate schedule are established as follows: (1) IP-02 Rate. Section 4 of the body of this Agreement, Exhibit B (Billing), and Exhibit C, Power Rate identify Contracted Power amounts, rates and billing entitlements subject to the IP-02 Rate schedule. (2) FPS. Except when otherwise specified in this Agreement Exhibit D (Additional Products, Services, and Special Provisions) identifies amounts, rates and billing entitlements subject to the FPS rate schedule. 3 4 4. INDUSTRIAL FIRM POWER PRODUCT Golden Northwest shall purchase 236 megawatts (MW) each hour during the term of this Agreement. 5. CURTAILMENT AND LOAD MANAGEMENT (a) CURTAILMENT If Golden Northwest curtails Total Plant Load in whole or in part, then Golden Northwest may request take-or-pay mitigation for purchases under section 4 pursuant to section 6(a) below. (b) SHORT-TERM LOAD MANAGEMENT INTERRUPTIONS UNDER SEPARATE AGREEMENTS Nothing in this Agreement shall preclude BPA and Golden Northwest from entering into separate agreements that provide for short-term load management interruption(s) of BPA deliveries to Golden Northwest. 6. TAKE-OR-PAY MITIGATION/RELIEF FROM TAKE-OR-PAY (a) TAKE-OR-PAY MITIGATION FOR CURTAILMENTS If Golden Northwest chooses to curtail its purchase obligation pursuant to section 5(a) above, then the following terms and conditions shall apply: (1) NOTICE OF CURTAILMENT Golden Northwest shall endeavor to provide notice to BPA at least seven (7) business days in advance of a curtailment; PROVIDED, HOWEVER, that such notice shall in no event be less than three (3) business days prior to the beginning of a curtailment. Such notice shall specify the amount of power to be curtailed (Purchase Deficiency) and the duration of the curtailment. The election to curtail such power, and the amount and duration of such curtailment, may not be changed without BPA's consent. (2) LIMITATION ON DAMAGES Golden Northwest shall pay BPA damages for any Purchase Deficiency equal to the amount by which the reasonable market value of such Purchase Deficiency is less than the price of the applicable IP-02 Rate. Following are two options for the calculation of such damages, if any. 4 5 (A) Except for circumstances established in section 6(a)(2)(B) below, damages shall be calculated as follows: No later than sixty (60) business days after the end of each Contract Year, BPA shall calculate the reasonable market value of any Purchase Deficiency due to a curtailment, taking into account the differing market values for each day in any month in which there was a Purchase Deficiency during each such Contract Year. Golden Northwest shall pay BPA damages equal to the amount by which the sum of the product of the monthly purchase deficiencies and the applicable IP-02 Rate exceeds the sum of the product of the monthly purchase deficiencies, and the reasonable market value in each month. BPA is not obligated to pay Golden Northwest the difference when the reasonable market value exceeds the applicable IP-02 Rate schedule. (B) BPA shall obtain a transactable quote for such power from a third-party. If Golden Northwest notifies BPA that such quote is unacceptable within 24 hours after BPA provides Golden Northwest such quote, then damages shall be calculated according to 6(a)(2)(A) above. Otherwise, such quote shall be deemed equal to the reasonable market value of such power for the purpose of calculating damages under this section 6(a)(2)(B). Further, BPA shall not be obligated to resell the Purchase Deficiency to the third-party that provided the quote and may retain the power or dispose of the power as it chooses. Golden Northwest shall pay BPA damages equal to the amount by which the sum of the product of the amount of the monthly Purchase Deficiency subject to this election and the applicable IP-02 Rate exceeds the reasonable market value established by the quote. BPA is not obligated to pay Golden Northwest the difference when the reasonable market value exceeds the applicable IP-02 Rate schedule. (b) PLANNED MAINTENANCE OUTAGES No less than seven days prior to the beginning of a Planned Maintenance Outage Golden Northwest shall provide BPA with written notice that specifies the duration of the Planned Maintenance Outage and the amount of purchase obligation that is to be reduced. If Golden Northwest provides BPA with written notice, Golden Northwest may reschedule amounts of Contracted Power that are not received due to a Planned Maintenance Outage. Such amounts may only be rescheduled during months when the IP-02 rate is less than or equal to the rate in effect when the Planned Maintenance Outage occurred. All other provisions relating to delivery shall be as mutually agreed to by the Parties. 5 6 7. SCHEDULING All Contracted Power transactions under this Agreement shall be scheduled and implemented consistent with Exhibit E, Scheduling. The procedures for scheduling described in Exhibit E, Scheduling, are the standard utility procedures followed by BPA for power transactions between PBL and other utilities or entities in the Region that require scheduling. 8. DELIVERY (a) TRANSMISSION SERVICE FOR CONTRACTED POWER This Agreement does not provide transmission services for, or include the delivery of, Contracted Power to Golden Northwest, unless otherwise provided. Golden Northwest shall be responsible for executing one or more wheeling agreements with a transmission supplier for the delivery of Contracted Power (Wheeling Agreement). The Parties agree to take such actions as may be necessary to facilitate the delivery of Contracted Power to Golden Northwest consistent with the terms, notice, and the time limits contained in the Wheeling Agreement. (b) LIABILITY FOR DELIVERY Golden Northwest waives any claims against PBL arising under this Agreement for nondelivery of power to any points beyond the applicable Points of Receipt. PBL shall not be liable for any third-party claims related to the delivery of power after it leaves the Points of Receipt. In no event will either Party be liable under this Agreement to the other Party for damage that results from any sudden, unexpected, changed, or abnormal electrical condition occurring in or on any electric system, regardless of ownership. These limitations on liability apply regardless of whether or not this Agreement provides for transfer service. (c) POINTS OF RECEIPT PBL shall make Contracted Power available to Golden Northwest under this Agreement at Points of Receipt solely for the purpose of scheduling transmission to points of delivery for service to Golden Northwest's Total Plant Load, unless otherwise provided. Golden Northwest shall schedule, if scheduling is necessary, such Contracted Power solely for use by its Total Plant Load. PBL, for purposes of scheduling transmission for delivery under this Agreement, specified Points of Receipt in a written notice to Golden Northwest prior to August 1, 2000. If required by the Wheeling Agreement when PBL designates such Points of Receipt, PBL will provide capacity amounts for transmission under the Wheeling Agreement associated with the initial Points of Receipt that can be accepted as firm Points of Receipt under Golden Northwest's Wheeling Agreement (except in the event that all Points of Receipt on the Federal Columbia River Power System (FCRPS) would be considered nonfirm). The sum of capacity amounts requested by PBL shall not exceed the amount of Contracted Power specified in section 4 of this Agreement. Such Points of 6 7 Receipt and their capacity amounts may only be changed through mutual agreement. However, at any time PBL may request the use of a nonfirm Point of Receipt to provide Contracted Power to Golden Northwest, but not withstanding section 8(b) above, PBL shall reimburse Golden Northwest for any additional costs or production losses incurred by Golden Northwest due to its compliance with such request. (d) TRANSMISSION LOSSES PBL shall provide Golden Northwest the losses between the Points of Receipt and Golden Northwest's distribution facilities for Contracted Power, at no additional charge. Losses will be provided at Points of Receipt as established under section 8(c), and under the terms and conditions as defined in the transmission provider's tariff. 9. MEASUREMENT (a) Amounts Taken are deemed equal to the amount scheduled by Golden Northwest under section 7 of this Agreement or an amount of power as measured at Points of Measurement, as appropriate. (b) Golden Northwest shall provide reasonable notice to PBL prior to changing control areas. 10. BILLING AND PAYMENT (a) BILLING PBL shall bill Golden Northwest monthly, consistent with applicable BPA rates, including the GRSPs and the provisions of this Agreement for the Amounts Taken, payments pursuant to section 5, and other services provided to Golden Northwest in the preceding month or months under this Agreement. PBL may send Golden Northwest an estimated bill followed by a final bill. PBL shall send all bills on the bill's issue date either electronically or by mail, at Golden Northwest's option. If electronic transmittal of the entire bill is not practical, PBL shall transmit a summary electronically, and send the entire bill by mail. 7 8 (b) PAYMENT Payment of all bills, whether estimated or final, must be received by the 20th day after the issue date of the bill (Due Date). If the 20th day is a Saturday, Sunday, or Federal holiday, the Due Date is the next business day. If payment has been made on an estimated bill before receipt of a final bill for the same month, Golden Northwest shall pay only the amount by which the final bill exceeds the payment made for the estimated bill. PBL shall provide Golden Northwest the amounts by which an estimated bill exceeds a final bill through either a check or as a credit on the subsequent month's bill. After the Due Date, a late payment charge shall be applied each day to any unpaid balance. The late payment charge is calculated by dividing the Prime Rate as reported in the Money Rates section of Wall Street Journal, plus 4 percent; by 365. The applicable Prime Rate shall be the rate reported on the first day of the month in which payment is received. Golden Northwest shall pay by electronic funds transfer using BPA's established procedures. PBL may terminate this Agreement if Golden Northwest is more than three months behind in paying its bills under this Agreement and Golden Northwest cannot demonstrate an ability to make the payments owed. (c) DISPUTED BILLS In case of a billing dispute, Golden Northwest shall note the disputed amount and pay its bill in full by the Due Date. Unpaid bills (including both disputed and undisputed amounts) are subject to late payment charges provided above. If Golden Northwest is entitled to a refund of any portion of the disputed amount, then BPA shall make such refund with simple interest computed from the date of receipt of the disputed payment to the date the refund is made. The daily interest rate used to determine the interest is calculated by dividing the Prime Rate for Large Banks as reported in the Wall Street Journal; by 365. The applicable Prime Rate for Large Banks shall be the rate reported on the first day of the month in which payment is received by BPA. 8 9 11. NOTICES Any notice required under this Agreement shall be in writing and shall be delivered: (a) in person; (b) by a nationally recognized delivery service; or (c) by United States Certified Mail. Notices are effective when received. Either Party may change its address for notices by giving notice of such change consistent with this section If to Golden Northwest: If to PBL: Golden Northwest Aluminum, Inc. Bonneville Power Administration 8000 NE Parkway Drive, Suite 300 P.O. Box 3621 Vancouver, WA 98662-6744 Portland, OR 97208-3621 Attn: Gerald F. Miller 905 N.E.11th Ave. VP, Energy and Government Affairs Portland, OR 97232 Phone: 360-944-9755 Attn: Sydney D. Berwager - PT-6 FAX: 360-944-9930 Account Executive E-Mail: goldendaleal@earthlink.net Phone: 503-230-5657 FAX: 503-230-3681 E-Mail: sdberwager@bpa.gov
12. COST RECOVERY (a) Nothing included in or omitted from this Agreement creates or extinguishes any right or obligation, if any, of BPA to assess against Golden Northwest and Golden Northwest to pay to BPA at any time a cost underrecovery charge pursuant to an applicable transmission rate schedule or otherwise applicable law. (b) BPA may adjust the rates for Contracted Power set forth in the applicable power rate schedule during the term of this Agreement only pursuant to the Cost Recovery Adjustment Clause (CRAC) in the 2002 GRSPs. (c) Any CRAC will be assessed against the full purchase obligation specified in section 4 of this Agreement, notwithstanding any curtailment by Golden Northwest pursuant to section 5 of this Agreement. (d) For as long as Golden Northwest purchases cost-based power from BPA, this Agreement supercedes existing power sales contracts and Golden Northwest will be subject to the same cost underrecovery exposure as BPA's utility customers purchasing Subscription power. 9 10 13. UNCONTROLLABLE FORCES PBL shall not be in breach of its obligation to provide Contracted Power and Golden Northwest shall not be in breach of its obligation to purchase Contracted Power to the extent the failure to fulfill that obligation is due to an Uncontrollable Force. "Uncontrollable Force" means an event beyond the reasonable control of, and without the fault or negligence of, the Party claiming the Uncontrollable Force that impairs that Party's ability to perform its contractual obligations under this Agreement and which, by exercise of that Party's reasonable diligence and foresight, such Party could not be expected to avoid and was unable to avoid. Uncontrollable Forces include, but are not limited to: (a) any unplanned curtailment or interruption for any reason of firm transmission used to deliver Contracted Power to Golden Northwest's facilities, including but not limited to unplanned maintenance outages; (b) any unplanned curtailment or interruption, failure or imminent failure of Golden Northwest's production or transmission facilities, including but not limited to unplanned maintenance outages; (c) any planned transmission or distribution outage that affects either Golden Northwest or PBL which was provided by a third-party transmission or distribution owner, or by a transmission provider, including TBL, that is functionally separated from the generation provider in conformance with Federal Energy Regulatory Commission (FERC) Orders 888 and 889 or its successors; (d) strikes or work stoppage, including the threat of imminent strikes or work stoppage; (e) floods, earthquakes, or other natural disasters; and (f) orders or injunctions issued by any court having competent subject matter jurisdiction, or any order of an administrative officer which the Party claiming the Uncontrollable Force, after diligent efforts, was unable to have stayed, suspended, or set aside pending review by a court of competent subject matter jurisdiction. Neither the unavailability of funds or financing, nor conditions of national or local economies or markets shall be considered an Uncontrollable Force. The economic hardship of either Party shall not constitute an Uncontrollable Force. Nothing contained in this provision shall be construed to require either Party to settle any strike or labor dispute in which it may be involved. The Party claiming the Uncontrollable Force shall notify the other Party as soon as practicable of that Party's inability to meet its obligations under this Agreement due to an Uncontrollable Force. The Party claiming the Uncontrollable Force also agrees to notify any control area involved in the scheduling of a transaction which may be curtailed due to an Uncontrollable Force. 10 11 Both Parties shall be excused from their respective obligations, other than from payment obligations incurred prior to the Uncontrollable Force, without liability to the other, for the duration of the Uncontrollable Force and the period reasonably required for the Party claiming the Uncontrollable Force, using due diligence, to restore its operations to conditions existing prior to the occurrence of the Uncontrollable Force. 14. GOVERNING LAW AND DISPUTE RESOLUTION (a) This Agreement shall be interpreted consistent with and governed by Federal law. Final actions subject to section 9(e) of the Northwest Power Act are not subject to binding arbitration and shall remain within the exclusive jurisdiction of the United States Ninth Circuit Court of Appeals. Any dispute regarding any rights of the Parties under any BPA policy, including the implementation of such policy, shall not be subject to arbitration under this Agreement. Golden Northwest reserves the right to seek judicial resolution of any dispute arising under this Agreement that is not subject to arbitration under this section 14. For purposes of this section 14 BPA policy means any written document adopted by BPA as a final action in a decision record or record of decision that establishes a policy of general application, or makes a determination under an applicable statute. If either Party asserts that a dispute is excluded from arbitration under this section 14, either Party may apply to the Federal court having jurisdiction for an order determining whether such dispute is subject to arbitration under this section 14. (b) Any contract dispute or contract issue between the Parties arising out of this Agreement, except for disputes that are excluded through section 14(a) above, shall be subject to binding arbitration. The Parties shall make a good faith effort to resolve such disputes before initiating arbitration proceedings. During arbitration, the Parties shall continue performance under this Agreement pending resolution of the dispute, unless to do so would be impossible or impracticable. 11 12 (c) Any arbitration shall take place in Portland, Oregon, unless the Parties agree otherwise. The CPR Institute for Dispute Resolution's arbitration procedures for commercial arbitration, Non-Administered Arbitration Rules (CPR Rules), shall be used for each dispute; provided, however, that: (1) the Parties shall have the discovery rights provided in the Federal Rules of Civil Procedure unless the Parties agree otherwise; and (2) for claims of $1 million or more, each arbitration shall be conducted by a panel of three neutral arbitrators. The Parties shall select the arbitrators from a list containing the names of 15 qualified individuals supplied by the CPR Institute for Dispute Resolution. If the Parties cannot agree upon three arbitrators on the list within 20 business days, the Parties shall take turns striking names from the list of proposed arbitrators. The Party initiating the arbitration shall take the first strike. This process shall be repeated until three arbitrators remain on the list, and those individuals shall be designated as the arbitrators. For disputes involving less than $1 million, a single neutral arbitrator shall be selected consistent with section 6 of the CPR Rules. (d) Except for arbitration awards which declare the rights and duties of the Parties under this Agreement, the payment of monies shall be the exclusive remedy available in any arbitration proceeding. Under no circumstances shall specific performance be an available remedy against BPA. The arbitration award shall be final and binding on both Parties, except that either Party may seek judicial review based upon any of the grounds referred to in the Federal Arbitration Act, 9 U.S.C. Section 1-16 (1988). Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. (e) Each Party shall be responsible for its own costs of arbitration, including legal fees. The arbitrators may apportion all other costs of arbitration between the Parties in such manner as they deem reasonable taking into account the circumstances of the case, the conduct of the Parties during the proceeding, and the result of the arbitration. 15. STATUTORY PROVISIONS (a) PRIORITY OF PACIFIC NORTHWEST CUSTOMERS The provisions of sections 9(c) and (d) of the Northwest Power Act and the provisions of P.L. 88-552 as amended by the Northwest Power Act are incorporated into this Agreement by reference. BPA agrees that Golden Northwest, together with other customers in the Region shall have priority to BPA power, consistent with such provisions. (b) PROHIBITION ON RESALE Golden Northwest shall not resell Industrial Firm Power except as otherwise permitted by Federal law. 12 13 (c) BPA APPROPRIATIONS REFINANCING ACT The text of the BPA Refinancing Section of the Omnibus Consolidated Recisions and Appropriations Act of 1996 (The BPA Refinancing Act), P.L. No. 104-134, 110 Stat. 1321, 1350, is incorporated in this Agreement as shown in Exhibit D, Additional Products, Services, and Special Provisions. 16. STANDARD PROVISIONS (a) AMENDMENTS No oral or written amendment, rescission, waiver, modification, or other change of this Agreement shall be of any force or effect unless set forth in a written instrument signed by authorized representatives of each Party. (b) ASSIGNMENT This Agreement is binding on any successors and assigns of the Parties. BPA may assign this Agreement to another Federal agency to which BPA's statutory duties have been transferred. The consent of BPA is hereby given to an assignment of this Agreement to a successor in interest of Golden Northwest, or any Golden Northwest facility served directly by the PBL, for use at any existing direct service industrial facility served directly by the PBL on the date of the assignment. Neither Party may otherwise transfer or assign this Agreement without the other Party's written consent. Such consent shall not be unreasonably withheld. (c) INFORMATION EXCHANGE AND CONFIDENTIALITY The Parties shall provide each other with any information that is reasonably required, and requested by either Party in writing, to operate under and administer this Agreement, including load forecasts for planning purposes, information needed to resolve billing disputes, scheduling, and metering information reasonably necessary to prepare power bills that is not otherwise available to the requesting Party. Such information shall be provided in a timely manner. Information may be exchanged by any means agreed to by the Parties. If such information is subject to a privilege of confidentiality, a confidentiality agreement or statutory restriction under state or Federal law on its disclosure by a Party to this Agreement, then that Party shall endeavor to obtain whatever consents, releases, or agreements are necessary from the person holding the privilege to provide such information while asserting the confidentiality over the information. Information provided to BPA which is subject to a privilege of confidentiality or nondisclosure shall be clearly marked as such and BPA shall not disclose such information without obtaining the consent of the person or Party asserting the privilege, consistent with BPA's obligation under the Freedom of Information Act. BPA may use such information as necessary to provide service or timely bill for service under this Agreement. BPA shall only disclose information received under this provision to BPA employees who need the information for purposes of this Agreement. 13 14 (d) ENTIRE AGREEMENT This Agreement, including all provisions, exhibits incorporated as part of this Agreement, and documents incorporated by reference, constitutes the entire agreement between the Parties. It supersedes all previous communications, representations, or contracts, either written or oral, which purport to describe or embody the subject matter of this Agreement. (e) EXHIBITS The exhibits listed in the table of contents are incorporated into this Agreement by reference. The exhibits may only be revised upon mutual agreement between the Parties unless otherwise specified in the exhibits. The body of this Agreement shall prevail over the exhibits to this Agreement in the event of a conflict. (f) NO THIRD-PARTY BENEFICIARIES This Agreement is made and entered into for the sole protection and legal benefit of the Parties, and no other person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with this Agreement. (g) WAIVERS Any waiver at any time by either Party to this Agreement of its rights with respect to any default or any other matter arising in connection with this Agreement shall not be considered a waiver with respect to any subsequent default or matter. (h) BPA POLICIES Any reference in this Agreement to BPA policies, including without limitation BPA's New Large Single Load Policy and the 5(b)/9(c) Policy, and any revisions thereto, does not constitute agreement by Golden Northwest to such policy, nor shall it be construed to be a waiver of the right of Golden Northwest to seek judicial review of any such policy. (i) SEVERABILITY If any term of this Agreement is found to be invalid by a court of competent jurisdiction then such term shall remain in force to the maximum extent permitted by law. All other terms shall remain in force unless that term is determined not to be severable from all other provisions of this Agreement by such court. (j) COMPROMISE APPROACH COVENANT Golden Northwest agrees that BPA substantially sustained the Compromise Approach in the Rate Case Final Record of Decision (ROD) issued by BPA on May 15, 2000. As a consequence Golden Northwest agrees: 14 15 (1) Golden Northwest will not file suit in any court challenging the sale of power by BPA to any Pacific Northwest investor-owned utility (IOU) to serve the residential and small farm loads of the IOU, or the rate for such sales, for the Fiscal Year (FY) 2002-2006 period, unless such suit is filed: (A) on the 90th day following the date of the final action being challenged; and (B) in response to a suit filed or reasonably expected to be filed by the IOUs or an IOU representative, challenging power sales or rates for service to the DSIs. (2) Golden Northwest will not file suit in any court challenging the Compromise Approach, as implemented in BPA's 2002 Wholesale Power Rate Case Final ROD; provided, however, that Golden Northwest may challenge BPA's decision regarding adjustments as provided for in the Compromise Approach. (3) Golden Northwest agrees that its failure to comply with any part of this provision will constitute a breach of this Agreement, and that BPA may terminate this Agreement in such case. (k) HOLD HARMLESS Each Party assumes all liability for injury or damage to persons or property arising from the act or negligence of its own employees, agents, members of governing bodies, or contractors. Each Party shall indemnify and hold the other Party harmless from any liability arising from such act or negligence. 17. TERMINATION Golden Northwest may terminate this Agreement through a written notice up to 30 days after FERC grants interim approval for BPA's wholesale power rates that are effective October 1, 2001. In addition, Golden Northwest shall have the right to terminate this Agreement if all of the following conditions have been satisfied: (a) Any rates adopted in WP-02 Final Rate Proposal, Administrator's Final Record of Decision are remanded to BPA for reconsideration by FERC or the Ninth Circuit Court of Appeals. (b) As a result of the remand, the Administrator publishes a subsequent Final Record of Decision which, if confirmed, would result in Golden Northwest being subject to a higher average effective power rate for the period beginning the first day of the billing period immediately following the effective date of new rates contained in the subsequent Final Record of Decision and ending on September 30, 2006. (c) Golden Northwest has provided written notice to BPA of its intent to terminate this Agreement within 30 days of publication of the subsequent Final Record of Decision. Termination shall be effective at the start of the second billing period following the termination notice. 15 16 18. GOOD CORPORATE CITIZENSHIP CLAUSE (a) BPA is directed by statute to market Federal power in the Northwest first to public bodies and cooperatives, then to investor-owned utilities, and then, at the Administrator's discretion, to direct-service industries. Under this Agreement, Golden Northwest shall comply with the requirements of applicable Federal, State, and local laws and regulations (including DOE regulations). Golden Northwest freely agrees that the Administrator enters into this Agreement with a direct-service industrial customer only with the express qualification that during the term of this Agreement, Golden Northwest shall remain in compliance as determined by the Administrator, in his or her sole discretion, with all applicable federal, state, and local laws, and all regulations and orders implementing such laws, whether civil or criminal, as a condition of Golden Northwest's right to receive power under this Agreement. Golden Northwest acknowledges BPA's obligations and policies pursuant to such applicable laws, and that Golden Northwest will act in good faith as it relates to such laws and policies. (b) In the event that the Administrator determines, in his or her sole discretion: (1) that Golden Northwest is using power provided by the BPA for the furtherance of an enterprise that is not in compliance with all applicable federal, state, and local laws, and all regulations and orders implementing such laws, whether civil or criminal; and (2) that such non-compliance, when considered in light of the mission, goals, policies, and interests of the BPA: (i) is egregious or persistent; and (ii) warrants the temporary or permanent curtailment by BPA of the sale of some or all of the power available under this Agreement or any subsequent agreement with Golden Northwest; then Golden Northwest agrees that the Administrator, in his or her sole discretion, may temporarily or permanently curtail the sale of some or all of the power available under this Agreement or any future power agreement between Golden Northwest and BPA. (c) The curtailment of power in paragraph (b) above will continue until the Administrator determines, in his or her sole discretion, that Golden Northwest is in compliance with all applicable federal, state, and local laws, and all regulations and orders implementing such laws, whether civil or criminal. (d) The determinations of the Administrator referred to in paragraphs (b) and (c) above shall only be made with the consent of the Secretary of Energy, and after providing notice to Golden Northwest. In making such determinations, 16 17 the Administrator shall consider any relevant information that may be obtained from Golden Northwest, federal or state agencies or courts, or any other entity. The Administrator shall promptly notify Golden Northwest before any such determination becomes final. 19. SIGNATURES The signatories represent that they are authorized to enter into this Agreement on behalf of the Party for whom they sign. GOLDEN NORTHWEST ALUMINUM, INC. UNITED STATES OF AMERICA Department of Energy Bonneville Power Administration By /S/ BRETT WILCOX By /S/ SYDNEY D. BERWAGER --------------------------------- ---------------------------------- Name BRETT WILCOX Name SYDNEY D. BERWAGER ------------------------------- -------------------------------- (Print/Type) (Print/Type) Title CEO ------------------------------- Date 10/30/00 Date 10/31/2000 ------------------------------- -------------------------------- 17 18 EXHIBIT A RATE COMMITMENTS 1. REVISIONS TO INDUSTRIAL FIRM POWER RATES BPA agrees that the IP-02 rates available to Golden Northwest consistent with this exhibit shall not be subject to revision during the term of this Agreement, except for the application of a Cost Recovery Adjustment Clause as provided in the IP-02 rates schedules and GRSPs and this Agreement. 2. SPECIAL IP LOAD TREATMENT ENVIRONMENTALLY PREFERRED POWER Golden Northwest may request Environmentally Preferred Power. If available, the Parties shall amend this Agreement to include necessary provisions as mutually agreed. 3. REVISIONS If this exhibit is inconsistent with BPA's 2002 Industrial Firm Power Rate Schedule as finally approved by FERC, the Parties shall make a good faith effort to amend this exhibit so that it is consistent. 1 of 1 19 EXHIBIT B BILLING 1. INDUSTRIAL FIRM POWER ENTITLEMENTS (a) The MW amount shown in section 4 of the body of this Agreement multiplied by: (1) the number of HLH; and (2) the number of LLH in the applicable month establishes Golden Northwest's HLH and LLH Energy Entitlements. (b) The MW amount shown in section 4 of the body of this Agreement establishes Golden Northwest's Demand Entitlement. 2. UNAUTHORIZED INCREASE CHARGE Amounts Taken from PBL in excess of Contracted Power shall be subject to the Unauthorized Increase Charge for demand and energy consistent with the applicable BPA Wholesale Power Rate Schedules and GRSPs, unless such power is provided under another contract with PBL. Power that has been provided for energy imbalance service pursuant to an agreement between TBL and Golden Northwest will not be subject to an Unauthorized Increase Charge for Demand and Energy under this Agreement. 3. CONSERVATION AND RENEWABLES DISCOUNT Subject to the terms specified in BPA's applicable Wholesale Power Rate Schedules, including GRSPs, BPA shall apply the Conservation and Renewables Discount to Golden Northwest's Contracted Power as established in section 4 of the body of this Agreement unless Golden Northwest has notified PBL before August 2001 that it will not participate in the Conservation and Renewables Discount. For purposes of establishing power amounts eligible for this discount, Golden Northwest shall provide PBL either: (a) a reasonable forecast of such firm power amounts through Contract Year 2006; or (b) notice Golden Northwest chooses not to have the Conservation and Renewables Discount applied to its Contracted Power by no later than August 1, 2001. If during any Contract Year, Golden Northwest has significant load loss or gain, the Parties may, by no later than August 31 prior to the succeeding Contract Year, revise the forecast used to calculate the Conservation and Renewables Discount. If the revised forecast is less than 95 percent of, or greater than 105 percent of, the forecast used to calculate the existing Conservation and Renewables Discount, the revised forecast shall be used to recalculate the Conservation and Renewables Discount for the succeeding Contract Years. To retain the full amount of the Conservation and Renewables Discount Golden Northwest shall satisfy all obligations associated with the Conservation and Renewables Discount as specified in BPA's applicable Wholesale Power Rate Schedules, including GRSPs and the Conservation and Renewables Discount implementation manual. Golden Northwest shall reimburse BPA for any amount it received but for which it did not satisfy such obligations. 1 of 2 20 4. REVISIONS If this exhibit is inconsistent with BPA's 2002 Industrial Firm Power Rate Schedule as finally approved by FERC, the Parties shall make a good faith effort to amend this exhibit so that it is consistent. 2 of 2 21 EXHIBIT C POWER RATE A. DEMAND RATE 1. FLAT RATE DEMAND FOR FY 2002 THROUGH 2006 1.1 APPLICABILITY These rates apply to eligible customers purchasing power. 1.2 RATE TABLE
---------------------------------------------------------- APPLICABLE MONTHS RATE ---------------------------------------------------------- January $2.16/kW-mo February $2.03/kW-mo March $1.82/kW-mo April $1.45/kW-mo May $1.43/kW-mo June $1.79/kW-mo July $2.31/kW-mo August $2.31/kW-mo September $2.31/kW-mo October $1.76/kW-mo November $2.31/kW-mo December $2.31/kW-mo ----------------------------------------------------------
1 of 2 22 B. ENERGY RATE FOR IPTAC (A) PRODUCT 1. MONTHLY ENERGY RATES FOR FY 2002 THROUGH FY 2006 1.1 APPLICABILITY These rates apply to eligible customers purchasing power. 1.2 RATE TABLE
------------------------------------------------------------------------ HLH LLH APPLICABLE MONTHS RATE RATE ------------------------------------------------------------------------ January 23.88 mills/kWh 17.90 mills/kWh February 22.33 mills/kWh 16.90 mills/kWh March 20.59 mills/kWh 15.18 mills/kWh April 16.94 mills/kWh 12.57 mills/kWh May 16.88 mills/kWh 11.00 mills/kWh June 20.20 mills/kWh 12.55 mills/kWh July 25.38 mills/kWh 18.45 mills/kWh August 35.78mills/kWh 21.68 mills/kWh September 26.70 mills/kWh 22.55 mills/kWh October 20.03 mills/kWh 15.52 mills/kWh November 25.76 mills/kWh 21.47 mills/kWh December 26.41 mills/kWh 21.13 mills/kWh ------------------------------------------------------------------------
Rates in Rate Table includes the IPTAC (A) (2.02 mills) adder. 2 of 2 23 EXHIBIT D ADDITIONAL PRODUCTS, SERVICES, AND SPECIAL PROVISIONS 1. ADDITIONAL PRODUCTS, SERVICES, AND SPECIAL PROVISIONS BPA APPROPRIATIONS REFINANCING ACT In accordance with section 15(c) of the body of this Agreement the following is included in this Agreement. BONNEVILLE POWER ADMINISTRATION REFINANCING SECTION OF THE OMNIBUS CONSOLIDATED RECISSIONS AND APPROPRIATIONS ACT OF 1996 16 UNITED STATES CODE Chapter 12G Act of April 26, 1996, 110 Stat. 1321, 1350 Public Law No. 104-134, H.R. 3019 (S. 1594) 838L. BONNEVILLE POWER ADMINISTRATION REFINANCING 838L(a). DEFINITIONS For the purposes of this section-- 838L(a)(1). "Administrator" means the Administrator of the Bonneville Power Administration; 838L(a)(2). "capital investment" means a capitalized cost funded by Federal appropriations that-- 838L(a)(2)(A). is for a project, facility, or separable unit or feature of a project or facility; 838L(a)(2)(B). is a cost for which the Administrator is required by law to establish rates to repay to the United States Treasury through the sale of electric power, transmission, or other services; 838L(a)(2)(C). excludes a Federal irrigation investment; and 838L(a)(2)(D). excludes an investment financed by the current revenues of the Administrator or by bonds issued and sold, or authorized to be issued and sold, by the Administrator under section 838k of this title; 838L(a)(3). "new capital investment" means a capital investment for a project, facility, or separable unit or feature of a project or facility, placed in service after September 30, 1996; 1 of 6 24 838L(a)(4). "old capital investment" means a capital investment the capitalized cost of which-- 838L(a)(4)(A). was incurred, but not repaid, before October 1, 1996, and 838L(a)(4)(B). was for a project, facility, or separable unit or feature of a project or facility, placed in service before October 1, 1996; 838L(a)(5). "repayment date" means the end of the period within which the Administrator's rates are to assure the repayment of the principal amount of a capital investment; and 838L(a)(6). "Treasury rate" means-- 838L(a)(6)(A). for an old capital investment, a rate determined by the Secretary of the Treasury, taking into consideration prevailing market yields, during the month preceding October 1, 1996, on outstanding interest-bearing obligations of the United States with periods to maturity comparable to the period between October 1, 1996, and the repayment date for the old capital investment; and 838L(a)(6)(B). for a new capital investment, a rate determined by the Secretary of the Treasury, taking into consideration prevailing market yields, during the month preceding the beginning of the fiscal year in which the related project, facility, or separable unit or feature is placed in service, on outstanding interest-bearing obligations of the United States with periods to maturity comparable to the period between the beginning of the fiscal year and the repayment date for the new capital investment. [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] 838L(b). NEW PRINCIPAL AMOUNTS 838L(b)(1). PRINCIPLE AMOUNT Effective October 1, 1996, an old capital investment has a new principal amount that is the sum of-- 838L(b)(1)(A). the present value of the old payment amounts for the old capital investment, calculated using a discount rate equal to the Treasury rate for the old capital investment; and 838L(b)(1)(B). an amount equal to $ 100,000,000 multiplied by a fraction whose numerator is the principal amount of the old payment amounts for the old capital investment and whose denominator is the sum of the principal amounts of the old payment amounts for all old capital investments. 2 of 6 25 838L(b)(2). DETERMINATION With the approval of the Secretary of the Treasury based solely on consistency with this section, the Administrator shall determine the new principal amounts under subsection (b) and the assignment of interest rates to the new principal amounts under subsection (c). 838L(b)(3). OLD PAYMENT AMOUNTS For the purposes of this subsection, "old payment amounts" means, for an old capital investment, the annual interest and principal that the Administrator would have paid to the United States Treasury from October 1, 1996, if this section had not been enacted, assuming that-- 838L(b)(3)(A). the principal were repaid-- 838L(b)(3)(A)(i). on the repayment date the Administrator assigned before October 1, 1994, to the old capital investment, or 838L(b)(3)(A)(ii). with respect to an old capital investment for which the Administrator has not assigned a repayment date before October 1, 1994, on a repayment date the Administrator shall assign to the old capital investment in accordance with paragraph 10(d)(1) of the version of Department of Energy Order RA 6120.2 in effect on October 1, 1994; and 838L(b)(3)(B). interest were paid-- 838L(b)(3)(B)(i). at the interest rate the Administrator assigned before October 1, 1994, to the old capital investment, or 838L(b)(3)(B)(ii). with respect to an old capital investment for which the Administrator has not assigned an interest rate before October 1, 1994, at a rate determined by the Secretary of the Treasury, taking into consideration prevailing market yields, during the month preceding the beginning of the fiscal year in which the related project, facility, or separable unit or feature is placed in service, on outstanding interest-bearing obligations of the United States with periods to maturity comparable to the period between the beginning of the fiscal year and the repayment date for the old capital investment. [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] 838L(c). INTEREST RATE FOR NEW PRINCIPLE AMOUNTS As of October 1, 1996, the unpaid balance on the new principal amount established for an old capital investment under subsection (b) bears interest annually at the Treasury rate for the old capital investment until the earlier of the date that the new principal amount is repaid or the repayment date for the new principal amount. [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] 3 of 6 26 838L(d). REPAYMENT DATES As of October 1, 1996, the repayment date for the new principal amount established for an old capital investment under subsection (b) is no earlier than the repayment date for the old capital investment assumed in subsection (b)(3)(A). [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] 838L(e). PREPAYMENT LIMITATIONS During the period October 1, 1996, through September 30, 2001, the total new principal amounts of old capital investments, as established under subsection (b), that the Administrator may pay before their respective repayment dates shall not exceed $100,000,000. [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] 838L(f). INTEREST RATES FOR NEW CAPITAL INVESTMENTS DURING CONSTRUCTION 838L(f)(1). NEW CAPITAL INVESTMENT The principal amount of a new capital investment includes interest in each fiscal year of construction of the related project, facility, or separable unit or feature at a rate equal to the one year rate for the fiscal year on the sum of-- 838L(f)(1)(A). construction expenditures that were made from the date construction commenced through the end of the fiscal year, and 838L(f)(1)(B). accrued interest during construction. 838L(f)(2). PAYMENT The Administrator is not required to pay, during construction of the project, facility, or separable unit or feature, the interest calculated, accrued, and capitalized under subsection (f)(1). 838L(f)(3). ONE-YEAR RATE For the purposes of this section, "one year rate" for a fiscal year means a rate determined by the Secretary of the Treasury, taking into consideration prevailing market yields, during the month preceding the beginning of the fiscal year, on outstanding interest-bearing obligations of the United States with periods to maturity of approximately one year. 838L(g). INTEREST RATES FOR NEW CAPITAL INVESTMENTS The unpaid balance on the principal amount of a new capital investment bears interest at the Treasury rate for the new capital investment from the date the related project, facility, or separable unit or feature is placed in service until the earlier of the date the new capital investment is repaid or the repayment date for the new capital investment. [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] 4 of 6 27 838L(h). OMITTED 838L(i). CONTRACT PROVISIONS In each contract of the Administrator that provides for the Administrator to sell electric power, transmission, or related services, and that is in effect after September 30, 1996, the Administrator shall offer to include, or as the case may be, shall offer to amend to include, provisions specifying that after September 30, 1996-- 838L(i)(1). the Administrator shall establish rates and charges on the basis that-- 838L(i)(1)(A). the principal amount of an old capital investment shall be no greater than the new principal amount established under subsection (b); 838L(i)(1)(B). the interest rate applicable to the unpaid balance of the new principal amount of an old capital investment shall be no greater than the interest rate established under subsection (c); 838L(i)(1)(C). any payment of principal of an old capital investment shall reduce the outstanding principal balance of the old capital investment in the amount of the payment at the time the payment is tendered; and 838L(i)(1)(D). any payment of interest on the unpaid balance of the new principal amount of an old capital investment shall be a credit against the appropriate interest account in the amount of the payment at the time the payment is tendered; 838L(i)(2). apart from charges necessary to repay the new principal amount of an old capital investment as established under subsection (b) and to pay the interest on the principal amount under subsection (c), no amount may be charged for return to the United States Treasury as repayment for or return on an old capital investment, whether by way of rate, rent, lease payment, assessment, user charge, or any other fee; 838L(i)(3). amounts provided under section 1304 of title 31, United States Code, shall be available to pay, and shall be the sole source for payment of, a judgment against or settlement by the Administrator or the United States on a claim for a breach of the contract provisions required by this Part; and 838L(i)(4). the contract provisions specified in this Part do not-- 838L(i)(4)(A). preclude the Administrator from recovering, through rates or other means, any tax that is generally imposed on electric utilities in the United States, or 5 of 6 28 838L(i)(4)(B). affect the Administrator's authority under applicable law, including section 7(g) of the Pacific Northwest Electric Power Planning and Conservation Act (16 U.S.C. Section 839e(g)), to-- 838L(i)(4)(B)(i). allocate costs and benefits, including but not limited to fish and wildlife costs, to rates or resources, or 838L(i)(4)(B)(ii). design rates. [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] 838L(j). SAVINGS PROVISIONS 838L(j)(1). REPAYMENT This subchapter does not affect the obligation of the Administrator to repay the principal associated with each capital investment, and to pay interest on the principal, only from the "Administrator's net proceeds," as defined in section 838k(b) of this title. 838L(j)(2). PAYMENT OF CAPITAL INVESTMENT Except as provided in subsection (e), this section does not affect the authority of the Administrator to pay all or a portion of the principal amount associated with a capital investment before the repayment date for the principal amount. [P.L. 104-134, Title III, Section 3201, 110 Stat. 1321-350.] [End BPA Appropriations Refinancing Act.] 2. REVISIONS This exhibit shall be revised by mutual agreement of the Parties to reflect additional products Golden Northwest purchases during the term of this Agreement. 6 of 6 29 EXHIBIT E SCHEDULING 1. PURPOSE OF THIS EXHIBIT The purpose of this exhibit is to identify power scheduling requirements and coordination procedures necessary for the delivery of electric power and energy sold under this Agreement. All provisions apply to Purchasing-Selling Entities (PSEs), including their authorized scheduling agent. Transmission scheduling arrangements are handled under separate agreements/provisions with the designated transmission provider. Nothing in this exhibit is intended to relieve the Parties of any obligation they may have under North American Electric Reliability Council (NERC) or Western Systems Coordinating Council (WSCC) policy, procedure, or guideline. 2. COORDINATION: GENERAL, PRESCHEDULE, REAL-TIME, AND AFTER-THE-FACT REQUIREMENTS (a) GENERAL REQUIREMENTS (1) The Parties may revise and replace this exhibit by mutual agreement. BPA shall also have the right to revise and replace this exhibit under the following circumstances after providing an opportunity for all affected Parties to discuss and comment on any proposed changes: (1) to comply with rules or orders issued by FERC, NERC, or WSCC; or (2) to implement changes reasonably consistent with standard industry practice, but necessary for BPA to administer it's power scheduling function. (2) PSEs shall have staff available 24 hours a day for each day an active transaction or preschedule is in effect. PSE's must be prepared to verify transactions on an hourly basis if necessary. (3) PSEs shall complete the prescheduling and check out processes, and to verify Transactions and associated totals, per NERC tag, and BPA contract. (4) Inability to verify Transactions may result in schedule rejection or curtailment. (5) PSEs shall verify Transactions and totals after-the-fact (ATF) per both parties' ATF processes. (6) BPA is not obligated to accept Transactions that do not comply with the scheduling requirements in this exhibit or the contract. 1 of 4 30 (7) Should a PSE attempt to preschedule a Transaction for power for which that PSE has an obligation to provide transmission and fails to properly reserve the transmission necessary to complete the Transaction, the PSE will not be excused from its payment obligation, if any, under this Agreement. (8) All Transactions shall be stated in the time zone specified by WSCC and shall be in "hour-ending" format. (9) All Schedules, except Dynamic Schedules, will be implemented on an hourly basis using the standard ramp as specified by WSCC procedures. (10) Any power that is allowed to be resold at wholesale under this Agreement may only be resold if all characteristics of the product (e.g., Point of Receipt, shape, hours) are maintained in the resale. (11) Changes to telephone or fax numbers of key personnel (for Prescheduling, Real-Time, Control Area, or Scheduling Agents, etc.) must be submitted to BPA. (b) PRESCHEDULING REQUIREMENTS (1) INFORMATION REQUIRED FOR ANY PRESCHEDULE (A) Unless otherwise mutually agreed, all Transactions will be submitted according to NERC instructions for E-tagging, as modified by WSCC. (B) When completing the NERC E-Tag insert the applicable BPA Contract number(s) in the "reference" column of the miscellaneous section of the tag. (C) Transactions going to or from California-Oregon Border (COB) must be identified as using Malin or Captain Jack, or COB Hub. (2) PRESCHEDULE COORDINATION (A) Final hourly preschedules (verbal submission of E-tag information) must be submitted for the next day(s) by 1000 of each workday, unless otherwise agreed. (B) Typically, preschedules are for one to three days by mutual agreement of the parties, final preschedules may be requested for longer time periods to accommodate special scheduling requirements. 2 of 4 31 (C) Under certain operating conditions, either party may require submission of estimated daily preschedules for an ensuing period up to 10 days in length, prior to the final preschedule. (c) REAL-TIME REQUIREMENTS (1) PSEs may not make Real-Time changes to the scheduled amounts, including transmission arrangements unless such changes are allowed under individual contract provisions or by mutual agreement. (2) If Real-Time changes to the Schedule become necessary, and are allowable as described in section 2(c)(1) above, PSEs must submit such request no later than 30 minutes prior to the hour for which the Schedule change becomes effective. (3) Multihour changes to the Schedule shall specify each hour to be changed and shall not be stated as "until further notice." (4) Emergency scheduling and notification procedures (including mid-hour changes) will be handled in accordance with NERC and WSCC procedures. (d) AFTER-THE-FACT RECONCILIATION REQUIREMENTS PSEs agree to reconcile all Transactions, Schedules and accounts at the end of each month (as early as possible within the first 10 calendar days of the next month). The parties will verify all Transactions per BPA contract, as to product or type of service, hourly amounts, daily and monthly totals, and related charges. 3. DEFINITIONS AND ACRONYMS Capitalized terms in this Exhibit shall have the meanings defined below, in context, or as used elsewhere in this Agreement. (a) CONTROL AREA: An electrical system bounded by interconnection (tie-line) metering and telemetry. It controls generation directly to maintain its interchange schedule with other control areas and contributes to frequency regulation of the interconnection. (b) HOUR ENDING: Designation for one hour periods of time based upon the time which the period ends. For example: the one hour period between 1300 and 1400 is referred to as Hour Ending 1400. 3 of 4 32 (c) PRESCHEDULING: The process (electronic, oral, and written) of establishing and verifying with all scheduling parties, advance hourly Transactions through the following Workday(s). Preschedules apply to the following day or days (if the following day or days are not Workday(s). (d) PURCHASING-SELLING ENTITY (PSE): (NERC defined term). An entity that is eligible to purchase or sell energy or capacity and reserve transmission services. (e) REAL-TIME: The hourly or minute-to-minute operation and scheduling of a power system as opposed to those operations which are prescheduled a day or more in advance. (f) SCHEDULE: The planned Transaction approved and accepted by all PSEs and Control Areas involved in the Transaction. (g) TRANSACTION: An agreement arranged by a PSE to transfer energy from a seller to a buyer. (h) WORKDAY: Any day BPA, other regional utilities, and PSEs observe as a working day. 4 of 4 EX-10.13 3 v70819ex10-13.txt EXHIBIT 10.13 1 Exhibit 10.13 AMENDMENT TO ALUMINA SUPPLY AGREEMENT This Amendment to Alumina Supply Agreement (this "Amendment"), dated as of October 23, 2000, between Glencore Ltd., a Swiss corporation (the "Seller"), and Northwest Aluminum Company, an Oregon corporation (the "Buyer," and collectively with the Seller, the "Parties"). Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Alumina Supply Agreement dated as of October 15, 1999 between the Parties (the "Alumina Agreement"). WITNESSETH WHEREAS, the Parties entered in to the Alumina Agreement; and WHEREAS, the Parties now desire to amend the Alumina Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Parties do hereby agree as follows: ARTICLE I. DEFINITIONS AMENDMENT 1.1 The definition in Section 1.1 of the Alumina Agreement of the term "LME Price" is hereby amended and restated to read in its entirety as follows: "LME Price" means the London Metal Exchange 3-month price in U.S. dollars per MT of 99.7% aluminum ingot as published by Reuters on Page MTLE and subsequently published in Metal Bulletin averaged over the applicable calendar quarter. In the event that LME prices are no longer reported or Metal Bulletin discontinues publication and such prices are not longer available, the parties will meet and agree upon a comparable mechanism to determine the LME Price. ARTICLE II. QUANTITY AMENDMENT 2.1 Section 2.2 of the Alumina Agreement is hereby amended and restated to read in its entirety as follows: Seller agrees to sell and Buyer agrees to purchase a total of 718,979,804 MT of Alumina for The Dalles, commencing November 1, 1999 and continuing until the quantity specified has been delivered under the following estimated schedule: 2 November--December, 1999 27,000 MT January--December, 2000 131,979,804 MT January--December, 2001 80,000 MT January--December, 2002 160,000 MT January--December, 2003 160,000 MT January--December, 2004 160,000 MT The amount of any individual shipment and any annual quantity is subject to a tolerance of plus or minus five percent for shipping purposes. In January 2004 the parties shall negotiate in good faith the possible extension of the Alumina Agreement for the supply of Alumina in calendar years 2005 and 2006. ARTICLE III. GENERAL PROVISIONS 3.1 Cancellation Fee. In consideration for the reduction pursuant to this Amendment in the quantity of Alumina required to be purchased by the Buyer in calendar year 2000 and calendar year 2001, the Buyer agrees to pay each calendar quarter to the Seller (beginning with the fourth calendar quarter of 2000) a cancellation fee of $20 per each MT of reduction in the Buyer's original commitment for such quarter under the Alumina Agreement, which fee shall be added to the amount invoiced by the Seller to the Buyer for deliveries during such calendar quarter. 3.2 Ratification of Alumina Agreement. The amendments set forth herein are limited precisely as written and shall not be deemed to be a consent or waiver to, or modification of, any other term or condition set forth in the Alumina Agreement. Except as expressly amended hereby, all the terms and conditions of the Alumina Agreement shall continue in full force and effect and, as amended hereby, the Alumina Agreement is ratified and confirmed in all respects. 3.3 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, excluding those relating to choice or conflicts of laws and excluding the United Nations Convention for the International Sale of Goods. 3.4 Assignment. This Amendment is binding upon Parties and their respective successors and assigns. No Party may assign this Amendment or its rights or obligations hereunder without the prior written consent of the other Party (which consent shall not be unreasonably withheld) and any purported assignment without such express written consent shall be null and void. 2 3 3.5 Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment. IN WITNESS WHEREOF, the Parties have caused their duly authorized representatives to execute this Amendment to Alumina Supply Agreement. GLENCORE LTD. By: /s/ ANDREW BENTLEY ------------------------------- Name: Andrew Bentley Title: NORTHWEST ALUMINUM COMPANY By: /s/ BRETT WILCOX ------------------------------- Name: Brett Wilcox Title: President 3 EX-10.14 4 v70819ex10-14.txt EXHIBIT 10.14 1 Exhibit 10.14 GNA/USWA 12-27-00 AGREEMENT ON THE USE OF NET PROCEED FROM REMARKETING BETWEEN GOLDEN NORTHWEST ALUMINUM, INC. AND THE UNITED STEELWORKERS OF AMERICA This agreement (the "Agreement") made as of this 27th day of December 2000 by and between Golden Northwest Aluminum, Inc. ("GNA") both for itself as well as on behalf of its subsidiaries Goldendale Aluminum Company ("GAC") and Northwest Aluminum Company ("NAC"), with GNA, GAC and NAC referred to herein singly or collectively where applicable as the "Company," and the United Steelworkers of America ("USWA" or the "Union"). A. POWER SALE The parties hereby agree that from the date of this Agreement through September 30, 2001 (the "Power Sale Period" or "PSP"), in the event the Company authorizes the Bonneville Power Administration ("BPA") to resell electric power available to the Company, exclusive of power related to previously announced reductions in GAC and NAC operations, pursuant to its existing power sale agreements (those in effect as of the date of the Agreement) with BPA (the power provided pursuant to these Power Sale Agreements is referred to herein as "BPA Power") or directly or indirectly takes any other actions that would have the same or similar impact as the sale or resale of BPA Power, including but not limited to the Company amending its contract with BPA or buying or selling financial instruments whose underlying value is related to the price of BPA Power (any of the foregoing singly or in combination a "BPA Power Sale"), then the Net Proceeds from said BPA Power Sale shall be used exclusively in the manner described below. For purposes of this Agreement, "Net Proceeds" means Net Proceeds as defined in the Remarketing Addendum To The 1996 Agreements between BPA and the Company ("Addendum") relating to the BPA Power Sale. B. USE OF NET PROCEEDS The Company shall use the Net Proceeds from any BPA Power Sale exclusively for the following purposes. 1. The first priority on the use of Net Proceeds shall be to avoid and 1 2 GNA/USWA 12-27-00 minimize adverse impacts on employees as provided in this paragraph. a. During the Power Sale Period, all employees of the Company represented by the USWA shall be provided with either (i) the opportunity to work a regular workweek (40 hours) or (ii) (a) Special Supplemental Payments ("SSP") so that their income (including State Unemployment Insurance, if available) will be equal to what it would have been had they been working a regular workweek and (b) all benefits ("Benefits") that the employee would have received had they been working a regular workweek. b. Administrative details regarding the application of this Agreement and the Collective Bargaining Agreements during the Power Sale Period will be agreed upon between the USWA and the Company within three weeks following execution of this Agreement. Matters to be discussed and resolved will include, but not be limited to, the following issues: 1) Application of seniority in a manner that both ensures the availability of any necessary skilled employees and meets the other objectives of this Agreement and the principles listed below. 2) Company-required training programs. 3) Union leadership training programs. 4) Additional compensation, if any, for employees required to work during the Power Sale Period. 5) Assignment of employees to non-traditional work. 6) Best efforts to provide a minimum time off with SSP and Benefits of at least three months for all employees. 2. The remainder of the Net Proceeds shall, subject to the approval of the USWA, such approval to not be unreasonably withheld, delayed or conditioned, be used for Qualified Expenditures as defined in the 2 3 GNA/USWA 12-27-00 Addendum. The Addendum defines such "Qualified Expenditures" to include only the items in subparagraphs 2 a, b, and c below: a. Expenditures or costs related to curtailing production at the Goldendale Smelter or the Northwest Smelter, including: 1) Compensation, benefits and other expenditures related to employee layoffs, maintaining additional employees not required for operations at the reduced level and/or job reassignments as a result of reduced smelter operating levels. By separate agreement, Golden Northwest has agreed with the United Steelworkers of America to maintain minimum employment levels and/or Special Supplemental Payments to its employees. BPA, Golden Northwest, and the Companies intend that all expenditures pursuant to that agreement are Qualified Expenditures. 2) The cost of cancellation penalties or other costs of reducing obligations for alumina or other materials, costs associated with covering product delivery obligations that cannot be met from the Companies' operating capacity during the curtailment and other costs directly associated with the shutdown. 3) Expenditures on fixed operating and other fixed costs directly related to operations within the Pacific Northwest that cannot be reduced as operating levels are reduced and on debt service, whether or not paid during a curtailment, (including scheduled repayments of principal and interest and redemption or retirement of debt). b. Expenditures or costs incurred pursuant to plans subject to the approval of the United Steelworkers of America, which approval shall not be unreasonably withheld, delayed, or conditioned, to secure a future power supply and enhance operations of the facilities of Golden Northwest or the Companies, including: 3 4 GNA/USWA 12-27-00 1) Expenditures incurred for the planning, licensing, siting, acquisition and/or construction of conventional or renewable resources to provide power for future Company operations and expenditures to purchase or otherwise obtain power from any seller after October 1, 2001, that is in addition to the power made available by BPA to Golden Northwest under the subscription (Contract No. 00BP-12197). The parties understand and agree that the expenditures under this subparagraph b.(1) will be not less than the lesser of the dollar amount of: $100 million or $62 million + [({$96 million x (JanPrice divided by $520)} -- JanBenefits) x 0.45]; where "JanPrice" is equal to the weighted (by megawatthour) average price obtained for Remarketed Excess Firm Energy made available in January 2001, and "JanBenefits" is equal to the assured monetary benefits excluded form Net Proceeds pursuant to Section 7(b) of the Addendum. 2) Expenditures to upgrade the facilities of Golden Northwest or the Companies to achieve energy conservation, operating efficiencies, environmental benefits, or to preserve jobs at the facilities. c. Payment of tax liabilities (including any interest and penalties) created by the Addendum, including: 1) An allowance for income taxes in an amount equal to any income tax liability of Golden Northwest, GAC, or NAC that results from the payment of Net Proceeds by BPA to GAC or NAC in respect of a Qualified Expenditure that is not fully deductible for tax purposes in the year incurred. 4 5 GNA/USWA 12-27-00 2) Any other obligation to pay taxes as a result of the Addendum or a Remarketing Transaction entered into under the Addendum. The Company shall not agree to any amendment to the identification of Qualified Expenditures in the Addendum without the prior written consent of USWA. USWA shall not unreasonably withhold, delay or condition its consent to any proposed amendment to the Qualified Expenditures in the Addendum or unreasonably withhold, delay or condition its approval of any plan pursuant to the Addendum to secure a future power supply and enhance operations of the Company's facilities if requested by the Company. C. RESUMPTION OF OPERATIONS It is the intention of the parties to resume operations on October 1, 2001 at GNA at a level consistent with the allocation of BPA power for the subscription period 2001-2006. Employees will be recalled to work under the seniority provisions of the Collective Bargaining Agreements. Any decision to delay the resumption of operations from October 1, 2001 will be subject to further negotiations between the parties. December 27, 2000 UNITED STEELWORKERS OF AMERICA GOLDEN NORTHWEST ALUMINUM, INC. /s/ DAVID A. FOSTER /s/ BRETT WILCOX ---------------------------- ---------------------------- David A. Foster Brett Wilcox Director, District 11 Chief Executive Officer 5 EX-10.15 5 v70819ex10-15.txt EXHIBIT 10.15 1 Exhibit 10.15 Contract No. 01PB-10758 REMARKETING ADDENDUM TO THE 1996 AGREEMENTS EXECUTED BY THE BONNEVILLE POWER ADMINISTRATION AND GOLDEN NORTHWEST ALUMINUM, INC., GOLDENDALE ALUMINUM COMPANY, AND NORTHWEST ALUMINUM COMPANY TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------- SECTION PAGE 1. TERM ......................................................................... 2 2. DEFINITIONS................................................................... 3 3. EXHIBITS...................................................................... 4 4. REMARKETING DUE TO NEW AND PRIOR CURTAILMENTS................................. 4 5. REMARKETING UNDER THIS ADDENDUM............................................... 4 6. REVENUES FROM REMARKETING..................................................... 5 7. BENEFITS TO BPA FROM REMARKETING.............................................. 6 8. QUALIFIED EXPENDITURES........................................................ 7 9. CONSENT OF UNITED STEEL WORKERS OF AMERICA.................................... 9 10. NOTICES....................................................................... 9 11. UNDERLYING PROVISIONS......................................................... 10 12 FEDERAL POWER SERVICE AFTER SEPTEMBER 30, 2006................................ 10 13. SIGNATURES ................................................................... 10
EXHIBIT A: MONTHLY AMOUNTS AVAILABLE FOR REMARKETING This REMARKETING ADDENDUM is executed by the UNITED STATES OF AMERICA, Department of Energy, acting by and through the BONNEVILLE POWER ADMINISTRATION ("BPA"), GOLDEN NORTHWEST ALUMINUM, INC. ("Golden Northwest"), GOLDENDALE ALUMINUM COMPANY ("GAC"), and NORTHWEST ALUMINUM COMPANY ("NAC"). Golden Northwest and NAC are Corporations organized under the laws of the State of Oregon. GAC is a Corporation organized under the laws of the State of Delaware. GAC and NAC are collectively referred to as the "Companies." RECITALS GAC, a subsidiary of Golden Northwest, operates an aluminum smelter and related facilities (the "Goldendale Smelter") in Klickitat County, Washington. NAC, a subsidiary of Golden Northwest, operates an aluminum smelter and related facilities (the "Northwest Smelter") in Wasco County, Oregon. BPA supplies electric power to the Goldendale Smelter under Block Power Sales Agreement, Contract No. 95MS-94854, and to the Northwest Smelter under Block 1 of 11 2 Power Sales Agreement, Contract No. 95MS-94862 (the "1996 Agreements"). Effective on October 1, 2001, BPA will supply electric power to Golden Northwest for use at the Goldendale Smelter and/or the Northwest Smelter under a Block Power Sales Agreement, Contract No. 00PB-12197 (Subscription Agreement), between BPA and Golden Northwest. The amount of power available under the Subscription Agreement is not sufficient to meet all of the power needs of the smelters. The Companies have no right under the 1996 Agreements to sell Federal power. However, the 1996 Agreements provide, subject to certain limitations and restrictions, for BPA to remarket power not delivered to the Companies for use in smelter operations, with the dollar amount by which the proceeds of such remarketing exceed the contract price for the power payable to the Companies. The Companies desire that BPA remarket power made available by the Companies under their 1996 Agreements to BPA and use the Net Proceeds for electric power to enhance Golden Northwest's and the Companies' abilities to operate their smelters for the long-term through, among other things, the development of cost effective sources of power so as to maintain employment and economic vitality in the communities in which they operate. Due to the volatility in current power markets, the notice provisions and other restrictions and limitations in the 1996 Agreements reduce significantly the price that BPA can obtain for remarketed electric power. The mutual cooperation of the parties, as reflected in this Addendum, is appropriate to allow for an enhanced price for the remarketed power. BPA is willing to modify the remarketing notice requirements in the 1996 Agreements to enhance the value of the remarketed power to enhance Golden Northwest's and the Companies' abilities to maintain long-term operations, to avoid or to mitigate the adverse impacts on the Companies' employees and their local communities of changing operating levels due to volatile electric power markets, and to obtain the assured monetary benefits for BPA under this Addendum. Golden Northwest's separate agreement with the United Steel Workers of America on the use of Proceeds from Remarketing under this Addendum demonstrates that this Addendum satisfies this purpose of avoiding or mitigating such adverse impacts. The Parties desire to agree on the use of proceeds from Remarketing and to define the limited terms upon which the Companies may be entitled to the Net Proceeds from such Remarketing. THEREFORE, BPA, Golden Northwest, GAC, and NAC agree: 1. TERM This Addendum takes effect on the date signed by the Parties (the "Effective Date"), and shall continue in effect until the earlier of the date on which all Net Proceeds have been paid by BPA to the Companies for the purposes specified herein, or 2400 hours on September 30, 2010. 2 of 11 3 2. DEFINITIONS Capitalized terms in this Addendum shall have the meanings defined below or in context, or, if not defined in this Addendum, the meanings defined in the 1996 Agreements. (a) "1996 Agreements" means the Block Power Sales Agreements, Contract Nos. 95MS-94854 and 95MS-94862, between BPA and GAC and between BPA and NAC, respectively. (b) "Addendum" means this Remarketing Addendum To The 1996 Agreements, Contract No. 01PB-10758. (c) "Affiliates" for Golden Northwest includes the Companies, and for BPA includes its Power Business Line. (d) "Net Proceeds" means the amount by which revenues from the Remarketing of Excess Firm Energy for the months of January through September 2001, exceed the revenues from the IP-96 rate applicable to such amounts of Excess Firm Energy, less the BPA benefits for such months from Remarketing as specified in sections 7(b) and 7(c) below, plus the interest cost that BPA avoids as a result of such Net Proceeds, as calculated in section 6 of this Addendum. (1) "Goldendale Net Proceeds" means Net Proceeds from the Remarketing of Excess Firm Energy available under Contract No. 95MS-94854. (2) "Northwest Net Proceeds" means Net Proceeds from the Remarketing of Excess Firm Energy available under Contract No. 95MS-94862. (e) "New Curtailments" means monthly amounts of Plant Load at the Goldendale Smelter and the Northwest Smelter that are available for Remarketing under this Addendum. Such amounts are as specified in Exhibit A. (f) "Party" or "Parties" means BPA, Golden Northwest, GAC, and/or NAC. (g) "Prior Curtailments" means curtailments other than New Curtailments. (h) "Qualified Expenditures" means those expenditures identified in section 8 of this Addendum, the incurrence of which entitles either Company or its designee to the payment of Net Proceeds. For purposes of this definition, the word incurrence is deemed to be the earlier of payment by the Company or when recorded as an obligation on the Company's financial statements under generally accepted accounting principles. (i) "Remarketing" or "Remarket" means the retention by BPA of Excess Firm Energy and sales of Excess Firm Energy under this Addendum and any agreement entered into pursuant to this Addendum. 3 of 11 4 (j) "Remarketing Transaction" means the specific amounts and durations of Excess Firm Energy that a Company has requested BPA to Remarket under this Addendum and the terms and conditions of each such sale. 3. EXHIBITS Exhibit A (Monthly Amounts Available for Remarketing) is attached hereto and made a part of this Addendum. 4. REMARKETING DUE TO NEW AND PRIOR CURTAILMENTS Beginning on the Effective Date, BPA and the Companies will not enter into new remarketing transactions, agreements or sales, pursuant to sections 18 of their 1996 Agreements with BPA, of any Excess Firm Energy made available due to New Curtailments. All such remarketing sales of Excess Firm Energy made available due to New Curtailments, and agreements or transactions with respect to New Curtailments shall be subject to the terms of this Addendum. All remarketing transactions, agreements or sales of Excess Firm Energy made available due to Prior Curtailments shall continue to be subject to the terms of the 1996 Agreements and any other existing agreements regarding such prior transaction. Remarketing with respect to Prior Curtailments shall not be subject to this Addendum whether or not deliveries of Excess Firm Energy and/or payment for such Excess Firm Energy from Prior Curtailments occurs on or after the Effective Date. 5. REMARKETING UNDER THIS ADDENDUM (a) AMOUNTS AVAILABLE FOR REMARKETING The monthly amounts available for Remarketing under this Addendum are as specified in Exhibit A. A Company may request that BPA Remarket the Excess Firm Energy to one or more Qualified Purchasers identified by the Company. The Company shall notify BPA of the amount and minimum duration of Excess Firm Energy to be Remarketed and identify each Qualified Purchaser that has agreed to purchase some or all of the Excess Firm Energy under specified terms and conditions for agreed-upon amounts and durations. With reasonable advance notice, within one (1) hour of BPA receiving the Company's request, BPA shall either: (i) agree to enter into the Remarketing Transaction as requested by the Company; or (ii) notify the Company of its election to substitute purchasers as provided in section 5(b). (b) RIGHTS TO STEP IN FRONT OF A REMARKETING TRANSACTION BPA may elect to substitute itself or another Qualified Purchaser with public preference for the Qualified Purchaser(s) identified by the Company as the purchaser under the Remarketing Transaction(s). BPA may elect to make such substitution only if BPA or the Qualified Purchaser(s) with public preference agrees at that time in writing with the Company to perform all of the obligations of the purchaser under the Remarketing Transaction(s) according to its terms. 4 of 11 5 (c) DISPOSITION OF REMARKETING REVENUES If the amount of Net Proceeds is greater than zero in any month, then BPA shall retain such Net Proceeds, subject to the terms of this Addendum. If the amount of Net Proceeds is less than zero in any month, then the Company at whose request BPA entered into the Remarketing Transaction shall pay to BPA the deficit no later than the time that payment of the Company's power bill from BPA is due. (d) TREATMENT OF TAKE-OR-PAY OBLIGATION UNDER THE 1996 AGREEMENTS During the months of January through September 2001, the Companies will not be billed for their Take-or-Pay Obligations under the 1996 Agreements, because such Take-or-Pay Obligations have been accounted for in the definition of "Net Proceeds", section 2(d). For the month of December 2000, the Companies shall be relieved of their Take-or-Pay Obligations for amounts not scheduled to the Companies. 6. NET PROCEEDS FROM REMARKETING (a) NET PROCEEDS FOR GAC AND NAC ACCOUNTED FOR SEPARATELY Net Proceeds attributable to GAC shall be accounted for separately from Net Proceeds attributable to NAC. In order to encourage the Companies to make Qualified Expenditures, BPA will add to the Goldendale Net Proceeds and Northwest Net Proceeds the interest cost that BPA avoids due to availability of such Proceeds as calculated pursuant to section 6(b) below. Net Proceeds shall be deemed received by BPA on the date that BPA actually receives good funds from a Qualified Purchaser under Remarketing Transaction, or, if BPA has elected to substitute itself as purchaser under a Remarketing Transaction, on the twentieth (20th) day of the month following the month during which such Excess Firm Energy would have been delivered to the Company if such Excess Firm Energy were not subject to a Remarketing Transaction. (b) CALCULATION OF INTEREST RATE The balance of Net Proceeds not paid out by BPA shall be credited with interest each month of the BPA Fiscal Year (FY). Such interest shall be calculated as one-twelfth (1/12) of the annual fixed rate. Such annual fixed rate is equal to the Benchmark 10-year U.S. Treasury rate (as reported in the Wall Street Journal) on October 1, or the first following business day of each such FY. (c) BPA PAYMENTS OF NET PROCEEDS TO GAC BPA shall owe and pay Goldendale Net Proceeds to or at the direction of GAC only to the extent and in the dollar amount that GAC or its designee has made or incurred the obligation to make Qualified Expenditures identified in this Addendum. BPA shall pay to GAC or its designee from Goldendale Net Proceeds held by BPA an amount equal to such Qualified Expenditures within twenty (20) days after GAC requests Net Proceeds from BPA and provides to BPA documentation to show that GAC or its designee has incurred Qualified 5 of 11 6 Expenditures. If the amount of Qualified Expenditures exceeds the Goldendale Net Proceeds, then BPA shall pay only the amount of Goldendale Net Proceeds held by BPA on the date payment of such Net Proceeds is due. BPA shall pay additional Goldendale Net Proceeds in respect of such Qualified Expenditure if and only to the extent that BPA subsequently receives additional Goldendale Net Proceeds. BPA shall, in no event, owe or pay to GAC or its designee under this Addendum any amounts in excess of the Goldendale Net Proceeds actually received by BPA plus BPA's avoided interest cost added to such Net Proceeds. BPA shall in no event owe or pay to GAC or its designee under this Addendum any amounts in excess of Qualified Expenditures incurred by GAC or its designee. (d) BPA PAYMENTS OF NET PROCEEDS TO NAC BPA shall owe and pay Northwest Net Proceeds to or at the direction of NAC only to the extent and in the dollar amount that NAC or its designee has made or incurred the obligation to make Qualified Expenditures identified in this Addendum. BPA shall pay to NAC or its designee from Northwest Net Proceeds held by BPA an amount equal to such Qualified Expenditures within twenty (20) days after NAC requests Northwest Net Proceeds from BPA and provides to BPA documentation to show that NAC or its designee has incurred Qualified Expenditures. If the amount of Qualified Expenditures exceeds the Northwest Net Proceeds, then BPA shall pay only the amount of Northwest Net Proceeds held by BPA on the date payment of the Proceeds is due. BPA shall pay additional Northwest Net Proceeds in respect of such Qualified Expenditure if and only to the extent that BPA subsequently receives additional Northwest Net Proceeds. BPA shall, in no event, owe or pay to NAC or its designee under this Addendum any amounts in excess of the Northwest Net Proceeds actually received by BPA plus BPA's avoided interest cost added to such Northwest Net Proceeds. BPA shall in no event owe or pay to NAC or its designee under this Addendum any amounts in excess of Qualified Expenditures incurred by NAC or its designee. (e) END OF BPA PAYMENT OBLIGATIONS BPA shall have no obligation to pay to any Party to this Addendum or to any other person Net Proceeds as a result of Qualified Expenditures or any other expenditures made after the date of termination of this Addendum, and the Net Proceeds accounts shall be extinguished on that date. BPA will retain any amounts remaining in such accounts on the date of termination. 7. ASSURED MONETARY BENEFITS TO BPA FROM REMARKETING The assured monetary benefits from Remarketing Transactions to be retained by BPA are described as follows: (a) BPA ASSURED MONETARY BENEFITS FOR REMARKETING DECEMBER 2000 ENERGY For the balance of December 2000 the Companies will curtail Plant Load to a level at which BPA is providing a total of 25 megawatthours (MWh) per hour 6 of 11 7 during all hours to GAC under Contract No. 95MS-94854. Such curtailment will produce 34,000 MWh of flat energy that is retained by BPA and not subject to Remarketing under this Agreement. If such curtailment during December 2000, is less than 34,000 MWh, then the Companies agree to delay the restart of operations beginning October 1, 2001, until the 34,000 MWh amount has been achieved. (b) BPA ASSURED MONETARY BENEFITS FOR REMARKETING JANUARY 2001 ENERGY For each Remarketing Transaction of Excess Firm Energy made available during January 2001, the assured monetary benefits from Remarketing that will be excluded from Net Proceeds shall be the amount calculated by multiplying the lesser of the following by the gross revenues from each such Remarketing Transaction: (Price per MWh divided by $520) x 0.125 or 0.50 (c) BPA ASSURED MONETARY BENEFITS FOR REMARKETING FEBRUARY THOROUGH SEPTEMBER 2001 ENERGY BPA shall exclude from Net Proceeds $85,300,000 of the gross revenues for Remarketing Excess Firm Energy made available during the months of February through September 2001. 8. QUALIFIED EXPENDITURES Qualified Expenditures under this Addendum shall be limited to expenditures incurred for one of three purposes identified in sections 8(a), (b), and (c), which are: (a) Expenditures or costs related to curtailing production at the Goldendale Smelter or the Northwest Smelter, including: (1) Compensation, benefits and other expenditures related to employee layoffs, maintaining additional employees not required for operations at the reduced level and/or job reassignments as a result of reduced smelter operating levels. By separate agreement, Golden Northwest has agreed with the United Steel Workers of America to maintain minimum employment levels and/or Special Supplemental Payments to its employees. BPA, Golden Northwest, and the Companies intend that all expenditures pursuant to that agreement are Qualified Expenditures. (2) The cost of cancellation penalties or other costs of reducing obligations for alumina or other materials, costs associated with covering product delivery obligations that cannot be met from the Companies' operating 7 of 11 8 capacity during the curtailment and other costs directly associated with the shutdown. (3) Expenditures on fixed operating and other fixed costs directly related to operations within the Pacific Northwest that cannot be reduced as operating levels are reduced and on debt service, whether or not paid during a curtailment, (including scheduled repayments of principal and interest and redemption or retirement of debt). (b) Expenditures or costs incurred pursuant to plans subject to the approval of the United Steel Workers of America, which approval shall not be unreasonably withheld, delayed, or conditioned, to secure a future power supply and enhance operations of the facilities of Golden Northwest or the Companies, including: (1) Expenditures incurred for the planning, licensing, siting, acquisition and/or construction of conventional or renewable resources to provide power for future Company operations and expenditures to purchase or otherwise obtain power from any seller after October 1, 2001, that is in addition to the power made available by BPA to Golden Northwest under the Subscription Agreement. The parties understand and agree that the expenditures under this section 8(b)(1) will be not less than the lesser of the dollar amount of: $100 million or $62 million + [({$96 million x JanPrice / $520} -- JanBenefits) x 0.45]; where "JanPrice" is equal to the weighted (by MWh) average price obtained for Remarketed Excess Firm Energy made available in January 2001, and "JanBenefits" is equal to the assured monetary benefits excluded from Net Proceeds pursuant to Section 7(b) of this Addendum. (2) Expenditures to upgrade the facilities of Golden Northwest or the Companies to achieve energy conservation, operating efficiencies, environmental benefits, or to preserve jobs at the facilities. (c) Payment of tax liabilities (including any interest and penalties) created by this Addendum, including: (1) An allowance for income taxes in an amount equal to any income tax liability of Golden Northwest, GAC, or NAC that results from the payment of Net Proceeds by BPA to GAC or NAC in respect of a Qualified Expenditure that is not fully deductible for tax purposes in the year incurred. 8 of 11 9 (2) Any other obligation to pay taxes as a result of this Addendum or a Remarketing Transaction entered into under this Addendum. (d) Upon request by BPA, the Companies shall provide BPA a non-binding estimate of amounts to be spent under sections 8(a), 8(b), and 8(c) above, and the timing of when such expenditures will occur. (e) Notwithstanding the disbursement by BPA of Goldendale Net Proceeds or Northwest Net Proceeds under this section 8, BPA will have the right, subject to reasonable notice, to conduct limited audits of GAC and NAC for the sole purpose of confirming that obligations were actually made or incurred for Qualified Expenditures. GAC and NAC agree to make available to BPA at GAC and/or NAC offices any and all documentation necessary to conduct such an audit. Any disbursements found by such an audit not to have been supported by Qualified Expenditures shall be disallowed and GAC and/or NAC shall, within 30 days of such finding, pay BPA an amount equal to such disallowed disbursements. Such funds shall be used to restore the Net Proceeds account(s). 9. CONSENT OF UNITED STEEL WORKERS OF AMERICA No amendment to section 8 of this Addendum shall become effective without the prior written consent of the United Steel Workers of America. 10. NOTICES Any notice required under this Addendum shall be in writing and shall be delivered: (a) in person; (b) by a nationally recognized delivery service; or (c) by United States Certified Mail. Notices are effective when received. Any Party may change its address for notices by giving notice of such change consistent with this section. If to Golden Northwest, GAC, or NAC: If to BPA: Golden Northwest Aluminum, Inc. Bonneville Power Administration 8000 NE. Parkway Drive, Suite 300 P.O. Box 3621 Vancouver, WA 98662-6744 905 NE. 11th Avenue Attn: Gerald F. Miller Portland, OR 97208-3621 VP, Energy and Government Attn: Sydney D. Berwager -- PT-6 Affairs Account Executive Phone: 360-944-9755 Phone: 503-230-5657 FAX: 360-944-9930 FAX: 503-230-3681 E-Mail: goldendaleal@earthlink.net E-Mail: sdberwager@bpa.gov 11. UNDERLYING PROVISIONS Unless otherwise specified in this Addendum, all administrative and operational provisions required to perform this Addendum shall be those contained in the Subscription Agreement, including applicable provisions, if any, related to delivery, scheduling, billing, payments, metering, access to facilities, dispute resolution, uncontrollable forces, continuity of services, and contract interpretation. Except as 9 of 11 10 expressly provided herein, the 1996 Agreements shall remain in full force and effect and shall be unmodified. 12. FEDERAL POWER SERVICE AFTER SEPTEMBER 30, 2006 Golden Northwest, GAC, and NAC, each agrees that it will not argue in any legal or political forum that it has a statutory right to, or should be allocated under current statutes, any direct service of Federal power after September 30, 2006. 13. SIGNATURES The signatories represent that they are authorized to enter into this Addendum on behalf of the Party for whom they sign. UNITED STATES OF AMERICA GOLDEN NORTHWEST ALUMINUM, INC. U.S. Department of Energy Bonneville Power Administration By /s/ By /s/ BRETT WILCOX ---------------------------- --------------------------------------- Account Executive Name Name Brett Wilcox -------------------------- ------------------------------------- (Print/Type) (Print/Type) Date 12/29/00 Date 12/29/00 --------------------------- ------------------------------------- GOLDENDALE ALUMINUM COMPANY NORTHWEST ALUMINUM COMPANY By /s/ BRETT WILCOX By /s/ BRETT WILCOX ---------------------------- --------------------------------------- Name Brett Wilcox Name Brett Wilcox -------------------------- ------------------------------------- (Print/Type) (Print/Type) Date 12/29/00 Date 12/29/00 --------------------------- ------------------------------------- 10 of 11 11 EXHIBIT A MONTHLY AMOUNTS AVAILABLE FOR REMARKETING
- ----------------------------------------------------------------------------------- DEMAND (MW) HLH ENERGY (MWH) LLH ENERGY (MWH) - ----------------------------------------------------------------------------------- JANUARY 259 107,744 84,952 - ----------------------------------------------------------------------------------- FEBRUARY 258 99,072 74,304 - ----------------------------------------------------------------------------------- MARCH 225 97,200 70,200 - ----------------------------------------------------------------------------------- APRIL 290 116,000 92,510 - ----------------------------------------------------------------------------------- MAY 367 152,672 41,656 - ----------------------------------------------------------------------------------- JUNE 367 152,672 111,568 - ----------------------------------------------------------------------------------- JULY 367 152,672 120,376 - ----------------------------------------------------------------------------------- AUGUST 367 158,544 114,504 - ----------------------------------------------------------------------------------- SEPTEMBER 367 146,800 117,440 - -----------------------------------------------------------------------------------
11 of 11 EX-10.16 6 v70819ex10-16.txt EXHIBIT 10.16 1 Exhibit 10.16 SIDE AGREEMENT TO AGREEMENT TO TOLL CONVERT ALUMINA INTO ALUMINUM (TOLLING CONTRACT) The parties to this Agreement are: HYDRO ALUMINUM METAL PRODUCTS NORTH AMERICA, INC., a Delaware corporation, formerly known as Hydro Aluminum Louisville, Inc. ("Hydro"), and GOLDENDALE ALUMINUM COMPANY, a Delaware corporation, formerly known as Columbia Aluminum Corporation (the "Company"). Hydro and the Company are parties to and are performing a contract dated May 22, 1996, entitled "Agreement to Toll Convert Alumina Into Aluminum (Tolling Contract)" (the "Tolling Contract"). The Tolling Contract was amended by the First Amendment to Agreement to Toll Convert Alumina Into Aluminum (Tolling Contract) dated December 21, 1998 (the "First Amendment"). As a consequence of the current power market conditions in the Pacific Northwest, the Company has curtailed production at its aluminum smelter near Goldendale, Washington (the "Goldendale Plant") and allowed the Bonneville Power Administration ("BPA") to remarket the excess power made available because of the curtailment. The Company has entered into a Remarketing Addendum to the 1996 Agreement dated December 29, 2000 (the "Remarketing Addendum") with the United States of America, Department of Energy, acting by and through the BPA. Hydro will incur costs and losses from curtailment of metal production at the Goldendale Plant, including costs of reselling alumina designated for the Goldendale Plant and costs related to the establishment of new sources of aluminum to its customers. Such curtailment will also involve a significant market risk for Hydro since alternative sourcing arrangements may affect supplies to its customers and Hydro's longer term credibility in the marketplace. THEREFORE, in consideration of their mutual promises, the parties agree as follows: 1. INTERPRETATION Any reference to the Tolling Contract in this Agreement shall mean the Tolling Contract as amended by the First Amendment. This Agreement shall be interpreted and construed in the context of and in accordance with the provisions and defined terms of the Tolling Contract. 2. CURTAILMENT OF METAL PRODUCTION Hydro and the Company previously agreed, for the period from October 1, 2000 through December 31, 2002 (the "First Curtailment Period"), to curtail the production level at the Goldendale Plant by 53,000 metric tons annually (the "First Curtailment"), to a production level of 105,000 metric tons annually. 2 For the period from December 24, 2000 through September 30, 2001 (the "Second Curtailment Period"), Hydro and the Company have agreed to further curtail the production level at the Goldendale Plant by an additional 83,000 metric tons annually (the "Second Curtailment"). Consequently, during the Second Curtailment Period the Company shall manufacture and Hydro shall take delivery of a total of approximately 16,500 metric tons of aluminum metal. The quantity of aluminum metal produced within the Second Curtailment Period by the Company in any rolling three-month period from tolling Hydro's alumina hereunder may not be less than 5,500 metric tons. All such production shall be P1020 and, in the event that any such production does not meet such specification, GAC shall compensate Hdyro for any damages incurred as a result without reference to Sections 11 or 12 of the Tolling Contract. Hydro's obligation to deliver alumina shall be reduced accordingly with respect to both the First Curtailment and the Second Curtailment. No further curtailments of the metal production at the Goldendale Plant shall take place without Hydro's prior written approval, which shall not be unreasonably withheld, conditioned or delayed. 3. COMPENSATION With respect to the First Curtailment, Hydro and the Company have entered into a separate agreement dated December 8, 2000 pursuant to which Hydro shall be compensated for its loss in connection with resale of alumina. In addition, the Company shall pay compensation to Hydro of $750,000 (the "First Compensation") for other direct costs related to the First Curtailment. The First Compensation shall be payable in full upon execution of this Agreement. In addition, Hydro and the Company further agree to suspend any shipments of metal due to Northwest Aluminum Company ("NAC") from the Goldendale Plant during the period of curtailment, which currently is expected to last through 2002. The parties will negotiate in good faith regarding further suspension of deliveries in the event the First Curtailment is extended. The agreement whereby Hydro sells metal to NAC shall be extended to coincide with the term of the Tolling Contract. Hydro and the Company agree to extend the Tolling Contract through 2013 (two additional years). With respect to Hydro's estimated losses resulting from the Second Curtailment, the Company shall pay to Hydro compensation (the "Second Compensation") of $38,000,000 (the "Second Compensation"), for the period of December 24, 2000 through September 30, 2001. The Second Compensation shall not be adjusted, regardless of whether Hydro or the Company at a later stage can demonstrate that Hydro's actual total losses exceeded or fell below such estimate. The Second Compensation shall be payable as follows: 3 $ 9,250,000, due March 1, 2001; $ 3,500,000 due on the first day of each month from and including April 1, 2001 and through September 1, 2001; and the remaining balance due October 1, 2001 Save as expressly set forth in this Agreement, none of the parties shall have any liability towards the other for the consequences of the First Curtailment and the Second Curtailment. 4. FURTHER AGREEMENTS Golden Northwest Aluminum, Inc. shall negotiate in good faith with Hydro an agreement regarding joint marketing of billet from the aluminum smelter in The Dalles, Wasco County, Oregon. Golden Northwest Aluminum, Inc. and Norsk Hydro Americas, Inc. shall negotiate in good faith toward an amendment of the Subordinated Loan Agreement dated December 21, 1998 between such parties so as to permit Hydro to utilize the undrawn proceeds thereunder to purchase from the Goldendale Aluminum Company Retirement Plan (the "Plan") up to $10,000,000 of Goldendale Holding Company Preferred Stock held by the Plan. Hydro shall negotiate in good faith with GAC with regard to revision of the casthouse base upcharge set forth in the Tolling Contract. 5. USE OF PROCEEDS FROM REMARKETING OF POWER The Company shall use Goldendale Net Proceeds for Qualified Expenditures as specified in the Remarketing Addendum. The Company may change the definition of Qualified Expenditures with Hydro's prior written consent, which if requested shall not be unreasonably withheld, conditioned or delayed. 6. EFFECTS OF THE EXPIRY OF THE FIRST CURTAILMENT PERIOD Upon expiry of the First Curtailment Period, the Company shall resume full production in accordance with the provisions of the Tolling Contract unless otherwise agreed. 7. CONDITIONS TO EFFECTIVENESS The terms of this Agreement shall not be effective until GAC has obtained the consent of Fleet Bank, N.A., as agent under the Credit Agreement dated December 21, 1998 with GAC and NAC. 8. METAL FROM CLOSURE All metal that is taken from reduction cells at the Goldendale Plant during either Curtailment shall be used to make products as directed and sold by Hydro. 9. GOVERNING LAW AND ARBITRATION OF DISPUTES This Agreement shall be subject to Section 20 and Section 25 of the Tolling Contract. 4 10. CAPTIONS AND COUNTERPARTS Section captions are for convenience and are not part of the substance of this document. This Agreement may be executed in counterparts, each of which shall be an original and all of which taken together shall be one and the same instrument. 11. AUDIT As a lender and partner, Hydro reserves the right to review the financial statements and results of expenditures as referenced above and alumina and metal inventories. Dated: January __, 2001 HYDRO ALUMINUM METAL PRODUCTS NORTH AMERICA, INC. By: /s/ ----------------------------------- Name: --------------------------------- Title: -------------------------------- GOLDENDALE ALUMINUM COMPANY By: /s/ ----------------------------------- Name: --------------------------------- Title: -------------------------------- Accepted with respect to the obligations set forth in Section 4: GOLDEN NORTHWEST ALUMINUM, INC. By: /s/ ----------------------------------- Name: --------------------------------- Title: -------------------------------- NORSK HYDRO AMERICAS, INC. By: /s/ ----------------------------------- Name: --------------------------------- Title: -------------------------------- 5 ALUMINA SETTLEMENT 2000/2001 BETWEEN GOLDENDALE ALUMINUM COMPANY AND HYDRO ALUMINUM We confirm our agreement to an Alumina settlement subject to the fulfillment of the terms and conditions set out herein. The settlement is subject to, and shall be interpreted in conjunction with, the alumina contract between Hydro Aluminum (HAL) and Goldendale Aluminum Company (GAC), which shall remain in full force and effect, except as amended below. All payments to be made hereunder are subject to the payment terms of the alumina contract. 2000: Delivery of one cargo of 35,000 MT originally scheduled to GAC was canceled and sold by HAL at 165 USD/MT. This gave a loss versus the purchase price of 20.73 USD/MT, i.e., a total loss of 725,550 USD, which shall be compensated by GAC. Payment to be made prior to 31st of December, 2001. 2001: HAL and GAC have agreed to extend the tolling contract by one year at prevailing contract terms. Goldendale's total capacity in year 2012 to apply. Tolling contract shall be amended accordingly. Jim Walters/Lars Narvestad will revert to GAC on this. The final settlement amount to be paid by GAC to Hydro Aluminum in 2001 is 1,275,000 USD (85,000 MT x 15 USD/MT). 318,750 USD shall be invoiced each quarter and paid to HAL prior to February 28, May 31, August 31 and December 31, respectively. For 2002 Hydro Aluminum and GAC have agreed to discuss a settlement during 2001. Goldendale Aluminum Company Hydro Aluminum a.s. Dec 8, 2000 16/11-00 - ------------------------------------ ------------------------------------ Date: Date: /s/ BRETT WILCOX /s/ - ------------------------------------ ------------------------------------ Sign: Sign: EX-10.17 7 v70819ex10-17.txt EXHIBIT 10.17 1 Exhibit 10.17 SECOND AMENDMENT TO ALUMINA SUPPLY AGREEMENT THIS SECOND AMENDMENT TO ALUMINA SUPPLY AGREEMENT (this "Amendment"), dated as of January 5, 2001, between Glencore Ltd., a Swiss corporation (the "Seller"), and Northwest Aluminum Company, an Oregon corporation (the "Buyer," and collectively with the Seller, the "Parties"). Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Alumina Supply Agreement dated as of October 15, 1999 between the Parties ("Base Agreement") as amended by the Amendment to Alumina Supply Agreement dated as of October 1, 2000 ("First Amendment") (the Base Agreement as amended by the First Amendment being the "Alumina Agreement"). WITNESSETH WHEREAS, the Parties entered into the Alumina Agreement; and WHEREAS, the Parties now desire to amend the Alumina Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Parties do hereby agree as follows: ARTICLE I. QUANTITY AMENDMENT 1.1 The quantity of Alumina required to be sold and purchased under the Agreement in 2001 is hereby reduced from 80,000 MT to 40,000 MT. The 40,000 MT will be sold and purchased in the second half of 2001. 1.2 No later than March 31, 2001 the Buyer shall pay the Seller a cancellation fee of $2,400,000. Such amount is the sum of (i) a $1,600,000 cancellation fee hereby agreed to by the Parties in consideration for the reduction of the 2001 quantity from 80,000 MT to 40,000 MT as provided in Section 1.1 of this Amendment, and (ii) $800,000 which represents one-half of the cancellation fee payable by the Buyer pursuant to Section 3.1 of the First Amendment in respect of the reduction in the quantity for 2001 effected by the First Amendment. 1.3 The remaining $800,000 cancellation fee required to be paid by the Buyer pursuant to Section 3.1 of the First Amendment in respect of the reduction in the quantity for 2001 effected by the First Amendment will be paid by it no later than September 30, 2001. ARTICLE II. GENERAL PROVISIONS 2.1 Ratification of Alumina Agreement. The amendments set forth herein are limited precisely as written and shall not be deemed to be a consent or waiver to, or modification of, any other term or condition set forth in the Alumina Agreement. Except as expressly amended 2 hereby, all the terms and conditions of the Alumina Agreement shall continue in full force and effect and, as amended hereby, the Alumina Agreement is ratified and confirmed in all respects. 2.2 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, excluding those relating to choice or conflicts of laws and excluding the United Nations Convention for the International Sale of Goods. 2.3 Assignment. This Amendment is binding upon the Parties and their respective successors and assigns. No Party may assign this Amendment or its rights or obligations hereunder without the prior written consent of the other Party (which consent shall not be unreasonably withheld) and any purported assignment without such express written consent shall be null and void. 2.4 Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment. IN WITNESS WHEREOF, the Parties have caused their duly authorized representatives to execute this Amendment to Alumina Supply Agreement. GLENCORE LTD. By: /s/ ------------------------------------- Name: Title: NORTHWEST ALUMINUM COMPANY By: /s/ ------------------------------------- Name: Title: -2- EX-10.18 8 v70819ex10-18.txt EXHIBIT 10.18 1 Exhibit 10.18 MEMORANDUM OF UNDERSTANDING CURTAILMENT OF OPERATIONS DUE TO POWER SALE JANUARY 11, 2001 On December 27, 2000, Golden Northwest Aluminum Company (GNA) and the United Steelworkers Of America, AFL-CIO, District 11 (USWA) entered into an agreement on the use of net proceeds from the remarketing of electrical power available to GNA through its current contract with Bonneville Power Administration (Agreement). Having discussed the effects on the Bargaining Units (Local Unions) of Goldendale Aluminum Company and Northwest Aluminum Company (Company), as a result of GNA's decision and agreement with USWA regarding the use of net proceeds from said BPA power sale, the Local Unions, on January 4, 2001, have expressed a desire to follow the respective Collective Bargaining Agreements (CBA) regarding layoff and recall for this Power Sale Curtailment through September 30, 2001. This memorandum applies to the period of cell stoppage ending September 30, 2001, and applies to active employees as of January 1, 2001. It is the intention of the parties to resume operations on October 1, 2001, at a level consistent with the allocation of BPA power for the subscription period 2001-2006. Any decision to delay the resumption of operations beyond October 1, 2001, will be subject to further negotiations between the parties. It is mutually understood between the Local Unions and Company as follows: SENIORITY The seniority provisions of the Collective Bargaining Agreements (CBA) regarding reduction in classification and recall will be followed for the duration of the Power Sale Curtailment or until September 30, 2001, whichever occurs first, with the exception of a relaxation to allow for application for layoff due to business conditions; the amount of which will be no greater than the identified number to be reduced within classifications (positions) in each department. WORKFORCE The current workforce will be reduced to a level commensurate with operational plans known at this time. Displacements as a result of this curtailment will be accomplished per respective CBA. Designated Union representatives will work with the Company in providing direct input regarding number of reductions, shift schedules, classifications to be reduced and work groups using initial staffing estimates provided as a base. The final decision in these matters rests with management. Further staffing adjustments, if necessary, will be based on business requirements. Employees will not suffer a reduction in labor grade as a result of displacement for this period of temporary layoff, in any event not later than September 30, 2001. 2 MEMORANDUM OF UNDERSTANDING CURTAILMENT OF OPERATIONS DUE TO POWER SALE--PAGE 2 LAYOFF BENEFIT PAYMENTS (LBP) For the duration of this Power Sale Curtailment or until September 30, 2001 whichever occurs first, LBP will be made to employees who are placed on temporary layoff status so that their income (including part time employment and/or State Unemployment Insurance, if available) will be equal to what it would have been had they been working a regular workweek (40 hours). The maximum LBP will be no more than the difference between State Unemployment Insurance payment if available and regular workweek pay (40 hours). In order for laid off employees to receive LBP, designated Company representatives in the Human Resources Departments must be in receipt of timely documentation of compensation received from Unemployment Insurance and/or part-time employment- - i.e., verifiable, weekly, bi-weekly or monthly check stubs. FOURTH QUARTER 2000 REDUCTION IN FORCE Individuals included in the Fourth Quarter 2000 Reduction In Force and Severance Plan, are excluded from LBP for the duration of this Power Sale curtailment or September 30, 2001, whichever first occurs. Eligible individuals, included in the Fourth Quarter 2000 Reduction In Force, will be recalled to work under the seniority provisions of the Collective Bargaining Agreements. BENEFITS Healthcare (Medical, Vision, Dental), Life, AD&D Eligible, reduced employees will be provided healthcare benefits and Life and AD&D at currently elected benefit levels. The above named benefits will be maintained at the same level as that of active employees during the period of temporary layoff, in any event not later than September 30, 2001. Retirement / 401(k) Plans Eligibility for loans as per Plan administrative guidelines is maintained and repayment of loans continues through this period of temporary layoff Company contributions as per CBA will be maintained for laid off employees during their period of temporary layoff for the duration of this Power Sale curtailment or September 30, 2001, whichever occurs first. Texaco Gas Cards (Goldendale) Eligibility continues through the period so long as LBP is maintained. Profit Sharing Employees temporarily reduced during this Power Sale Curtailment period, and in any event not later than September 30, 2001, will maintain eligibility at the rate of forty (40) hours per week during the period. 3 MEMORANDUM OF UNDERSTANDING CURTAILMENT OF OPERATIONS DUE TO POWER SALE--PAGE 3 125 Flexible Spending Account Plan (Personal Choice Account) If employees have contributed more money into their accounts than has been reimbursed at the time of layoff and they elect not to continue after-tax contributions via COBRA, the money in their accounts will be lost. If employees have been reimbursed more money than has been contributed to their accounts at the time of layoff, the excess does not have to be paid back nor is COBRA continuation required in order to "make up" the excess. Vacation Year 2001 vacations already scheduled will be rescheduled upon completion of layoffs for those employees not laid off. Employees laid off due to this Power Sale Curtailment who are recalled and are active employees on January 1, 2002, will be considered to have accrued regular vacation time during the layoff period. Additional Compensation During the period of layoff due to this Power Sale Curtailment, and in any event not later than September 30, 2001, employees working in the plant will be paid additional remuneration in the form of one ($1) dollar per actual hour worked. This remuneration will be distributed in conjunction with regular Company payrolls. MISCELLANEOUS Training The Company, with a Union designated safety representative, will review, identify and recommend safety training to be provided during this Power Sale Curtailment period. Local Union Officers/Peer Program The Company will relieve from their regular duties and provide compensation on the basis of forty (40) hours per week, two (2) Union officers at each facility for a period of three (3) months upon signature of this MOU. These officers will coordinate Union training programs and address issues with laid off employees. The Company, upon prior request, will consider additional time. Union Leadership Training A maximum of twelve (12) bargaining unit employees per plant will be allowed five (5) days off for training with consideration for an additional five (5) days provided there is a minimum of ten (10) days advance notice afforded the respective departments. Attendance of said training will not result in loss of pay for regularly scheduled work. A maximum of twelve thousand ($12,000) dollars between both plants will be made available to help defer incurred expenses as a result of training attendance. 4 MEMORANDUM OF UNDERSTANDING CURTAILMENT OF OPERATIONS DUE TO POWER SALE--PAGE 4 Bargaining Unit Member Training With consideration for working schedules, all bargaining unit employees will be allowed one (1) hour of Union training that may include Union history, future challenges, labor and politics and/or organizing. Bargaining Committee Compensation Representatives of the Union Bargaining Committee in attendance of this effects bargaining who were regularly scheduled to work on January 3, 4, 5, 8, 9, 10, 11 and 12, 2001, will be compensated for scheduled work time lost on those days. Northwest Aluminum Labor Pool Any employee currently employed in the NWA labor pool who is reduced from the plant under this MOU, will be paid LBP in accordance with their rate prior to being assigned to the labor pool. ESOP (Goldendale) The Company is working on the issue and is committing to discuss this issue with the Local Union and the current stockholders. UNION: COMPANY: /s/ JAMES A. WOODWARD /s/ MUHSIN SEYHANLI -------------------------- ----------------------------------------- James A. Woodward Muhsin Seyhanli Sub District Director Vice President & General Manager USWA District 11 Golden Northwest Aluminum Company /s/ MIKE G. KEITH /s/ BILL BURRELL -------------------------- ----------------------------------------- Mike G. Keith, President Bill Burrell USWA Local 9170 Human Resources Manager Northwest Aluminum Company /s/ KEN BERRY /s/ ALLEN WHITEHEAD -------------------------- ----------------------------------------- Ken Berry, President Allen Whitehead USWA Local 8147 Human Resources Manager Goldendale Aluminum Company January 11, 2001 Date EX-12.1 9 v70819ex12-1.txt EXHIBIT 12.1 1 EXHIBIT 12.1 Golden Northwest Aluminum Company Statement of Ratio of Earnings to Fixed Charges Year ended December 31, 2000 (Amounts in Thousands)
2000 -------- Fixed Charges: Interest expense $ 23,701 Capitalized interest 498 Preferred stock dividend requirement 5,527 (1) -------- Fixed charges $ 29,726 ======== Earnings: Loss before income taxes $ (2,434) Fixed charges 29,726 Amortization of capitalized interest 50 Interest capitalized (498) Preferred stock dividend requirement (5,527) -------- $ 21,317 ======== Deficiency of earnings to cover fixed charges $ 8,409 ========
(1) Tax rate of 34% used for purposes of calculation. EX-21.1 10 v70819ex21-1.txt EXHIBIT 21.1 1 Exhibit 21.1 LIST OF SUBSIDIARIES Jurisdiction of Name Incorporation - ---- --------------- Goldendale Holding Company Delaware Goldendale Aluminum Company Delaware Northwest Aluminum Company Oregon Northwest Aluminum Specialties, Inc. Oregon Northwest Aluminum Technologies, LLC Washington
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