-----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, F2wDXSromFNYty2DRREso/vwSpHKmpwyNpdd0HavQ/wCako2vE6DqOfBdf0+tMA5 VvDjK0zZ1st8dPLuJLoCDg== /in/edgar/work/0000950123-00-010597/0000950123-00-010597.txt : 20001115 0000950123-00-010597.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950123-00-010597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY ALUMINUM CO CENTRAL INDEX KEY: 0000949157 STANDARD INDUSTRIAL CLASSIFICATION: [3350 ] IRS NUMBER: 133070826 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27918 FILM NUMBER: 766294 BUSINESS ADDRESS: STREET 1: 2511 GARDEN ROAD STREET 2: BUILDING A SUITE 200 CITY: MONTEREY STATE: CA ZIP: 93940 BUSINESS PHONE: 3042736000 MAIL ADDRESS: STREET 1: 2511 GARDEN ROAD STREET 2: BUILDING A SUITE 200 CITY: MONTEREY STATE: CA ZIP: 93940 10-Q 1 y42709e10-q.txt FINANCIAL DATA SCHEDULE 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000. Commission file number 0-27918 CENTURY ALUMINUM COMPANY (Exact name of Registrant as specified in its Charter) DELAWARE 13-3070826 (State of Incorporation) (IRS Employer Identification No.) 2511 GARDEN ROAD BUILDING A, SUITE 200 MONTEREY, CALIFORNIA 93940 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (831) 642-9300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The registrant had 20,339,203 shares of common stock outstanding at October 31, 2000. 2 CENTURY ALUMINUM COMPANY INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 Part I - Financial Information
Item 1 - Financial Statements Page Number Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999.......................................................... 1 Consolidated Statements of Operations for the three months and nine months ended September 30, 2000 and 1999.............................. 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999.............................................. 3 Notes to the Consolidated Financial Statements................................. 4-11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 12-18 Item 3 - Quantitative and Qualitative Disclosures About Market Risk......................... 18-19 Part II - Other Information Item 1 - Legal Proceedings................................................................ 20 Item 4 - Submission of Matters to a Vote of Stockholders.................................. 20 Item 6 - Exhibits and Reports on Form 8-K................................................. 20 Signatures................................................................................ 21 Exhibit Index............................................................................. 22
3 CENTURY ALUMINUM COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
SEPTEMBER 30, DECEMBER 31, 2000 1999 -------- -------- ASSETS CURRENT ASSETS: Cash ..................................................................... $ 23,079 $ 85,187 Restricted cash equivalents .............................................. -- 5,642 Accounts receivable, trade - net ......................................... 32,146 38,499 Due from affiliates ...................................................... 12,531 15,991 Inventories .............................................................. 41,626 44,936 Prepaid and other assets ................................................. 6,955 6,379 -------- -------- Total current assets ................................................ 116,337 196,634 PROPERTY, PLANT AND EQUIPMENT - NET ........................................... 180,831 105,158 OTHER ASSETS .................................................................. 15,579 9,010 -------- -------- TOTAL ............................................................... $312,747 $310,802 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade .................................................. $ 24,253 $ 29,134 Due to affiliates ........................................................ 2,633 10,737 Accrued and other current liabilities .................................... 16,272 27,770 Accrued employee benefits costs - current portion ........................ 4,774 4,602 -------- -------- Total current liabilities ........................................... 47,932 72,243 -------- -------- ACCRUED PENSION BENEFITS COSTS - Less current portion ......................... 3,725 3,589 ACCRUED POSTRETIREMENT BENEFITS COSTS - Less current portion .................. 41,175 39,391 OTHER LIABILITIES ............................................................. 24,691 15,851 -------- -------- Total noncurrent liabilities ........................................ 69,591 58,831 -------- -------- SHAREHOLDERS' EQUITY: Common Stock (one cent par value, 50,000,000 shares authorized; 20,339,203 shares outstanding at September 30, 2000 and 20,202,538 at December 31, 1999) ................................................................. 203 202 Additional paid-in capital ............................................... 166,184 164,409 Retained earnings ........................................................ 28,837 15,117 -------- -------- Total shareholders' equity .......................................... 195,224 179,728 -------- -------- TOTAL ............................................................... $312,747 $310,802 ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 4 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited)
Three months ended Nine months ended September 30, September 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- NET SALES: Third-party customers ............ $ 78,419 $ 134,334 $ 223,145 $ 428,957 Related parties .................. 32,684 18,711 93,472 56,453 --------- --------- --------- --------- 111,103 153,045 316,617 485,410 COST OF GOODS SOLD .................... 103,026 160,189 292,500 491,823 --------- --------- --------- --------- GROSS PROFIT (LOSS) ................... 8,077 (7,144) 24,117 (6,413) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .......... 3,370 5,396 9,825 13,997 --------- --------- --------- --------- OPERATING INCOME (LOSS) ............... 4,707 (12,540) 14,292 (20,410) GAIN ON SALE OF FABRICATING BUSINESSES -- 41,130 5,156 41,130 INTEREST INCOME (EXPENSE) - Net ....... 399 (1,808) 1,887 (5,360) NET LOSS ON FORWARD CONTRACTS ......... (1,116) (763) (641) (3,263) OTHER INCOME (EXPENSE) ................ (127) (5) 2,738 (673) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES ............ 3,863 26,014 23,432 11,424 INCOME TAX BENEFIT (EXPENSE) .......... 486 (9,365) (6,559) (2,613) --------- --------- --------- --------- NET INCOME BEFORE EXTRAORDINARY ITEM .. 4,349 16,649 16,873 8,811 EXTRAORDINARY ITEM - WRITE-OFF OF DEFERRED BANK FEES, NET OF INCOME TAX BENEFIT OF $766 ....................... -- (1,362) -- (1,362) --------- --------- --------- --------- NET INCOME ............................ $ 4,349 $ 15,287 $ 16,873 $ 7,449 ========= ========= ========= ========= EARNINGS PER COMMON SHARE Basic Net income before extraordinary item $ 0.21 $ 0.82 $ 0.83 $ 0.43 Extraordinary item ................. $ -- $ (0.06) $ -- $ (0.06) Net income ......................... $ 0.21 $ 0.76 $ 0.83 $ 0.37 Diluted Net income before extraordinary item $ 0.21 $ 0.82 $ 0.83 $ 0.43 Extraordinary item ................. $ -- $ (0.06) $ -- $ (0.06) Net income ......................... $ 0.21 $ 0.76 $ 0.83 $ 0.37 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic .............................. 20,339 20,202 20,339 20,202 ========= ========= ========= ========= Diluted ............................ 20,399 20,354 20,405 20,333 ========= ========= ========= ========= DIVIDENDS PER COMMON SHARE ............ $ 0.05 $ 0.05 $ 0.15 $ 0.15 ========= ========= ========= =========
See notes to consolidated financial statements 2 5 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................................... $ 16,873 $ 7,449 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .................................. 10,726 15,878 Deferred income taxes .......................................... 5,439 8,278 Pension and other postretirement benefits ...................... 2,092 (14,560) Inventory market adjustment .................................... 1,631 5,344 Gain on sale of fabricating businesses ......................... (5,156) (41,130) Change in operating assets and liabilities: Accounts receivable, trade - net ............................................... 6,353 (31,049) Due from affiliates ....................................... 7,931 5,639 Inventories ............................................... 5,541 30,048 Prepaids and other assets ................................. (2,859) (3,607) Accounts payable, trade ................................... (6,531) 13,663 Due to affiliates ......................................... (943) (5,580) Accrued and other current liabilities ..................... (13,594) (7,823) Other - net ............................................... 12,673 1,692 --------- --------- Net cash provided by (used in) operating activities ............ 40,176 (15,758) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment ........................... (10,039) (19,639) Purchase price adjustment related to business acquisitions .......... -- 296 Acquisition ......................................................... (94,734) -- Proceeds from sale of fabricating businesses ........................ -- 245,400 Restricted cash deposits ............................................ 5,642 (4) --------- --------- Net cash provided by (used in) investing activities ............ (99,131) 226,053 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings .......................................................... -- 340,708 Repayment of borrowings ............................................. -- (430,097) Dividends ........................................................... (3,153) (3,122) --------- --------- Net cash used in financing activities .......................... (3,153) (92,511) --------- --------- NET INCREASE (DECREASE) IN CASH ........................................... (62,108) 117,784 CASH, BEGINNING OF PERIOD ................................................. 85,187 12 --------- --------- CASH, END OF PERIOD ....................................................... $ 23,079 $ 117,796 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 6 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1. GENERAL On September 21, 1999, Century Aluminum Company ("Century" or the "Company") and Century Aluminum of West Virginia, Inc. ("Century of West Virginia") sold the net assets of their two aluminum fabricating businesses to Pechiney Rolled Products LLC ("Pechiney"). Century's fabricating businesses consisted of Century Cast Plate, Inc. ("Century Cast Plate") located in Vernon, California and the rolling and casting operations of Century of West Virginia, located in Ravenswood, West Virginia ("Pechiney Transaction"). During the second quarter of 2000 the Company reached a settlement of the post-closing purchase price adjustments of the fabrication businesses and recorded a $5,156 increase to the gain from the sale. The financial results for the third quarter and first nine months of 1999 include the operations of the fabricating businesses. Century is a holding company whose principal subsidiary is Century of West Virginia, which operates a primary aluminum reduction facility in Ravenswood, West Virginia. Century of West Virginia, through its wholly-owned subsidiary Berkeley Aluminum, Inc. ("Berkeley"), holds a 49.67% interest in a partnership which operates a primary aluminum reduction facility in Mt. Holly, South Carolina ("MHAC") and a 49.67% undivided interest in the property, plant and equipment comprising MHAC. Glencore International AG (the "Glencore Group" or "Glencore") is a major shareholder of Century. See footnote 7 included in these financial statements. Glencore owns 7,925,000 common shares, or 39.0% of the common shares outstanding of the Company. Century and the Glencore Group enter into various transactions such as the purchase and sale of primary aluminum, alumina and metals risk management. The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1999. In management's opinion, the unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, which are necessary for a fair presentation, in all material respects, of financial results for the interim periods presented. Operating results for the first nine months of 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 4 7 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 2. INVENTORIES Inventories consist of the following:
September 30, December 31, 2000 1999 ------- ------- Raw materials .............. $26,330 $27,271 Work-in-process ............ 2,779 2,899 Finished goods ............. 3,327 5,715 Operating and other supplies 9,190 9,051 ------- ------- $41,626 $44,936 ======= =======
At September 30, 2000 and December 31, 1999, approximately 78% and 80%, respectively, of inventories were valued at the lower of last-in, first-out ("LIFO") cost or market. The excess of the first-in, first-out ("FIFO") cost over LIFO cost (or market, if lower) of inventory was approximately $492 at September 30, 2000 and the excess of LIFO cost (or market, if lower) over FIFO cost was approximately $1,845 at December 31, 1999. 3. BANK REVOLVING CREDIT FACILITY On March 31, 1999, the Company entered into an agreement with BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to $160,000 of revolving credit facilities to refinance indebtedness, to finance certain capital expenditures and for other general corporate purposes. The borrowing base for purposes of determining availability was based upon certain eligible inventory and receivables. On September 15, 1999 the Bank Agreement was amended to permit the sale of the fabricating businesses in the Pechiney Transaction and additionally required that on the closing date the Company repay all amounts outstanding under the revolving credit facilities. On September 21, 1999, the Company repaid its outstanding debt under the revolving credit facilities and the Company and its lenders agreed to reduce the facilities from $160,000 to $67,083. On April 7, 2000, a second amendment to the Bank Agreement was completed to permit the purchase of the additional 23% interest in MHAC. In addition, the amendment revises the definitions of eligible inventory and receivables for determining the borrowing base and provides for certain revisions to the restrictive covenants contained in the Bank Agreement. The restrictive covenants include limitations on the payment of dividends and the making of capital expenditures, and require the maintenance of certain financial ratios. There were no outstanding borrowings as of September 30, 2000. 5 8 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 4. CONTINGENCIES AND COMMITMENTS Environmental Contingencies The Company's operations are subject to various environmental laws and regulations. The Company has spent, and expects to spend in the future, significant amounts for compliance with those laws and regulations. Pursuant to an Environmental Protection Agency ("EPA") order issued in 1994 under Section 3008(h) (the "3008(h) order") of the Resource Conservation and Recovery Act ("RCRA"), Century of West Virginia is performing remediation measures at a former oil pond area and in connection with cyanide contamination in the groundwater. Century of West Virginia also conducted and submitted to the EPA an RCRA facility investigation ("RFI") evaluating other areas that may have contamination exceeding certain levels. After the RFI is complete, Century of West Virginia will have 60 days within which to submit a corrective measures study ("CMS") to the EPA proposing means of remediating areas that may require cleanup. If any cleanup is required, EPA would issue a subsequent order. Century of West Virginia believes this process will not be completed before early 2001. The Company is aware of some environmental contamination at Century of West Virginia, and it is likely cleanup activities will be required in two areas of the facility. Century of West Virginia believes a significant portion of this contamination is attributable to the operations of a prior owner and will be the financial responsibility of that owner, as discussed below. Prior to the Company's acquisition of the Century of West Virginia facility, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated the facility for approximately thirty years. Many of the conditions which Century of West Virginia investigated under the 3008(h) order exist because of activities which occurred during Kaiser's ownership and operation. With respect to those conditions, Kaiser will be responsible for the costs of required cleanup under the terms of the Kaiser Purchase Agreement. In addition, Kaiser retained title to certain land within the Century of West Virginia premises and retains full responsibility for those areas. Under current environmental laws, the Company may be required to remediate any contamination which was discharged from areas which Kaiser owns or previously owned or operated. However, if such remediation is required, the Company believes that Kaiser will be liable for some or all of the costs thereof pursuant to the Kaiser Purchase Agreement. In connection with the sale to Pechiney of the fabricating businesses, the Company and Century of West Virginia provided Pechiney with certain indemnifications. Those include the indemnification rights Century of West Virginia and the Company, respectively, have under the Kaiser Purchase Agreement (with respect to the real property transferred to Pechiney) and the Company's Cast Plate, Inc., Stock Purchase Agreement with Alcoa. The Pechiney Purchase Agreement provides further indemnifications which are limited, in general, to pre-closing conditions which were not disclosed to Pechiney or to off site migration of hazardous substances from pre-closing acts or omissions of Century of West Virginia. Environmental indemnifications under the Pechiney Purchase Agreement expire September 20, 2005; they are payable only to the extent they exceed $2,000. 7 9 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) The Company is aware of two areas of contamination at its previously owned Virgin Islands Alumina Company ("Vialco") facility. At the first of these areas, the Company has removed contaminated soils and has disposed of such soils in approved facilities. In addition, it has begun a bioremediation program that it believes will fulfill the remaining legal requirements with respect to such soils. The second area is a portion of the site beneath which is a plume of oil floating on groundwater. On March 31, 2000, the Company received from the EPA a Draft Administrative Order on Consent directing Hess Oil Virgin Islands, Inc. ("HOVIC"), owner of an adjacent oil refinery, the Company and all other past and present owners of the site to prepare and carry out a remedial work plan. The Company believes that the majority of the plume originated from the HOVIC refinery. Pursuant to the Acquisition Agreement by which Vialco sold the premises to St. Croix Alumina, LLC, a subsidiary of Alcoa Alumina and Chemicals LLS ("St. Croix"), Vialco retained liability for environmental conditions existing at the time of the sale but only to the extent such conditions arose from operation of the facility by Vialco. St. Croix may not request indemnity from Vialco until St. Croix has spent $300 on such environmental conditions and Vialco's indemnity to St. Croix is capped at $18,000. Vialco purchased the site in 1989 from a predecessor company of Lockheed Martin Corporation ("Lockheed"). Lockheed has tendered indemnity and defense of this matter to Vialco pursuant to terms of the Lockheed-Vialco Asset Purchase Agreement. Management of the Company does not believe its liability, if any, will have a material adverse effect on the Company's financial condition, results of operations, or liquidity. It is the Company's policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental related accrued liabilities were $874 at September 30, 2000 and December 31, 1999, respectively. All accruals have been recorded without giving effect to any possible future insurance or Kaiser indemnity proceeds. With respect to ongoing environmental compliance costs, including maintenance and monitoring, such costs are expensed as incurred. Because of the issues and uncertainties described above, and the Company's inability to predict the requirements of future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on the Company's future financial condition, results of operations or liquidity. Based upon all available information, management does not believe that the outcome of these environmental matters will have a material adverse effect on the Company's financial condition, results of operations or liquidity. Legal Contingencies Century of West Virginia is a named defendant (along with other companies) in approximately 2,362 civil actions brought by individuals seeking to recover compensatory and/or punitive damages in connection with alleged asbestos-related diseases. All plaintiffs have been employees of independent contractors who claim to have been exposed to asbestos in the course of performing services at various facilities, including the Century of West Virginia facility. The cases are typically resolved based upon factual determinations as to the facilities at which the 7 10 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) plaintiffs worked, the periods of time during which work was performed, the type of work performed, and the conditions in which work was performed. If the plaintiffs' work was performed during the period when Kaiser owned the Century of West Virginia facility, Kaiser has retained responsibility for defense and indemnity pursuant to the Kaiser Purchase Agreement. If a plaintiff is shown to have worked at the Century of West Virginia facility after the time Century of West Virginia purchased the facility from Kaiser, Kaiser assumes the defense and liability, subject to a reservation of rights against Century of West Virginia. The Company believes it is unlikely that existing or potential plaintiffs were exposed to asbestos at the Century of West Virginia facility after Century of West Virginia purchased the facility from Kaiser. There are currently several actions pending by individuals who claim exposure after Century of West Virginia's assumption of the premises. While the impact of the asbestos proceedings is impossible to predict, the Company believes that the ultimate resolution will not have a material adverse effect on the Company's financial condition, results of operations, or liquidity. The Company has pending against it or may be subject to various other lawsuits, claims and proceedings related primarily to employment, commercial, environmental and safety and health matters. Although it is not presently possible to determine the outcome of these matters, management believes their ultimate disposition will not have a material adverse effect on the Company's financial condition, results of operations or liquidity. In August 1999, an illegal, one-day work stoppage temporarily shut down one of the Company's four production lines at the Century of West Virginia facility. The cost of this work stoppage is estimated to be approximately $10,000 including equipment damaged as a result of the production line shutdown. The Company has filed a claim with its insurance carrier for business interruption and equipment damage relative to the work stoppage. During the second quarter, the Company received $3,000 in partial settlement of the insurance claim and included the amount in "other income" in the Company's statement of operations for the nine months ended September 30, 2000. Commitments The Company and a public utility have a fixed price power supply agreement, covering the period from July 1, 1996 through July 31, 2003. On January 23, 1996, the Company and the Pension Benefit Guaranty Corporation ("PBGC") entered into an agreement (the "PBGC Agreement") which provided that the Company make scheduled cash contributions to its pension plan for hourly employees in 1996, 1997, 1998 and 1999. The Company made all such scheduled contributions. Pursuant to the PBGC Agreement, the Company granted the PBGC a first priority security interest in (i) the property, plant and equipment at its Century of West Virginia facility and (ii) all of the outstanding shares of Berkeley. In addition, Century agreed to grant the PBGC a first priority security interest in the first $50,000 of the property, plant and equipment of any business or businesses that the Company acquires. The Company, at its discretion, may, however, substitute Berkeley's undivided interest in the Mt. Holly Facility in lieu of any such after-acquired property, plant and equipment as well as the shares of Berkeley. 8 11 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 5. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS The Company produces primary aluminum products and manages pricing risk through the use of fixed price sales commitments and financial instruments. In connection with the sale of the aluminum fabricating businesses in September 1999, the Company entered into a Molten Aluminum Purchase Agreement (the "Metal Agreement") with Pechiney, that shall continue in effect until July 31, 2003 with provisions for extension. Pursuant to the Metal Agreement, Pechiney has agreed to purchase and the Company has agreed to deliver, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum. The selling price is determined by a market based formula. Subsequent to the purchase of an additional 23% interest in MHAC from Xstrata, the Company entered into a ten year agreement with Glencore (the "Glencore Metal Agreement") to sell approximately 110.0 million pounds of primary aluminum products per year. Selling prices for the first two years are determined by a market based formula. The remaining eight years of the contract are at a fixed price as defined in the agreement. Exclusive of the Metal Agreement and the Glencore Metal Agreement, the Company had fixed price commitments to sell 72.2 million pounds and 100.2 million pounds of primary aluminum at September 30, 2000 and December 31, 1999, respectively. Of these fixed price sales commitments, 25.9 million pounds and 68.3 million pounds at September 30, 2000 and December 31, 1999, respectively, were with the Glencore Group. The Company had no fixed price commitments to purchase aluminum at September 30, 2000 or December 31, 1999. The Company uses financial instruments, primarily forward sales contracts for primary aluminum to be settled in cash, to manage the Company's exposure to fluctuating aluminum prices. At September 30, 2000 and December 31, 1999, the Company had forward sales contracts, primarily with the Glencore Group, for 288.9 million and 60.0 million pounds, respectively. Forward sales contracts at September 30, 2000 are scheduled for settlement at various dates in 2000 through 2002. Based on market prices at September 30, 2000, these contracts could be settled by the Company paying approximately $2,400. The actual settlement will be based on market prices on the respective settlement dates. The Company entered into a long-term supply agreement for 936 million pounds of alumina annually, beginning January 1, 1996. The Company will pay a fixed price for alumina with annual price increases of approximately 2.5% through 2001. Pricing for the years 2002 through 2006 will be subject to agreement between the parties. In addition, as part of its acquisition of an additional 23% interest in MHAC, the Company assumed a supply agreement with Glencore for the alumina raw material requirements relative to the additional interest. The unit cost is based on a fixed percentage of the market price of primary aluminum as quoted on the LME. The alumina supply agreement expires in 2008. 9 12 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 6. SUPPLEMENTAL CASH FLOW INFORMATION
NINE MONTHS ENDED ----------------------- SEPTEMBER 30, ----------------------- 2000 1999 ------- ------- Cash paid for: Interest ......... $ 218 $ 6,288 Income taxes ..... 616 1,903 Cash received from: Interest ......... 2,143 -- Income tax refunds 13,322 174
7. ACQUISITIONS Effective April 1, 2000, Century, through its wholly-owned indirect subsidiary Berkeley, increased its 26.67% undivided interest in certain property, plant and equipment of MHAC to 49.67% by purchasing a 23% undivided interest from Xstrata AG ("Xstrata") a publicly traded Swiss company. As part of the purchase, Berkeley also acquired Xstrata's 23% interest in the general partnership which operates and maintains MHAC (the "Operating Partnership", and together with MHAC, the "Mt. Holly Assets"). Prior to Berkeley's purchase of the Mt. Holly Assets, it held a 26.67% undivided interest in MHAC and a 26.67% interest in the Operating Partnership. Glencore is a major shareholder of Xstrata. The sale was completed pursuant to an Asset Purchase Agreement dated as of March 31, 2000 (the "Purchase Agreement") by and between Berkeley and Xstrata. The aggregate purchase price for the Mt. Holly Assets was $95,000, subject to certain post-closing adjustments. Under the terms of the Purchase Agreement, Berkeley agreed to assume certain of Xstrata's obligations and liabilities relating to the Mt. Holly Assets. The terms of the Purchase Agreement were determined through arms'-length negotiations between the parties. The Company used available cash to complete the purchase. MHAC has the capacity to produce up to 480 million pounds of primary aluminum per year. Century's 49.67% ownership represents 238.4 million pounds of this capacity. 10 13 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) The following schedule represents the unaudited pro forma results of operations for the nine months ended September 30, 2000 and 1999 assuming the acquisition occurred on January 1, 1999. The unaudited pro forma amounts may not be indicative of the results that actually would have occurred if the transaction described above had been completed and in effect for the periods indicated or the results that may be obtained in the future. The unaudited pro forma amounts only include the effects of the Glencore Metal Agreement after April 1, 2000.
2000 1999 ---- ---- (unaudited) Net sales $ 334,698 $ 532,433 Net income before extraordinary item 14,436 1,009 Net income 14,436 (353) Diluted earnings per share before extraordinary item 0.71 0.05 Diluted earnings per share $ 0.71 $ (0.02)
On August 31, 2000, the Company entered into a stock purchase agreement with Southwire Company ("Southwire"), a privately held wire and cable manufacturing company based in Carrollton, Georgia. Under this agreement, the Company will acquire all of the outstanding equity securities of Metalsco Ltd., a wholly-owned subsidiary of Southwire which owns a direct 1% partnership interest in NSA Ltd. ("NSA") and an indirect 99% interest in NSA through its wholly-owned subsidiary, Skyliner, Inc. (the "Transaction"). Southwire owns (through Metalsco Ltd.) and operates an aluminum reduction operation in Hawesville, Kentucky (the "Hawesville facility") which the Company will acquire. The Hawesville facility has the capacity to produce 237,000 metric tons (523 million pounds) of primary aluminum per year. Under the stock purchase agreement, the Company will also acquire from Southwire, certain land, facilities and rights related to NSA's aluminum reduction operations which are not held by NSA. The purchase price is $460,000 plus the assumption of $7,800 in industrial revenue bonds and is subject to certain post-closing adjustments. Completion of the purchase is contingent upon, among other matters, the Company concluding financing for the acquisition. 11 14 FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995. This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as "expects," "anticipates," "forecasts," "intends," "plans," "believes," "projects," and "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, but are not limited to, statements regarding new business and customers, contingencies, environmental matters and liquidity under "Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk" and "Part II, Item 1 Legal Proceedings." These statements are not guarantees of future performance and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove to be wrong. Actual results and outcomes may vary materially from what is expressed or forecast in such statements. Among the factors that could cause actual results to differ materially are general economic and business conditions, changes in demand for the Company's products and services or the products of the Company's customers, fixed asset utilization, competition, the risk of technological changes and the Company's competitors developing more competitive technologies, the Company's dependence on certain important customers, the availability and terms of needed capital, risks of loss from environmental liabilities, and other risks detailed in this report. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The following information should be read in conjunction with the Company's 1999 Form 10-K along with the consolidated financial statements and related footnotes included within the Form 10-K. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ACQUISITIONS AND DISPOSITIONS On September 21, 1999, the Company and Century of West Virginia sold their two aluminum fabricating businesses. Accordingly, the following information includes the operations of these businesses in 1999 through the date of sale. On April 1, 2000, the Company purchased an additional 23% interest in Mt. Holly for cash consideration of $95.0 million, subject to certain post-closing adjustments. This purchase increased Century's ownership to 49.67%. Mt. Holly has the capacity to produce up to 480 million pounds of primary aluminum per year. Century's ownership represents 238.4 million pounds of this capacity. On August 31, 2000, the Company entered into a stock purchase agreement with Southwire Company ("Southwire"), a privately held wire and cable manufacturing company based in Carrollton, Georgia. Under this agreement, the Company will acquire all of the outstanding equity securities of Metalsco Ltd., a wholly-owned subsidiary of Southwire which owns a direct 1% partnership interest in NSA Ltd. ("NSA") and an indirect 99% interest in NSA 12 15 through its wholly-owned subsidiary, Skyliner, Inc. (the "Transaction"). Southwire owns (through Metalsco Ltd.) and operates an aluminum reduction operation in Hawesville, Kentucky (the "Hawesville facility") which the Company will acquire. The Hawesville facility has the capacity to produce 237,000 metric tons (523 million pounds) of primary aluminum per year. Under the stock purchase agreement, the Company will also acquire from Southwire, certain land, facilities and rights related to NSA's aluminum reduction operations which are not held by NSA. The purchase price is $460,000 plus the assumption of $7,800 in industrial revenue bonds and is subject to certain post-closing adjustments. Completion of the purchase is contingent upon, among other matters, the Company concluding financing for the acquisition. OVERVIEW The Company is a manufacturer of primary aluminum. The aluminum industry is highly cyclical and the market price of aluminum (which trades as a commodity) has been volatile from time to time. The principal elements comprising the Company's cost of goods sold are raw materials, energy and labor. The major raw materials and energy sources used by the Company in its production process are alumina, coal tar, pitch, petroleum coke, aluminum fluoride and electricity. The Company produces t-ingot, rolling ingot, extrusion billet and foundry ingot. A significant portion of the Company's shipments are to a related party (the Glencore Group). Because a majority of the Company's costs are fixed, results of operations are sensitive to changes in the market price of aluminum and to fluctuations in volume. The market price for primary aluminum remained relatively stable during the third quarter of 2000 and the Company's shipments were essentially level with the second quarter of 2000. Demand continues to be strong for primary aluminum products and worldwide aluminum inventories are approaching historic lows. A shortage of electrical power at affordable rates is continuing to cause a number of the Company's competitors to curtail production at certain of their reduction facilities. Due to the Company's use of fixed contract pricing for its power needs, no such curtailment is anticipated at either of the Company's facilities. RESULTS OF OPERATIONS Century's financial highlights include (in thousands, except per share data):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net sales Third-party customers $ 78,419 $134,334 $223,145 $428,957 Related party customers 32,684 18,711 93,472 56,453 -------- -------- -------- -------- Total 111,103 153,045 316,617 485,410 Net income $ 4,349 $ 15,287 $ 16,873 $ 7,449 Earnings per share - basic $ 0.21 $ 0.76 $ 0.83 $ 0.37
13 16 Net sales. Net sales for the three months ended September 30, 2000 decreased $41.9 million or 27.4% to $111.1 million from $153.0 million for the same period in 1999. The decrease was primarily the result of the sale of the fabricating businesses in September 1999, offset by higher aluminum prices and increased volumes from the Company's additional 23% interest in MHAC. Net sales for the nine months ended September 30, 2000 were $316.6 million, a decrease of $168.8 million or 34.8% from $485.4 million for the nine months ended September 30, 1999. The decrease was primarily the result of the sale of the fabricating businesses, partially offset by higher aluminum prices and additional volume from the Company's increased interest in MHAC. Gross profit. Gross profit for the three months ended September 30, 2000 increased $15.2 million to $8.1 million from a gross loss of $7.1 million for the three months ended September 30, 1999. The increase was primarily the result of a $0.07 per pound increase in price realizations in the third quarter of 2000 compared to the same period in 1999 and the additional interest in MHAC acquired by the Company in April 2000. The increases were partially offset by the sale of the fabricated products businesses. For the nine months ended September 30, 2000 gross profit increased $30.5 million to $24.1 million from a gross loss of $6.4 million for the same period in 1999. The increase was also primarily the result of higher aluminum prices and the additional interest in MHAC. Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2000 decreased $2.0 million or 37.5% to $3.4 million from $5.4 million for the three months ended September 30, 1999. This decrease was primarily the result of the sale of the fabricated products businesses in September 1999. For the nine months ended September 30, 2000 selling, general and administrative expenses decreased $4.2 million or 30.0% to $9.8 million from $14.0 million for the nine months ended September 30, 1999. This decrease was also primarily a result of the sale of the fabricated products businesses in September 1999. Operating income. Operating income for the three and nine months ended September 30, 2000 was $4.7 million and $14.3 million, respectively. This compares with an operating loss of $12.5 million and $20.4 million for the three and nine months ended September 30, 1999. Operating income increased for the reasons discussed above. Gain On Sale of Fabricating Businesses. For the nine months ended September 30, 2000, the Company recorded a gain on the sale of its fabricating businesses of $5.2 million. This resulted from the settlement of post-closing adjustments to the transaction as originally recorded. For the three and nine months ended September 30, 1999, the Company recorded a gain on the sale of its fabricating businesses of $41.1 million. 14 17 Net Interest Income or Expense. Net interest income during the three and nine months ended September 30, 2000 was $0.4 million and $1.9 million, respectively. This compares with net interest expense of $1.8 and $5.4 million, respectively, for the same periods in 1999. The change in interest was due to the absence of borrowings and the earnings on invested cash during the first nine months of 2000 resulting from the sale of the fabrication businesses net of the additional investment in Mt. Holly. Net Gains/Losses on Forward Contracts. The Company recorded a loss on forward contracts of $1.1 million for the three months ended September 30, 2000 compared to a loss of $0.8 million for the same period in 1999. For both periods, rising LME aluminum prices decreased the market value of the Company's forward contracts relative to their June 30 market values, resulting in a loss. For the nine months ended September 30, 2000, the Company recorded a loss on forward contracts of $0.6 million. Higher LME prices as of September 30, 2000 relative to their December 31 market values resulted in the loss. For the nine months ended September 30, 1999, the Company recorded a loss on forward contracts of $3.3 million. Higher LME aluminum prices as of September 30, 1999 decreased the market value of the Company's forward contracts relative to their December 31, 1998 market value, resulting in a loss. Other Income/Expense. Other expense for the three months ended September 30, 2000 was $0.1 million. For the nine months ended September 30, 2000, other income was $2.8 million compared to other expense of $0.7 million for the same period in 1999. The change in other income resulted from the receipt of $3.0 million during the second quarter of 2000 in partial settlement of the Company's business interruption and property damage claim with its insurance carrier. The claim was a result of the illegal work stoppage at the Company's Ravenswood, West Virginia operation in August 1999. Tax Provision/Benefit. Income tax benefit for the three months ended September 30, 2000 was $0.5 million. Income tax expense for the three months ended September 30, 1999 was $9.4 million. The benefit in 2000 is the result of a reduction in the estimated income taxes of $1.9 million. Income tax expense for the nine months ended September 30, 2000 and 1999 was $6.6 million and $2.6 million, respectively. The change in income taxes was a result of higher pre-tax income in 2000 and the accrual adjustment. Net Income/Loss. The Company had net income after extraordinary items of $4.3 million and $16.9 million during the three and nine months ended September 30, 2000 compared to net income of $15.3 million and $7.4 million during the comparable 1999 periods. The increase in net income was primarily the result of higher price realizations, the partial insurance settlement in the second quarter of 2000 and the income tax accrual adjustment in the third quarter of 2000. The net income in 1999 was primarily the result of the $41.1 million gain on the sale of the fabricating businesses during September 1999. 15 18 LIQUIDITY AND CAPITAL RESOURCES Working capital amounted to $68.4 million and $124.4 million at September 30, 2000 and December 31, 1999, respectively. The decrease is due primarily to the cash purchase of an additional 23% interest in Mt. Holly on April 1, 2000. The Company's liquidity requirements arise primarily from working capital needs and capital investments. The Company's statements of cash flows for the nine months ended September 30, 2000 and 1999 are summarized below (dollars in thousands):
2000 1999 --------- --------- Net cash from (used in) operating activities....... $ 40,176 $ (15,758) Net cash from (used in) investing activities....... (99,131) 226,053 Net cash from (used in) financing activities....... (3,153) (92,511) --------- --------- Increase (decrease) in cash........................ $ (62,108) $ 117,784 ========= =========
Operating activities generated $40.2 million in net cash during the first nine months of 2000. In the first nine months of 1999, operating activities used $15.8 million in net cash. The increase in cash flow was primarily the result of higher operating income during the nine months ended September 30, 2000. The Company's net cash used in investing activities was $99.1 million during the first nine months of 2000 compared to net cash generated of $226.1 million during the first nine months of 1999. The change between periods was primarily due to the purchase of an additional interest in Mt. Holly for $95.0 million in April 2000 and funds received from the sale of the fabricating businesses in 1999 of which there were none in 2000. Net cash used in financing activities was $3.2 million during the first nine months of 2000 compared to $92.5 million in the first nine months of 1999. The Company had net repayments on borrowings for the nine months ended September 30, 1999 compared to no repayments for the same period in 2000. On March 31, 1999, the Company entered into an agreement with BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to $160.0 million of revolving credit facilities to refinance indebtedness, to finance certain capital expenditures and for other general corporate purposes. The borrowing base for purposes of determining availability was based upon certain eligible inventory and receivables. On September 15, 1999, the Bank Agreement was amended to permit the sale of the fabricating businesses in the Pechiney Transaction and additionally required that on the closing date the Company repay all amounts outstanding under the revolving credit facilities. The Company and its lenders agreed to reduce the revolving credit facilities from $160.0 million to $67.1 million. On April 7, 2000, a second amendment to the Bank Agreement was completed to permit the purchase of the additional 23% interest in Mt. Holly. In addition, the amendment revises the definitions of eligible inventory and receivables for determining the borrowing base and provides for certain revisions to the restrictive covenants contained in the Bank Agreement. The restrictive covenants include restrictions on the payment of dividends and the making of capital expenditures, and require the maintenance of certain financial ratios. 16 19 The Company believes that cash flows from operations and funds that will be available under its bank agreements will be sufficient to meet its working capital requirements, capital expenditures and debt service requirements in the near term and for the foreseeable future. ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES The Company has incurred and, in the future, will continue to incur capital expenditures and operating expenses for matters relating to environmental control, remediation, monitoring and compliance. The aggregate environmental related accrued liabilities were $0.9 million at September 30, 2000 and December 31, 1999, respectively. The Company believes that compliance with current environmental laws and regulations is not likely to have a material adverse effect on the Company's financial condition, results of operations or liquidity; however, environmental laws and regulations have changed rapidly in recent years and the Company may become subject to more stringent environmental laws and regulations in the future. In addition, the Company may be required to conduct remediation activities in the future pursuant to various orders issued by the EPA and West Virginia Department of Environmental Protection. There can be no assurance that compliance with more stringent environmental laws and regulations that may be enacted in the future, or future remediation costs, would not have a material adverse effect on the Company's financial condition, results of operations or liquidity. The Company is a defendant in several actions relating to various aspects of its business. While it is impossible to predict the ultimate disposition of any litigation, the Company does not believe that any of these lawsuits, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, results of operations or liquidity. See Note 4 to Consolidated Financial Statements appearing in Part I, Item 1. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138 which amended certain provisions of SFAS 133, including an amendment to expand the normal purchase and sale exemption for supply contracts. The Company will be required to adopt SFAS 133, as amended by SFAS 138 on January 1, 2001. The Company has established an implementation team to evaluate the impact that adopting SFAS 133 will have on the Company's operations. Based on the implementation teams preliminary analysis, it is anticipated that most of the Company's fixed priced commitments will qualify for the normal purchase and sale exemption provided in SFAS 138 and therefore will not have a material effect on the Company's financial condition or results of operations. It is further anticipated that the Company's financial instruments, which are currently recorded at fair value through the statement of operations, may be designated as cash flow hedges. Such a designation as provided in SFAS 133 as of September 30, 2000, would have resulted in an after tax increase of $0.4 million in net income for the nine month period ended September 30, 2000 and a $1.8 million cumulative after tax reduction in other comprehensive income as of September 30, 2000. 17 20 NEW STAFF ACCOUNTING BULLETIN - REVENUE RECOGNITION In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" which currently must be adopted no later than the fourth quarter of fiscal years beginning after December 15, 1999. SAB No. 101 provides additional guidance on revenue recognition, as well as criteria for when revenue is generally realized and earned, and also requires the deferral of incremental direct selling costs. On October 13, 2000 the SEC issued Frequently Asked Questions and Answers (FAQs) relating to SAB 101. The Company is currently assessing the impact of SAB No. 101 and related FAQs on our results of operations and financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK COMMODITY PRICES Century produces primary aluminum products. The Company's earnings are exposed to aluminum price fluctuations. The Company manages this risk through the issuance of fixed price commitments and financial instruments. The Company does not engage in trading or speculative transactions. Although the Company has not materially participated in the purchase of call options, in cases where Century sells forward primary aluminum, it may purchase call options to preserve the benefit from price increases significantly above forward sales prices. In addition, it may purchase put options to protect itself from price decreases. In connection with the sale of the aluminum fabricating businesses in September 1999, the Company entered into a Molten Aluminum Purchase Agreement (the "Metal Agreement") with Pechiney, that shall continue in effect until July 31, 2003 with provisions for extension. Pursuant to the Metal Agreement, Pechiney has agreed to purchase and the Company has agreed to deliver, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum. The selling price is determined by a market based formula. Subsequent to the purchase of an additional 23% interest in MHAC from Xstrata , the Company entered into a ten year agreement with Glencore (the "Glencore Metal Agreement") to sell approximately 110.0 million pounds of primary aluminum products per year. The selling price for the first two years is determined by a market based formula. The remaining eight years of the contract are at a fixed price as defined in the agreement. Exclusive of the Metal Agreement and the Glencore Metal Agreement, the Company had fixed price commitments to sell 72.2 and 100.2 million pounds of primary aluminum at September 30, 2000 and December 31, 1999, respectively. Of these fixed price sales commitments, 25.9 million pounds and 68.3 million pounds at September 30, 2000 and December 31, 1999, respectively, were with the Glencore Group. The Company has a long-term supply agreement for 936.0 million pounds of alumina annually; whereby, the Company will pay a fixed price for alumina with annual price increases of approximately 2.5% through 2001. Prices for the years 2002 through 2006 will be subject to agreement between the parties. In addition, as part of its acquisition of an additional 23% interest in Mt. Holly, the Company assumed a supply agreement with Glencore for the alumina raw material requirements relative to the additional interest. The unit cost is based on a fixed percentage of the market price of primary aluminum as quoted on the LME. The alumina supply agreement expires in 2008. 18 21 At September 30, 2000, the Company had entered into 288.9 million pounds of forward primary aluminum sales contracts primarily with the Glencore Group to mitigate the risk of commodity price fluctuations inherent in its business. These contracts will be settled in cash at various dates during 2000 and 2002. Based on market prices at September 30, 2000, these financial instruments could be settled by the Company paying approximately $2.4 million. The actual settlement will be based on market prices at the respective settlement dates. On a hypothetical basis a $0.01 per pound increase in the market price of primary aluminum is estimated to have an unfavorable impact of $1.8 million on net income for the nine months ended September 30, 2000 as a result of the forward primary aluminum sale contracts entered into by the Company at September 30, 2000. This quantification of the Company's exposure to the commodity price of aluminum is necessarily limited, as it does not take into consideration the Company's inventory or fixed price commitments, or the offsetting impact upon the sales price of primary aluminum products. All gains and losses from forward contract activity are reported separately in the statements of operations. Unrealized gains or losses on the forward primary aluminum contracts, realized gains or losses from the cash settlement of the forward primary aluminum contracts, and reversals of prior period unrealized losses are reported as either gains or losses on forward contracts. Century monitors its overall position, and its metals risk management activities are subject to the management, control and direction of senior management. These activities are regularly reported to the Board of Directors of Century. 19 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings - None. Item 4. Submission of Matters to a Vote of Stockholders - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27.0 - Financial Data Schedule (b) Reports on Form 8-K 20 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Century Aluminum Company Date: November 14, 2000 By: /s/ Craig A. Davis ----------------- ------------------------------------- Craig A. Davis Chairman/Chief Executive Officer Date: November 14, 2000 By: /s/ David W. Beckley ----------------- -------------------------------------- David W. Beckley Executive Vice-President/Chief Financial Officer 21 24 EXHIBIT INDEX Exhibit Number Description ------- ------------------------------------------ 27.0 Financial Data Schedule 22 EX-27.0 2 y42709ex27-0.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CENTURY ALUMINUM COMPANY CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 23,079 0 32,146 0 41,626 116,337 289,840 109,009 312,747 47,932 0 0 0 203 195,021 312,747 316,617 316,617 292,500 302,325 (7,253) 0 (1,887) 23,432 6,559 16,873 0 0 0 16,873 0.83 0.83
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