10-Q 1 d56393_10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003. 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 0-27918 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 |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_| The registrant had 21,070,210 shares of common stock outstanding at July 31, 2003. PART I - FINANCIAL INFORMATION Item 1. - Financial Statements. CENTURY ALUMINUM COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
June 30, December 31, 2003 2002 --------- ------------ ASSETS Current Assets: Cash and cash equivalents .................................................... $ 24,375 $ 45,092 Accounts receivable - net .................................................... 50,418 46,240 Due from affiliates .......................................................... 20,393 22,732 Inventories .................................................................. 73,736 77,135 Prepaid and other current assets ............................................. 15,580 4,777 --------- --------- Total current assets .................................................... 184,502 195,976 Property, Plant and Equipment - net ................................................ 504,588 417,621 Intangible Asset - net ............................................................. 108,304 119,744 Due from Affiliates - Less current portion ......................................... 97 974 Other Assets ....................................................................... 32,028 30,852 --------- --------- Total ................................................................... $ 829,519 $ 765,167 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable, trade ...................................................... $ 34,573 $ 37,757 Due to affiliates ............................................................ 16,335 15,811 Industrial revenue bonds ..................................................... 7,815 7,815 Accrued and other current liabilities ........................................ 27,249 24,114 Accrued employee benefits costs - current portion ............................ 10,955 10,890 Deferred Taxes - current portion ............................................. 3,399 4,971 --------- --------- Total current liabilities ............................................... 100,326 101,358 --------- --------- Senior Secured Notes Payable- net .................................................. 322,075 321,852 Notes Payable - Affiliates ......................................................... 40,000 -- Accrued Pension Benefits Costs - Less current portion .............................. 12,585 10,751 Accrued Postretirement Benefits Costs - Less current portion ....................... 74,654 70,656 Other Liabilities .................................................................. 33,976 8,376 Deferred Taxes- Less current portion ............................................... 46,336 41,376 --------- --------- Total noncurrent liabilities ............................................ 529,626 453,011 --------- --------- Minority Interest .................................................................. -- 18,666 Contingencies and Commitments (See Note 6) Shareholders' Equity: Convertible preferred stock (8.0% cumulative, 500,000 shares outstanding) .... 25,000 25,000 Common stock (one cent par value, 50,000,000 shares authorized; 21,070,210 and 21,054,302 shares outstanding at June 30, 2003 and December 31, 2002, respectively) .............................................................. 211 211 Additional paid-in capital ................................................... 172,403 172,133 Accumulated Other Comprehensive Income (Loss) ................................ (4,239) 1,173 Retained Earnings (Deficit) .................................................. 6,192 (6,385) --------- --------- Total shareholders' equity .............................................. 199,567 192,132 --------- --------- Total ................................................................... $ 829,519 $ 765,167 ========= =========
See notes to consolidated financial statements 1 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2003 2002 2003 2002 --------- --------- --------- --------- NET SALES: Third-party customers ................................................. $ 163,746 $ 148,377 $ 317,201 $ 302,576 Related parties ....................................................... 32,421 31,959 57,975 56,860 --------- --------- --------- --------- 196,167 180,336 375,176 359,436 Cost of Goods Sold ..................................................... 188,391 175,380 359,694 347,172 --------- --------- --------- --------- Gross Profit ........................................................... 7,776 4,956 15,482 12,264 Selling, General and Administrative Expenses ........................... 4,086 3,761 8,221 7,938 --------- --------- --------- --------- Operating Income ....................................................... 3,690 1,195 7,261 4,326 Interest Expense - Third Party ......................................... (10,330) (9,896) (20,554) (20,155) Interest Expense - Related Party ....................................... (1,000) -- (1,000) -- Interest Income ........................................................ 45 58 196 129 Net Gain on Forward Contracts .......................................... 211 -- 41,904 -- Other Expense .......................................................... (770) (132) (500) (102) --------- --------- --------- --------- Income (Loss) before Income Taxes and Minority Interest ................ (8,154) (8,775) 27,307 (15,802) Income Tax (Expense) Benefit ........................................... 3,147 2,862 (9,827) 5,108 --------- --------- --------- --------- Income (Loss) Before Minority Interest and Cumulative Effect of Change in Accounting Principle ..................................... (5,007) (5,913) 17,480 (10,694) Minority Interest ...................................................... -- 1,313 986 2,626 --------- --------- --------- --------- Income (Loss) before Cumulative Effect of Change in Accounting Principle .......................................................... (5,007) (4,600) 18,466 (8,068) Cumulative Effect of Change in Accounting Principle, net of tax benefit of $3,430 .................................................. -- -- (5,878) -- --------- --------- --------- --------- Net Income (Loss) ...................................................... (5,007) (4,600) 12,588 (8,068) Preferred Dividends .................................................... (500) (500) (1,000) (1,000) --------- --------- --------- --------- Net Income (Loss) Applicable to Common Shareholders .................... $ (5,507) $ (5,100) $ 11,588 $ (9,068) ========= ========= ========= ========= EARNINGS (LOSS) PER COMMON SHARE: Basic: Income (Loss) before cumulative effect of change in accounting principle ........................................... $ (0.26) $ (0.25) $ 0.83 $ (0.44) Cumulative effect of change in accounting principle .............. $ -- $ -- $ (0.28) $ -- --------- --------- --------- --------- Net Income (Loss) ................................................ $ (0.26) $ (0.25) $ 0.55 $ (0.44) ========= ========= ========= ========= Diluted: Income (Loss) before cumulative effect of change in accounting principle ........................................... $ (0.26) $ (0.25) $ 0.82 $ (0.44) Cumulative effect of change in accounting principle .............. $ -- $ -- $ (0.26) $ -- --------- --------- --------- --------- Net Income (Loss) ................................................ $ (0.26) $ (0.25) $ 0.56 $ (0.44) ========= ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic .............................................................. 21,070 20,554 21,070 20,554 ========= ========= ========= ========= Diluted ............................................................ 21,070 20,554 22,465 20,554 ========= ========= ========= ========= DIVIDENDS PER COMMON SHARE ............................................. $ -- $ 0.05 $ -- $ 0.10 ========= ========= ========= =========
See notes to consolidated financial statements 2 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Six Months ended June 30, ---------------------- 2003 2002 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) ........................................................ $ 12,588 $ (8,068) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Unrealized net gain on forward contracts ............................ (12,292) -- Depreciation and amortization ....................................... 25,787 28,157 Deferred income taxes ............................................... 6,396 (5,201) Pension and other postretirement benefits ........................... 5,897 4,743 Inventory market adjustment ......................................... (394) (756) Loss on disposal of assets .......................................... 836 459 Minority interest ................................................... (986) (2,625) Cumulative effect of change in accounting principle ................. 9,308 -- Changes in operating assets and liabilities: Accounts receivable - net ...................................... (4,178) (1,711) Due from affiliates ............................................ (4,604) 2,595 Inventories .................................................... 5,734 425 Prepaids and other current assets .............................. (2,733) (2,724) Accounts payable, trade ........................................ (3,184) (1,464) Due to affiliates .............................................. 1,394 7,397 Accrued and other current liabilities .......................... 632 (105) Other - net .................................................... 9,527 (917) -------- -------- Net cash provided by operating activities ........................... 49,728 20,205 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment ................................ (10,300) (10,852) Acquisition of minority interest ......................................... (59,837) -- -------- -------- Net cash used in investing activities ............................... (70,137) (10,852) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Financing fees ........................................................... (297) -- Dividends ................................................................ (11) (2,563) Issuance of common or preferred stock .................................... -- 5 -------- -------- Net cash used in financing activities ............................... (308) (2,558) -------- -------- NET INCREASE (DECREASE) IN CASH ............................................. (20,717) 6,795 CASH, BEGINNING OF PERIOD ................................................... 45,092 13,388 -------- -------- CASH, END OF PERIOD ......................................................... $ 24,375 $ 20,183 ======== ========
See notes to consolidated financial statements 3 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 1. General 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, 2002. In management's opinion, the unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for the first six months of 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Certain reclassifications of 2002 information were made to conform to the 2003 presentation. 2. Acquisitions On April 1, 2003, the Company completed the acquisition of the 20% interest in its Hawesville, Kentucky primary aluminum reduction facility which was indirectly owned by Glencore International AG, the Company's largest shareholder (together with its subsidiaries, "Glencore") together with Glencore's pro rata interest in certain related assets (collectively the "Acquired Assets"). The operating results of the 20% interest acquired have been included in the Company's consolidated financial statements from the date of acquisition. Century paid a purchase price of approximately $100.0 million for the Acquired Assets, which it financed with approximately $60.0 million of available cash and a six-year 10% $40.0 million promissory note payable to Glencore (the "Glencore Note"). See Note 5 for a discussion of the Glencore Note. In connection with the acquisition, the Company entered into a ten-year contract with Glencore from 2004 through 2013 under which Glencore will purchase approximately 45.0 million pounds per year of primary aluminum produced at the Ravenswood and Mt. Holly facilities, at prices based on then-current market prices, adjusted by a negotiated U.S. Midwest premium with a cap and floor. Glencore originally purchased the Acquired Assets from Century in April 2001 when Century acquired the Hawesville facility and related assets (the "Hawesville Acquisition") from Southwire Company ("Southwire"). Glencore also assumed direct responsibility for a pro rata portion of certain liabilities and obligations related to the Hawesville facility, including: (i) delivery obligations under the Molten Aluminum Supply Agreement, dated April 1, 2001, between Century and Southwire, (ii) debt service obligations related to $7.8 million in industrial revenue bonds ("IRBs") assumed by Century in connection with the Hawesville Acquisition, (iii) any post-closing payments due Southwire pursuant to the terms of the Company's agreement with Southwire, and (iv) certain other post-closing liabilities and obligations (including environmental) related to the Hawesville facility (collectively, the "Assumed Liabilities"). In connection with the Company's subsequent purchase of the Acquired Assets from Glencore, the Company assumed all of Glencore's obligations related to the Assumed Liabilities. In addition, the Company issued a promissory note to Glencore to secure any payments Glencore could be required to make as guarantor of a letter of credit the Company posted in April 2001 in support of the IRBs. 4 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 3. Inventories Inventories consist of the following: June 30, December 31, 2003 2002 --------- ------------ Raw materials ........................ $ 27,989 $ 32,064 Work-in-process ...................... 13,733 13,310 Finished goods ....................... 9,413 9,853 Operating and other supplies ......... 22,601 21,908 --------- --------- $ 73,736 $ 77,135 ========= ========= At June 30, 2003 and December 31, 2002, approximately 74% and 78% of inventories were valued at the lower of last-in, first-out ("LIFO") cost or market, respectively. The excess of LIFO cost (or market, if lower) over first in, first out ("FIFO") cost was approximately $455 and $1,105 at June 30, 2003 and December 31, 2002, respectively. 4. Intangible Asset The intangible asset consists of the power contract acquired in connection with the Company's acquisition of its aluminum reduction facility located in Hawesville, Kentucky in April 2001. The contract value is being amortized over its term of ten years through 2010, using a method that results in annual amortization equal to the percentage of a given year's expected gross annual benefit to the total as applied to the total recorded value of the power contract. As part of the acquisition of Glencore's interest in the Hawesville facility on April 1, 2003, the 20% portion of the power contract that was indirectly owned by Glencore was revalued in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." As a result, the gross carrying amount of the contract and the accumulated amortization, both related to the 20% portion of the contract indirectly owned by Glencore, were removed and the fair value of the 20% of the power contract acquired on April 1, 2003 was recorded. As of June 30, 2003, the gross carrying amount of the intangible asset was $153,592 with accumulated amortization of $45,288. For the three month periods ended June 30, 2003 and June 30, 2002, amortization expense for the intangible asset totaled $4,927 and $6,565, respectively. For the six month periods ended June 30, 2003 and June 30, 2002, amortization expense for the intangible asset totaled $9,512 and $13,129, respectively. For the year ended December 31, 2003, the estimated aggregate amortization expense for the intangible asset will be approximately $18,680. The estimated aggregate amortization expense for the intangible asset for the following five years is as follows: 5 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) Century Aluminum Intangible Asset Amortization
For the year ending December 31, 2004 2005 2006 2007 2008 ------ ------ ------ ------ ------ Estimated Amortization Expense 12,326 14,161 12,695 13,617 14,669
In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company evaluates the intangible asset for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. 5. Debt The Company has $325.0 million of 11 3/4% senior secured first mortgage notes due 2008 (the "Notes"). The Company had unamortized bond discounts on the Notes of $2,925 and $3,148 at June 30, 2003 and December 31, 2002, respectively. The indenture governing the Notes contains customary covenants including limitations on the Company's ability to pay dividends, incur debt, make investments, sell assets or stock of certain subsidiaries, and purchase or redeem capital stock. The Company suspended its common and preferred stock dividends in the fourth quarter of 2002. This action was taken because the Company was near the limits on allowable dividend payments under the covenants in its bond indenture. Effective April 1, 2001, the Company entered into a $100.0 million senior secured revolving credit facility (the "Revolving Credit Facility") with a syndicate of banks. The Revolving Credit Facility will mature on April 2, 2006. There were no outstanding borrowings under the Revolving Credit Facility as of June 30, 2003. Effective April 1, 2001, in connection with its acquisition of the Hawesville facility, the Company assumed IRBs in the aggregate principal amount of $7,815. From April 1, 2001 through April 1, 2003 Glencore assumed 20% of the liability related to the IRBs consistent with its ownership interest in the Hawesville facility. The IRBs mature on April 1, 2028, and bear interest at a variable rate not to exceed 12% per annum determined weekly based on prevailing rates for similar bonds in the bond market. The IRBs are secured by a Glencore guaranteed letter of credit and the Company will provide for the servicing costs for the letter of credit. Century has indemnified Glencore for all costs arising from the letter of credit. The interest rate on the IRBs at June 30, 2003 was 1.35%, with interest paid quarterly. The IRBs are classified as current liabilities because they are remarketed weekly and could be required to be repaid upon demand if there is a failed remarketing, as provided in the indenture governing the IRBs. On April 1, 2003, the Company completed the acquisition of the 20% interest in its Hawesville facility owned by Glencore which it financed in part with a six-year 10% $40.0 million promissory note payable to Glencore. Amounts outstanding under the Glencore Note, together 6 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) with Century's reimbursement obligations related to the letter of credit provided by Glencore securing the IRBs, are secured by a first priority security interest in the Acquired Assets. Century's maximum potential amount of future payments under the reimbursement obligations for the Glencore letter of credit securing the IRBs would be $8,150. Until the Glencore Note matures on April 1, 2009, the Company will make principal and interest payments semi-annually. Principal payments will range from $0 to $3,000 based on the average closing prices for aluminum quoted on the London Metals Exchange ("LME") for the six month period ending prior to each payment date. The Company's obligations under the Glencore Note are guaranteed by each of its material consolidated subsidiaries, except for Century of Kentucky LLC. 6. Contingencies and Commitments Environmental Contingencies The Company believes its environmental liabilities are not likely to have a material adverse effect on the Company. However, there can be no assurance that future requirements at currently or formerly owned properties will not result in liabilities which may have a material adverse effect on the Company's financial condition, results of operations or liquidity. Century of West Virginia is performing certain remedial measures at its Ravenswood Facility pursuant to a RCRA 3008(h) order issued by the Environmental Protection Agency ("EPA") in 1994 (the "3008(h) Order"). Century of West Virginia also conducted a RCRA facility investigation ("RFI") under the 3008(h) Order evaluating other areas at Ravenswood that may have contamination requiring remediation. The RFI was submitted to the EPA in December 1999. Century of West Virginia, in consultation with the EPA, has completed interim remediation measures at two sites identified in the RFI, and the Company expects that neither the EPA, nor the State of West Virginia will require further remediation under the 3008(h) Order. The Company believes a significant portion of the contamination on the two identified sites is attributable to the operations of Kaiser Aluminum and Chemical ("Kaiser"), the prior owner, and will be the financial responsibility of that owner, as discussed below. Kaiser owned and operated the Ravenswood facility for approximately 30 years prior to its acquisition by Century of West Virginia. Many of the conditions that Century of West Virginia is remedying exist because of activities that occurred during Kaiser's ownership and operation. Under the terms of the agreement to purchase the Ravenswood Facility ("Kaiser Purchase Agreement"), Kaiser retained the responsibility to pay the costs of cleanup of those conditions. In addition, Kaiser retained title to certain land within the Ravenswood premises and is responsible for those areas. On February 12, 2002, Kaiser and certain wholly owned subsidiaries filed voluntary petitions under Chapter 11 of the Federal Bankruptcy Code ("Kaiser Bankruptcy"). While the Company believes the Kaiser Bankruptcy will not relieve Kaiser of its obligations to do remediation work under government orders, the ultimate outcome of the Kaiser Bankruptcy is uncertain. Nevertheless, the Company does not expect the Kaiser Bankruptcy to have a material adverse effect on the Company's financial condition, results of operations or liquidity. Under the terms of the agreement to sell its fabricating businesses to Pechiney (the "Pechiney Agreement"), the Company and Century of West Virginia provided Pechiney with certain 7 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) indemnifications. Those include the assignment of certain of Century of West Virginia's indemnification rights under the Kaiser Purchase Agreement (with respect to the real property transferred to Pechiney) and the Company's indemnification rights under its stock purchase agreement with Alcoa relating to the Company's purchase of Century Cast Plate, Inc. The Pechiney Agreement provides further indemnifications, which are limited, in general, to pre-closing conditions that were not disclosed to Pechiney and to off-site migration of hazardous substances from pre-closing acts or omissions of Century of West Virginia. Environmental indemnifications under the Pechiney Agreement expire September 20, 2005 and are payable only to the extent they exceed $2,000. Payments under this indemnification would be limited to $25,000 for on-site liabilities, but there is no limit on potential future payments for any off-site liabilities. The Company does not believe there are any undisclosed pre-closing conditions or off-site migration of hazardous substances, and it does not believe that it will be required to make any potential future payments under this indemnification. On July 6, 2000, while the Hawesville facility was owned by Southwire, the EPA issued a final Record of Decision ("ROD"), under the federal Comprehensive Environmental Response, Compensation and Liability Act, which detailed response actions to be implemented at several locations at the Hawesville site to address actual or threatened releases of hazardous substances. Those actions include: - removal and off-site disposal at approved landfills of certain soils contaminated by polychlorinated biphenyls ("PCBs"); - management and containment of soils and sediments with low PCB contamination in certain areas on-site; and - the continued extraction and treatment of cyanide contaminated ground water using the existing ground water treatment system. Under the Company's agreement with Southwire to purchase the Hawesville facility, Southwire indemnified the Company against all on-site environmental liabilities known to exist prior to the closing of the acquisition, including all remediation, operation and maintenance obligations under the ROD. The total costs for the remedial actions to be undertaken and paid for by Southwire relative to these liabilities are estimated under the ROD to be $12,600 and the forecast of annual operating and maintenance costs is $1,200. Century will operate and maintain the ground water treatment system required under the ROD on behalf of Southwire, and Southwire will reimburse Century for any expense that exceeds $400 annually. If on-site environmental liabilities relating to pre-closing activities at Hawesville that were not known to exist as of the date of the closing of the acquisition become known before March 31, 2007, the Company will share the costs of remedial action with Southwire on a sliding scale depending on the year the liability is identified. Any on-site environmental liabilities arising from pre-closing activities which do not become known until on or after March 31, 2007, will be the responsibility of the Company. In addition, the Company will be responsible for any post-closing environmental costs which result from a change in environmental laws after the closing or from its own activities, including a change in the use of the facility. In addition, Southwire indemnified the Company against 8 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) all risks associated with off-site hazardous material disposals by the Hawesville plant which pre-date the closing of the acquisition. The Company acquired the Hawesville facility by purchasing all of the outstanding equity securities of Metalsco Ltd., which was a wholly owned subsidiary of Southwire. Metalsco previously owned certain assets which are unrelated to the Hawesville plant's operations, including the stock of Gaston Copper Recycling Corporation ("Gaston"), a secondary metals recycling facility in South Carolina. Gaston has numerous liabilities related to environmental conditions at its recycling facility. Gaston and all other non-Hawesville assets owned at any time by Metalsco were identified in the Company's agreement with Southwire as unwanted property and were distributed to Southwire prior to the closing of the Hawesville acquisition. Southwire indemnified the Company for all liabilities related to the unwanted property. Southwire also retained ownership of certain land adjacent to the Hawesville facility containing Hawesville's former potliner disposal areas, which are the sources of cyanide contamination in the facility's groundwater. Southwire retained full responsibility for this land, which was never owned by Metalsco and is located on the north boundary of the Hawesville site. Southwire has secured its indemnity obligations to the Company for environmental liabilities until April 1, 2008 by posting a letter of credit, currently in the amount of $14,200, issued in the Company's favor, with an additional $15,000 to be posted if Southwire's net worth drops below a pre-determined level during that period. The amount of security Southwire provides may increase (but not above $14,700 or $29,700, as applicable) or decrease (but not below $3,000) if certain specified conditions are met. The Company cannot be certain that Southwire will be able to meet its indemnity obligations. In that event, under certain environmental laws which impose liability regardless of fault, the Company may be liable for any outstanding remedial measures required under the ROD and for certain liabilities related to the unwanted properties. If Southwire fails to meet its indemnity obligations or if the Company's shared or assumed liability is significantly greater than anticipated, the Company's financial condition, results of operations and liquidity could be materially adversely affected. Century is a party to an Administrative Order on Consent with the Environmental Protection Agency (the "Order") pursuant to which other past and present owners of an alumina facility at St. Croix, Virgin Islands have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage hydrocarbons floating on top of groundwater underlying the facility. Pursuant to the Hydrocarbon Recovery Plan, recovered hydrocarbons and groundwater will be delivered to the adjacent petroleum refinery where they will be received and managed. The owner of the petroleum refinery will pay the parties participating in the recovery effort the fair market value of the petroleum hydrocarbon recovered. Lockheed Martin Corporation ("Lockheed"), which sold the facility to one of the Company's affiliates, Virgin Islands Alumina Corporation ("Vialco"), in 1989, has tendered indemnity and defense of this matter to Vialco pursuant to terms of the Lockheed-Vialco Asset Purchase Agreement. Management does not believe Vialco's liability under the Order or its indemnity to Lockheed will have a material adverse effect on the Company's financial condition, results of operations, or liquidity. The Company expects the future potential payments under this indemnification will be an immaterial amount. However, under the indemnification, there is no limit to the potential future payments. 9 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 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 $1,758 and $1,370 at June 30, 2003 and December 31, 2002, respectively. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to ongoing environmental compliance costs, including maintenance and monitoring, such costs are expensed as incurred. Because of the issues and uncertainties described above, and the Company's inability to predict the requirements of the future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on the Company's future financial condition, results of operations, or liquidity. Based upon all available information, management does not believe that the outcome of these environmental matters, or environmental matters concerning Mt. Holly, will have a material adverse effect on the Company's financial condition, results of operations, or liquidity. Legal Contingencies Prior to the Kaiser bankruptcy, Century was a named defendant, along with Kaiser and many other companies, in civil actions brought by employees of third party contractors who alleged asbestos-related diseases arising out of exposure at facilities where they worked, including Ravenswood. All of those actions relating to the Ravenswood facility have been dismissed or settled with respect to the Company and Kaiser. Only 14 plaintiffs were able to show they had been on the Ravenswood premises during the period the Company owned the plant, and the parties have agreed to settle all of those claims for non-material amounts. The Company is awaiting receipt of final documentation of those settlements and the entry of dismissal orders. The Company does not expect the Kaiser Bankruptcy will have any effect on the settlements it has reached on those asbestos claims. Since the Kaiser Bankruptcy, the Company has been named in an additional 82 civil actions based on similar allegations with unspecified monetary claims against Century. The Company does not know if any of the 82 claimants were in the Ravenswood facility during the Company's ownership, but management believes that the costs of investigation or settlements, if any, will be immaterial. 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. Power Commitments The Company purchases all of the electricity requirements for the Ravenswood Facility from Ohio Power Company, a unit of American Electric Power Company, pursuant to a fixed price power supply agreement. That agreement expires on July 31, 2003. On May 3, 2002, the Company signed a new contract to purchase electric power for its Ravenswood facility from Ohio Power. The new agreement is effective August 1, 2003, when the Company's current power contract with Ohio Power expires. 10 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) The new contract will provide power for the Ravenswood facility at competitive rates under a GS-4 schedule approved by the Public Utilities Commission of Ohio. The GS-4 schedule is due to expire on December 31, 2005. The Hawesville facility currently purchases all of its power from Kenergy Corporation ("Kenergy"), a local retail electric cooperative, under a power supply contract that expires at the end of 2010. Kenergy acquires the power it provides to the Hawesville facility under fixed price contracts, mostly with a subsidiary of LG&E Energy Corporation ("LG&E"), with delivery guaranteed by LG&E. The Hawesville facility currently purchases all of its power from Kenergy at fixed prices. Approximately 15% of the Hawesville facility's power requirements are unpriced in calendar years 2004 and 2005. The unpriced portion of the contract increases to approximately 26% in 2006. The Mt. Holly facility purchases all of its power from the South Carolina Public Service Authority at rates fixed by published schedules. One of those schedules is a fuel adjustment clause which permits the Authority to pass through charges or credits to the extent its actual costs vary from those costs in the formula set in the Fuel Cost Adjustment Clause. The Mt. Holly power contract expires December 31, 2005. Equipment failures at the Ravenswood, Mt. Holly or Hawesville facilities could limit or shut down the Company's production for a significant period of time. In order to minimize the risk of equipment failure, the Company follows a comprehensive maintenance and loss prevention program and periodically reviews its failure exposure. The Company is subject to losses associated with equipment shutdowns, caused by the loss or interruption of electrical power, as well as other events. Power interruptions may have a material adverse effect on the Company's business. Any loss of power which causes an equipment shutdown may result in the hardening or "freezing" of molten aluminum in the pots where it is produced. If this freezing occurs, significant losses can occur if the pots are damaged and require repair or replacement, a process that could limit or shut down the Company's production operations for a significant period of time. Certain shutdowns not covered by insurance could be a default under the revolving credit facility. No assurance can be given that a material shutdown will not occur in the future or that such a shutdown would not have a material adverse effect on the Company. Although the Company maintains property damage insurance to provide for the repair or replacement of damaged equipment or property, as well as business interruption insurance to mitigate losses resulting from any equipment failure or production shutdown caused by a catastrophic event, the Company may still be required to pay significant amounts under the deductible provisions of those insurance policies. In addition, coverage may not be sufficient to cover all losses which result from a catastrophic event. Furthermore, while Century maintains insurance to cover losses resulting from damage to power suppliers' facilities or transmission lines that interrupts the power supply to the Company's facilities, this insurance contains large deductibles and self-insured amounts, and it does not cover losses resulting from a power loss due solely to lack of sufficient electrical power caused by unusually high usage within the applicable service territory. 11 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) Labor Commitments Century of West Virginia's hourly employees, which comprise 39% of the Company's workforce, are represented by the United Steelworkers of America ("USWA") and are currently working under a labor agreement that expires May 31, 2006. The Hawesville LLC's hourly employees, which comprise 41% of the Company's workforce, are represented by the USWA and are currently working under a five-year labor agreement that expires March 31, 2006. Other Commitments The Company may be required to make post-closing payments to Southwire up to an aggregate maximum of $7,000 if the price of primary aluminum on the LME exceeds specified levels during the seven years following closing of the Hawesville acquisition in April 2001. 7. Forward Delivery Contracts and Financial Instruments As a producer of primary aluminum products, the Company is exposed to fluctuating raw material and primary aluminum prices. The Company routinely enters into fixed and market priced contracts for the sale of primary aluminum and the purchase of raw materials in future periods. In connection with the sale of its aluminum fabricating businesses to Pechiney in September 1999, the Company entered into a Molten Aluminum Purchase Agreement (the "Pechiney Metal Agreement") with Pechiney that expires December 31, 2005. This contract will be automatically extended through July 31, 2007 provided that the Company's power contract is extended through that date. Pursuant to the Pechiney Metal Agreement, Pechiney purchases, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum at a variable price determined by reference to the U.S. Midwest market price. After July 31, 2003, Pechiney will have the right, upon 12 months notice, to reduce its purchase obligations under the contract by 50%. On April 1, 2000, the Company entered into an agreement, expiring December 31, 2009, with Glencore to sell and deliver monthly, primary aluminum totaling approximately 110.0 million pounds per year at a fixed price for the years 2002 through 2009 (the "Original Sales Contract"). In January 2003, Century and Glencore agreed to terminate and settle the Original Sales Contract for the years 2005 through 2009. At that time, the parties entered into a new contract (the "New Sales Contract") that requires Century to deliver the same quantity of primary aluminum as did the Original Sales Contract for these years. However, the New Sales Contract provides for variable pricing for the years 2005 through 2009, equal to the monthly average price of aluminum as quoted by the LME for the month preceding delivery of the primary aluminum. For deliveries in the years 2003 and 2004, the sale price of primary aluminum delivered will remain at fixed prices. Prior to the January 2003 agreement to terminate and settle the years 2005 though 2009 of the Original Sales Contract, the Company had been classifying and accounting for it as a Normal Sales contract under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." A 12 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) contract that is so designated and that meets other conditions established by SFAS No. 133 is exempt from the requirements of SFAS No. 133, although by its term the contract would otherwise be accounted for as a derivative instrument. Accordingly, prior to January, the Original Sales Contract was recorded on an accrual basis of accounting and changes in the fair value of the Original Sales Contract were not recognized. According to SFAS No. 133, it must be probable that at inception and throughout its term, a contract classified as "normal" will not result in a net settlement and will result in physical delivery. Because in January 2003 the Company and Glencore intended to net settle a significant portion of the Original Sales Contract, it no longer qualified for the "normal" exception of SFAS No. 133, requiring the Company to mark it to current fair value in its entirety. Accordingly, in the first quarter of 2003 the Company recorded a derivative asset and a pre-tax gain of $41.7 million. Of the total recorded gain, $26.1 million relates to the favorable terms of the Original Sales Contract for the years 2005 through 2009, and $15.6 million relates to the favorable terms of the Original Sales Contract for 2003 through 2004. The Company determined the fair value by estimating the excess of the contractual cash flows of the Original Sales Contract (using contractual prices and quantities) above the estimated cash flows of a contract based on identical quantities using LME-quoted prevailing forward market prices for aluminum plus an estimated U.S. Midwest Premium adjusted for delivery considerations. The Company discounted the excess estimated cash flows to present value using a discount rate of 7%. On April 1, 2003, the Company received $35.5 million from Glencore, $26.1 million of which relates to the settlement of the Original Sales Contract for the years 2005 through 2009, and $9.4 million of which represents the fair value of the New Sales Contracts, discussed below. The Company will account for the unsettled portion of the Original Sales Contract (years 2003 and 2004) as a derivative and will recognize period-to-period changes in fair value in current income. The Company will also account for the New Sales Contract as a derivative instrument under SFAS No. 133. The Company has not designated the New Sales Contract as "normal" because it replaces and substitutes for a significant portion of the Original Sales Contract which, after January 2003, no longer qualified for this designation. The $9.4 million initial fair value of the New Sales Contract is a derivative liability and represents the present value of the contract's favorable term to Glencore in that the New Sales Contract excludes in its variable price an estimated U.S. Midwest Premium, adjusted for delivery considerations. Because the New Sales Contract is variably priced, the Company does not expect significant variability in its fair value, other than changes that might result from the absence of the U.S. Midwest Premium. In connection with the acquisition of the Hawesville facility in April 2001, the Company entered into a 10-year contract with Southwire (the "Southwire Metal Agreement") to supply 240 million pounds of high-purity molten aluminum annually to Southwire's wire and cable manufacturing facility located adjacent to the Hawesville facility. Under this contract, Southwire will also purchase 60 million pounds of standard grade molten aluminum each year for the first five years of the contract, with an option to purchase an equal amount in each of the remaining five years. Prior to the acquisition of Glencore's interest in the Hawesville facility on April 1, 2003, the Company and Glencore were each responsible for providing a pro rata portion of the aluminum supplied to 13 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) Southwire under this contract. On April 1, 2003, in connection with the Company's acquisition of Glencore's interest in the Hawesville facility, the Company assumed Glencore's delivery obligations under the Southwire Metal Agreement. The price for the molten aluminum to be delivered to Southwire from the Hawesville facility is variable and will be determined by reference to the U.S. Midwest Market Price. This agreement expires on December 31, 2010, and will automatically renew for additional five-year terms, unless either party provides 12 months notice that it has elected not to renew. In connection with the 2003 acquisition of the 20% interest in the Hawesville facility, the Company entered into a ten-year contract with Glencore (the "Glencore Metal Agreement") from 2004 through 2013 under which Glencore will purchase approximately 45.0 million pounds per year of primary aluminum produced at the Ravenswood and Mt. Holly facilities, at prices based on then-current market prices, adjusted by a negotiated U.S. Midwest premium with a cap and a floor. Apart from the Pechiney Metal Agreement, the Glencore Metal Agreement, Original Sales Contract, New Sales Contract and Southwire Metal Agreement, the Company had forward delivery contracts to sell 193.6 million pounds and 329.0 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Of these forward delivery contracts, the Company had fixed price commitments to sell 36.2 and 42.9 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Of these forward delivery contracts, 19.3 million pounds and 0.3 million pounds at June 30, 2003 and December 31, 2002, respectively, were with the Glencore Group. The Company is party to long-term supply agreements with Glencore that extend through 2006 and provide that Glencore will supply a fixed quantity of alumina at prices indexed to the price of primary aluminum on the LME. In addition, as part of its acquisition of an additional 23% interest in the Mt. Holly facility, the Company assumed an alumina supply agreement with Glencore for its alumina requirements relative to the additional interest. This agreement terminates in 2008 and the price is indexed to the price of primary aluminum on the LME. As part of its acquisition of the Hawesville facility in 2001, the Company assumed a market based alumina supply agreement (the "Supply Agreement") with Kaiser which expires in 2005. In connection with its ongoing Chapter 11 bankruptcy proceedings, Kaiser filed a motion for an Order Authorizing the Assumption of Certain Critical Customer Supply Contracts (the "Motion"). The Motion was granted by the Bankruptcy Court on August 27, 2002. As a result, Kaiser has assumed the Supply Agreement and cured all existing defaults thereunder. All of Kaiser's continuing obligations under the Supply Agreement are to be performed in the ordinary course of its business and any claims the Company has under the Supply Agreement will be afforded administrative expense claim status pursuant to Section 503 of the Bankruptcy Code. On May 30, 2003, the Company entered into a new alumina supply contract with Kaiser. The new contract will cover all of the alumina requirements for the Hawesville facility operations for the period January 1, 2006 through December 31, 2008. The price of alumina purchased under this contract will be indexed to the price of primary aluminum on the LME. To mitigate the volatility in its market priced forward delivery contracts, the Company enters into fixed price financial sales contracts, which settle in cash in the period corresponding to the intended delivery dates of the forward delivery contracts. Certain of these financial sales contracts are accounted for as cash flow hedges depending on the Company's designation of each contract at its inception. At June 30, 2003 and December 31, 2002, the Company had financial instruments, 14 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) primarily with the Glencore Group, for 129.5 million pounds and 181.0 million pounds, respectively, of which 103.1 million pounds and 181.0 million pounds, respectively, were designated cash flows hedges. These financial instruments are scheduled for settlement at various dates in 2003 through 2004. The Company had no fixed price financial purchase contracts to purchase aluminum at June 30, 2003. Additionally, to mitigate the volatility of the natural gas markets, the Company enters into fixed price financial purchase contracts, accounted for as cash flow hedges, which settle in cash in the period corresponding to the intended usage of natural gas. At June 30, 2003 and December 31, 2002, the Company had financial instruments for 2.3 million and 1.5 million DTH (one decatherm is equivalent to one million British Thermal Units), respectively. These financial instruments are scheduled for settlement at various dates in 2003 through 2005. Based on the fair value of the Company's financial instruments as of June 30, 2003 accumulated other comprehensive income of $5,314 is expected to be reclassified to earnings over the next twelve month period. The forward financial sales and purchase contracts are subject to the risk of non-performance by the counterparties. However, the Company only enters into forward financial contracts with counterparties it determines to be creditworthy. If any counterparty failed to perform according to the terms of the contract, the accounting impact would be limited to the difference between the nominal value of the contract and the market value on the date of settlement. 8. Supplemental Cash Flow Information
Six months Ended June 30, ----------------------- 2003 2002 --------- --------- Cash paid for: Interest .......................................... $ 19,145 $ 18,571 Cash received for: Interest .......................................... 196 129 Income tax refunds ................................ -- 110 Seller financing related to the acquisition of the 20% interest in the Hawesville facility .................. 40,000 --
9. Asset Retirement Obligations In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement establishes standards for accounting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted the Standard during the first quarter of 2003. SFAS 143 requires that the Company record the fair value of a legal liability for an asset retirement obligation ("ARO") in the period in which it is incurred and capitalize the ARO by increasing the carrying amount of the related asset. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. The Company's asset retirement obligations consist primarily of costs associated with the removal and disposal of reduction plant spent pot liner. 15 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) With the adoption of SFAS 143 in the first quarter 2003, Century recorded an ARO asset of $8,718, net of accumulated amortization of $8,989 and a Deferred Tax Asset of $3,430. The net amount of applying the Statement is reported as a cumulative effect of a change in accounting principle. The Company recorded a one-time, non-cash charge of $5,878, for cumulative effect of a change in accounting principle. As of April 1, 2003, $1,795 of the additional ARO liability incurred for the six months ended June 30, 2003 relates to the assumption of the ARO liability associated with the acquisition of the 20% interest in the Hawesville facility. The reconciliation of the changes in the asset retirement obligations is presented below:
For the year ended For the Six months December 31, 2002 ended June 30, 2003 (Pro forma) ------------------- ----------------- Beginning Balance, ARO Liability .......... $ 17,902 $ 17,416 Additional ARO Liability incurred ......... 3,126 2,694 ARO Liabilities settled ................... (1,985) (3,645) Accretion Expense ......................... 778 1,437 -------- -------- Ending Balance, ARO Liability ............. $ 19,821 $ 17,902 ======== ========
10. New Accounting Standards In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company will apply the provisions of the Statement prospectively for any applicable contracts. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective for the Company beginning July 1, 2003. The Company has reviewed its current financial instruments and does not believe that any are within the scope of this Statement. The Company will apply the provisions of the Statement prospectively for any future financial instruments that are within the scope of this Statement. 16 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 11. Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
Six months ended June 30, 2003 2002 -------- -------- Net Income (Loss) ................................................... $ 12,588 $ (8,068) Other Comprehensive Income (Loss): Net unrealized gain on financial instruments, net of tax of ($531) and ($60), respectively ................................. 869 49 Net amount reclassified as income, net of tax of $2,417 and $893, respectively ............................................. (4,286) (1,624) Minimum Pension Liability Adjustment, net of tax of $1,122 ....... (1,995) -- -------- -------- Comprehensive Income (Loss) ......................................... $ 7,176 $ (9,643) ======== ========
Composition of Accumulated Other Comprehensive Income (Loss):
June 30, December 31, 2003 2002 -------- ------------ Net Unrealized gain on financial instruments, net of tax of ($2,944) and ($4,829) .................. $ 5,194 $ 8,611 Minimum Pension Liability adjustment, net of tax of $5,306 and $4,183 .......................................... (9,433) (7,438) ------- ------- Total Accumulated Other Comprehensive Income (Loss) ................. $(4,239) $ 1,173 ======= =======
12. Stock-Based Compensation The Company has elected not to adopt the recognition provisions for employee stock-based compensation as permitted in SFAS No. 123, "Accounting for Stock-Based Compensation". As such, the Company accounts for stock based compensation in accordance with Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees." No compensation cost has been recognized for the stock option portions of the plan because the exercise price of the stock options granted were equal to the market value of the Company's stock on the date of grant. Had compensation cost for the Stock Incentive Plan been determined using the fair value method provided under SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have changed to the pro forma amounts indicated below: 17 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited)
Six months ended June 30, 2003 2002 ---- ---- Net Income (Loss) applicable to common shareholders As Reported $ 11,588 $ (9,068) Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 198 86 Deduct: Total Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (547) (201) --------- --------- Pro forma Net Income (loss) $ 11,239 $ (9,183) ========= ========= Basic earnings (loss) per share As Reported $ 0.55 $ (0.44) Pro Forma $ 0.53 $ (0.45) Diluted earnings (loss) per share As Reported $ 0.56 $ (0.44) Pro Forma $ 0.54 $ (0.45)
13. Earnings Per Share The following table provides a reconciliation of the computation of the basic and diluted earnings (loss) per share for income from continuing operations:
Three months ended June 30, 2003 2002 ---------------------------------- ---------------------------------- Per- Per- Income Shares Share Income Shares Share -------- ------ --------- -------- ------ --------- Loss before cumulative effect of change in accounting principle $ (5,007) $ (4,600) Less: Preferred stock dividends (500) (500) -------- -------- Basic EPS: Loss applicable to common shareholders (5,507) 21,070 $ (0.26) (5,100) 20,554 $ (0.25) Effect of Dilutive Securities: Convertible preferred stock -- -- -- -- ------ ------ ------ ------ Diluted EPS: Loss applicable to common shareholders with assumed conversions $ (5,507) 21,070 $ (0.26) $ (5,100) 20,554 $ (0.25) ======== ====== ========= ======== ====== ========= Six months ended June 30, 2003 2002 ---------------------------------- ---------------------------------- Per- Per- Income Shares Share Income Shares Share -------- ------ --------- -------- ------ --------- Income (loss) before cumulative effect of change in accounting principle $ 18,466 $ (8,068) Less: Preferred stock dividends (1,000) (1,000) -------- -------- Basic EPS: Income (loss) applicable to common shareholders 17,466 21,070 $ 0.83 (9,068) 20,554 $ (0.44) Effect of Dilutive Securities: Convertible preferred stock 1,000 1,395 -- -- ------ ------ ------ ------ Diluted EPS: Income (loss) applicable to common shareholders with assumed conversions $ 18,466 22,465 $ 0.82 $ (9,068) 20,554 $ (0.44) ======== ====== ========= ======== ====== =========
Options to purchase 712,200 and 642,450 shares of common stock were outstanding during the periods ended June 30, 2003 and June 30, 2002, respectively. For 2003, these shares were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares during the period. In 2002, these shares and convertible preferred stock shares were not included in the computation of diluted earnings per share because the assumed conversion would have had an antidilutive effect on earnings per share. 18 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 14. Preferred and Common Stock Dividends In the fourth quarter of 2002, the Company suspended its common and preferred stock dividends. The action was taken because the Company was near the limits on allowable dividend payments under the covenants in its bond indenture and due to current economic conditions. In accordance with current accounting guidance, no liability for cumulative preferred dividends is recorded until the dividends are declared. As of June 30, 2003, the Company had total cumulative preferred dividend arrearages of $1,500 or $3.00 per preferred stock share. 15. Consolidating Condensed Financial Information The Company's 11 3/4% Senior Secured First Mortgage Notes due 2008 are jointly and severally and fully and unconditionally guaranteed by all of the Company's material consolidated subsidiaries, other than Century Aluminum of Kentucky LLC ("LLC") (the "Guarantor Subsidiaries"). As of June 30, 2003, the Company holds a 100% equity interest in LLC and as such consolidates 100% of the assets, liabilities and operations of LLC into its financial statements. Based on the joint ownership of LLC prior to April 1, 2003, LLC (the "Non-Guarantor Subsidiary") did not guarantee the Notes, and the Company has not caused its equity interests in LLC to be pledged as collateral for the Notes. The Company's interest in the Mt. Holly facility's property, plant and equipment has not been pledged as collateral. Other subsidiaries of the Company which are immaterial will not guarantee the Notes (collectively, the "Non-Guarantor Subsidiaries"). During 2001, the Company adopted a policy for financial reporting purposes of allocating expenses to subsidiaries. For the six months ended June 30, 2003 and 2002, the Company allocated total corporate expenses of $2.6 and $3.8 million to its subsidiaries, respectively. For the three months ended June 30, 2003 and 2002, the Company allocated total corporate expenses of $0.4 and $1.5 million to its subsidiaries, respectively. Additionally, the Company charges interest on certain intercompany balances. Because LLC is not a minor subsidiary, the Company is providing condensed consolidating financial information for the periods following the Company's acquisition of the Hawesville facility. The Notes contain customary covenants limiting the ability of both the Company and the Guarantor Subsidiaries to pay dividends, incur additional debt, make investments, sell assets or stock of certain 19 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) subsidiaries and purchase or redeem capital stock (see Note 5 to the Consolidated Financial Statements for information about the terms of the Notes). The following summarized condensed consolidating balance sheets as of June 30, 2003, and December 31, 2002, condensed consolidating statements of operations for the six and three month periods ended June 30, 2003 and 2002, and the condensed consolidating statements of cash flows for the six months ended June 30, 2003 and 2002 present separate results for Century Aluminum Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiary. This summarized condensed consolidating financial information may not necessarily be indicative of the results of operations or financial position had the Company, the Guarantor Subsidiaries or the Non-Guarantor Subsidiary operated as independent entities. 20 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING BALANCE SHEET As of June 30, 2003
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Assets: Cash and cash equivalents ............................ $ -- $ 19 $ 24,356 $ -- $ 24,375 Accounts receivables, net ............................ 50,279 139 -- -- 50,418 Due from affiliates .................................. 128,038 13,065 455,821 (576,531) 20,393 Inventory ............................................ 51,361 22,375 -- -- 73,736 Prepaid and other current assets ..................... 8,914 366 6,300 -- 15,580 --------- --------- --------- --------- --------- Total current assets ....................... 238,592 35,964 486,477 (576,531) 184,502 Investment in subsidiaries ........................... 87,888 -- 191,409 (279,297) -- Property, plant and equipment, net ................... 499,551 4,769 268 -- 504,588 Intangible asset ..................................... -- 108,304 -- -- 108,304 Due from affiliates - less current portion ........... 97 -- -- 97 Other non-current assets ............................. 13,659 -- 18,369 -- 32,028 --------- --------- --------- --------- --------- Total assets ............................... $ 839,787 $ 149,037 $ 696,523 $(855,828) $ 829,519 ========= ========= ========= ========= ========= Liabilities and shareholders' equity: Accounts payable, trade .............................. $ 14,812 $ 19,761 $ -- $ -- $ 34,573 Due to affiliates .................................... 26,412 1,626 109,360 (121,063) 16,335 Industrial revenue bonds ............................. 7,815 -- -- -- 7,815 Accrued and other current liabilities ................ 8,250 6,984 12,015 -- 27,249 Accrued employee benefits costs - current portion .... 8,848 822 1,285 -- 10,955 Deferred taxes - current portion ..................... 3,399 -- -- -- 3,399 --------- --------- --------- --------- --------- Total current liabilities .................. 69,536 29,193 122,660 (121,063) 100,326 --------- --------- --------- --------- --------- Senior Secured Notes Payable - net ................... -- -- 322,075 -- 322,075 Notes Payable - Affiliates ........................... -- -- 40,000 -- 40,000 Accrued Pension benefits Costs - less current portion 4,510 -- 8,075 -- 12,585 Accrued Postretirement Benefits Costs - less current portion .............................................. 50,732 23,357 565 -- 74,654 Other liabilities/Intercompany loan .................. 480,775 8,599 -- (455,398) 33,976 Deferred taxes - less current portion ................ 42,825 -- 3,581 (70) 46,336 --------- --------- --------- --------- --------- Total non-current liabilities .............. 578,842 31,956 374,296 (455,468) 529,626 --------- --------- --------- --------- --------- Shareholders' Equity: Convertible preferred stock .......................... -- -- 25,000 -- 25,000 Common stock ......................................... 59 -- 211 (59) 211 Additional paid-in capital ........................... 236,906 133,175 172,403 (370,081) 172,403 Accumulated other comprehensive income (loss) ........ (4,239) -- (4,239) 4,239 (4,239) Retained earnings (deficit) .......................... (41,317) (45,287) 6,192 86,604 6,192 --------- --------- --------- --------- --------- Total shareholders' equity ................. 191,409 87,888 199,567 (279,297) 199,567 --------- --------- --------- --------- --------- Total liabilities and equity ............... $ 839,787 $ 149,037 $ 696,523 $(855,828) $ 829,519 ========= ========= ========= ========= =========
21 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2002
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- ------- ----------------- ------------ Assets: Cash and cash equivalents .......................... $ 745 $ -- $ 44,347 $ -- $ 45,092 Accounts receivables, net .......................... 45,936 304 -- -- 46,240 Due from affiliates ................................ 87,071 10,102 353,292 (427,733) 22,732 Inventory .......................................... 55,877 21,258 -- -- 77,135 Prepaid and other current assets ................... 2,887 178 4,434 (2,722) 4,777 --------- --------- --------- --------- --------- Total current assets ....................... 192,516 31,842 402,073 (430,455) 195,976 Investment in subsidiaries ......................... 74,663 -- 184,234 (258,897) -- Property, plant and equipment - net ................ 416,590 780 251 -- 417,621 Intangible asset - net ............................. -- 119,744 -- -- 119,744 Due from affiliates - less current portion ......... 974 -- -- -- 974 Other Assets ....................................... 13,041 -- 17,811 -- 30,852 --------- --------- --------- --------- --------- Total assets .............................. $ 697,784 $ 152,366 $ 604,369 $(689,352) $ 765,167 ========= ========= ========= ========= ========= Liabilities and shareholders' equity: Accounts payable, trade ............................ $ 14,588 $ 23,169 $ -- $ -- $ 37,757 Due to affiliates .................................. 32,711 -- 64,243 (81,143) 15,811 Industrial revenue bonds ........................... -- 7,815 -- -- 7,815 Accrued and other current liabilities .............. 6,257 5,055 12,802 -- 24,114 Accrued employee benefits costs - current portion ............................................ 8,966 559 1,365 -- 10,890 Deferred Taxes - current portion ................... 7,763 -- -- (2,792) 4,971 --------- --------- --------- --------- --------- Total current liabilities .................. 70,285 36,598 78,410 (83,935) 101,358 --------- --------- --------- --------- --------- Long term debt - net ............................... -- -- 321,852 -- 321,852 Accrued Pension benefits Costs - less current portion .......................................... 3,771 -- 6,980 -- 10,751 Accrued Postretirement Benefits Costs - less current portion .................................... 48,335 21,840 481 -- 70,656 Other liabilities/Intercompany Loan ................ 354,297 599 -- (346,520) 8,376 Deferred taxes - less current portion .............. 36,862 -- 4,514 -- 41,376 --------- --------- --------- --------- --------- Total non-current liabilities .............. 443,265 22,439 333,827 (346,520) 453,011 --------- --------- --------- --------- --------- Minority interest .................................. -- -- -- 18,666 18,666 Shareholders' Equity: Convertible preferred stock ........................ -- -- 25,000 -- 25,000 Common stock ....................................... 59 -- 211 (59) 211 Additional paid-in capital ......................... 226,998 139,281 172,133 (366,279) 172,133 Accumulated other comprehensive income ............. 1,173 -- 1,173 (1,173) 1,173 Retained earnings (deficit) ........................ (43,996) (45,952) (6,385) 89,948 (6,385) --------- --------- --------- --------- --------- Total shareholders' equity ................. 184,234 93,329 192,132 (277,563) 192,132 --------- --------- --------- --------- --------- Total liabilities and equity ............... $ 697,784 $ 152,366 $ 604,369 $(689,352) $ 765,167 ========= ========= ========= ========= =========
22 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Three months Ended June 30, 2003
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Net sales: Third-party customers .................... $ 163,746 $ -- $ -- $ -- $ 163,746 Related parties .......................... 32,421 -- -- -- 32,421 --------- --------- --------- --------- --------- 196,167 -- -- -- 196,167 Cost of goods sold ............................ 183,810 87,171 -- (82,590) 188,391 Reimbursement from owners ..................... -- (82,624) -- 82,624 -- --------- --------- --------- --------- --------- Gross profit (loss) ........................... 12,357 (4,547) -- (34) 7,776 Selling, general and administrative expenses ................................... 4,086 -- -- -- 4,086 --------- --------- --------- --------- --------- Operating income (loss) ....................... 8,271 (4,547) -- (34) 3,690 Interest expense - Third Party ................ (10,324) (34) -- 28 (10,330) Interest expense - Affiliates ................. (1,000) -- -- -- (1,000) Interest income ............................... 45 -- -- -- 45 Net Gain on Forward Contracts ................. 211 -- -- -- 211 Other income (expense), net ................... (774) (2) -- 6 (770) --------- --------- --------- --------- --------- Loss before taxes ............................. (3,571) (4,583) -- -- (8,154) Income tax benefit ............................ 1,405 -- -- 1,742 3,147 --------- --------- --------- --------- --------- Net income (loss) before equity earnings (loss) of subsidiaries ............ (2,166) (4,583) -- 1,742 (5,007) Equity earnings (loss) of subsidiaries ........ (2,841) -- (5,007) 7,848 -- --------- --------- --------- --------- --------- Net income (loss) ............................. $ (5,007) $ (4,583) $ (5,007) $ 9,590 $ (5,007) ========= ========= ========= ========= =========
23 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Three Months Ended June 30, 2002
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- ------- ----------------- ------------ Net sales: Third-party customers .................... $ 148,377 $ -- $ -- $ -- $ 148,377 Related parties .......................... 31,959 -- -- -- 31,959 --------- --------- --------- --------- --------- 180,336 -- -- -- 180,336 Cost of goods sold ............................ 168,815 63,054 -- (56,489) 175,380 Reimbursement from owners ..................... -- (56,540) -- 56,540 -- --------- --------- --------- --------- --------- Gross profit (loss) ........................... 11,521 (6,514) -- (51) 4,956 Selling, general and administrative expenses ................................... 3,761 -- -- -- 3,761 --------- --------- --------- --------- --------- Operating income (loss) ....................... 7,760 (6,514) -- (51) 1,195 Interest expense - Third Party ................ (9,896) (33) -- 33 (9,896) Interest income ............................... 58 -- -- -- 58 Other income (expense), net ................... (132) (17) -- 17 (132) --------- --------- --------- --------- --------- Loss before taxes and minority interest ....... (2,210) (6,564) -- (1) (8,775) Income tax benefit ............................ 867 -- -- 1,995 2,862 --------- --------- --------- --------- --------- Net income (loss) before minority interest ................................... (1,343) (6,564) -- 1,994 (5,913) Minority interest ............................. -- -- -- 1,313 1,313 Equity earnings (loss) of subsidiaries ........ (3,257) -- (4,600) 7,857 -- --------- --------- --------- --------- --------- Net income (loss) ............................. $ (4,600) $ (6,564) $ (4,600) $ 11,164 $ (4,600) ========= ========= ========= ========= =========
24 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Six months Ended June 30, 2003
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------ --------- ----------------- ------------ Net sales: Third-party customers ....................... $ 317,201 $ -- $ -- $ -- $ 317,201 Related parties ............................. 57,975 -- -- -- 57,975 --------- --------- --------- --------- --------- 375,176 -- -- -- 375,176 Cost of goods sold ............................. 350,198 166,972 -- (157,476) 359,694 Reimbursement from owners ...................... -- (157,537) -- 157,537 -- --------- --------- --------- --------- --------- Gross profit (loss) ............................ 24,978 (9,435) -- (61) 15,482 Selling, general and administrative expenses .................................... 8,221 -- -- -- 8,221 --------- --------- --------- --------- --------- Operating income (loss) ........................ 16,757 (9,435) -- (61) 7,261 Interest expense - Third Party ................. (20,548) (61) -- 55 (20,554) Interest expense - Affiliates .................. (1,000) -- -- -- (1,000) Interest income ................................ 196 -- -- -- 196 Net Gain on Forward Contracts .................. 41,904 -- -- -- 41,904 Other income (expense), net .................... (490) (16) -- 6 (500) --------- --------- --------- --------- --------- Income (loss) before taxes ..................... 36,819 (9,512) -- -- 27,307 Income tax (expense) benefit ................... (13,067) -- -- 3,240 (9,827) --------- --------- --------- --------- --------- Net income (loss) before minority interest and cumulative effect of change in accounting principle .............. 23,752 (9,512) -- 3,240 17,480 Minority interest .............................. -- -- -- 986 986 --------- --------- --------- --------- --------- Net income (loss) before cumulative effect of change in accounting principle ................................... 23,752 (9,512) -- 4,226 18,466 Cumulative Effect of Change in Accounting Principle, net of $3,430 in tax ...................................... (5,878) -- -- -- (5,878) Equity earnings (loss) of subsidiaries ......... (5,286) -- 12,588 (7,302) -- --------- --------- --------- --------- --------- Net income (loss) .............................. $ 12,588 $ (9,512) $ 12,588 $ (3,076) $ 12,588 ========= ========= ========= ========= =========
25 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2002
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Net sales: Third-party customers ...................... $ 302,576 $ -- $ -- $ -- $ 302,576 Related parties ............................ 56,860 -- -- -- 56,860 --------- --------- --------- --------- --------- 359,436 -- -- -- 359,436 Cost of goods sold ............................ 334,043 126,041 -- (112,912) 347,172 Reimbursement from owners ..................... -- (113,006) -- 113,006 -- --------- --------- --------- --------- --------- Gross profit (loss) ........................... 25,393 (13,035) -- (94) 12,264 Selling, general and administrative expenses ................................... 7,938 -- -- -- 7,938 --------- --------- --------- --------- --------- Operating income (loss) ....................... 17,455 (13,035) -- (94) 4,326 Interest expense - Third Party ................ (20,155) (66) -- 66 (20,155) Interest income ............................... 129 -- -- -- 129 Other income (expense), net ................... (102) (28) -- 28 (102) --------- --------- --------- --------- --------- Loss before taxes and minority interest ....... (2,673) (13,129) -- -- (15,802) Income tax benefit ............................ 1,117 -- -- 3,991 5,108 --------- --------- --------- --------- --------- Net income (loss) before minority interest ................................... (1,556) (13,129) -- 3,991 (10,694) Minority interest ............................. -- -- -- 2,626 2,626 Equity earnings (loss) of subsidiaries ........ (6,512) -- (8,068) 14,580 -- --------- --------- --------- --------- --------- Net income (loss) ............................. $ (8,068) $ (13,129) $ (8,068) $ 21,197 $ (8,068) ========= ========= ========= ========= =========
26 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six months Ended June 30, 2003
Combined Combined Reclassifications Guarantor Non-guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- -------- ----------------- ------------ Net cash provided by operating activities ...... $ 47,283 $ 2,445 $ -- $ -- $ 49,728 -------- -------- -------- -------- -------- Investing activities: Purchase of property, plant and equipment, net ............................. (9,748) (421) (131) -- (10,300) Acquisition of minority interest ............ -- -- (59,837) -- (59,837) -------- -------- -------- -------- -------- Net cash used in investing activities ....... (9,748) (421) (59,968) -- (70,137) -------- -------- -------- -------- -------- Financing activities: Financing Fees .............................. -- -- (297) -- (297) Dividends ................................... -- -- (11) -- (11) Intercompany transactions ................... (38,280) (2,005) 40,285 -- -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities .................................... (38,280) (2,005) 39,977 -- (308) -------- -------- -------- -------- -------- Net increase (decrease) in cash ................ (745) 19 (19,991) -- (20,717) Cash, beginning of period ...................... 745 -- 44,347 -- 45,092 -------- -------- -------- -------- -------- Cash, end of period ............................ $ -- $ 19 $ 24,356 $ -- $ 24,375 ======== ======== ======== ======== ========
27 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2002
Combined Combined Reclassifications Guarantor Non-guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Net cash provided by operating activities ....... $ 10,839 $ 9,366 $ -- $ -- $ 20,205 -------- -------- -------- ------ -------- Investing activities: Purchase of property, plant and equipment, net ............................. (8,336) (2,516) -- -- (10,852) -------- -------- -------- ------ -------- Net cash used in investing activities ........ (8,336) (2,516) -- -- (10,852) -------- -------- -------- ------ -------- Financing activities: Dividends .................................... -- -- (2,563) -- (2,563) Intercompany transactions .................... (3,463) (6,850) 10,313 -- -- Issuance of common or preferred stock ........ -- -- 5 -- 5 -------- -------- -------- ------ -------- Net cash provided by (used in) financing activities ..................................... (3,463) (6,850) 7,755 -- (2,558) -------- -------- -------- ------ -------- Net increase (decrease) in cash ................. (960) -- 7,755 -- 6,795 Cash, beginning of period ....................... 1,020 -- 12,368 -- 13,388 -------- -------- -------- ------ -------- Cash, end of period ............................. $ 60 $ -- $ 20,123 $ -- $ 20,183 ======== ======== ======== ====== ========
28 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" and "Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk." 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 2002 Form 10-K along with the consolidated financial statements and related footnotes included within the Form 10-K. 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following discussion reflects Century's historical results of operations. Century's financial highlights include:
Three months ended Six months ended June 30, June 30, ----------------------------- ---------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- (dollars in thousands, except per share amounts) Net sales Third-party customers ............................. $ 163,746 $ 148,377 $ 317,201 $ 302,576 Related party customers .......................... 32,421 31,959 57,975 56,860 --------- --------- --------- --------- Total ............................................... $ 196,167 $ 180,336 $ 375,176 $ 359,436 ========= ========= ========= ========= Net income (loss) ................................... $ (5,007) $ (4,600) $ 12,588 $ (8,068) Net income (loss) applicable to common shareholders ............................. $ (5,507) $ (5,100) $ 11,588 $ (9,068) Earnings (loss) per share - basic ................... $ (0.26) $ (0.25) $ 0.55 $ (0.44) Earnings (loss) per share - diluted ................. $ (0.26) $ (0.25) $ 0.56 $ (0.44)
Net sales. Net sales for the three months ended June 30, 2003 increased approximately $15.8 million to $196.2 million from $180.3 million for the same period in 2002, primarily as a result of a 27.5 million pound increase in shipment volume in the current quarter. The increased shipment volume in the current quarter was a direct result of the April 1, 2003, acquisition of the 20% interest in its Hawesville Kentucky primary aluminum reduction facility (collectively, the "Acquired Assets"). Shipment volume for the three months ended June 30, 2003 totaled 290.0 million pounds vs. 262.5 million pounds for the same period in 2002. The increased shipment volume accounted for an $18.9 million increase in net sales which was partially offset by a $3.1 million reduction in realized price. Price realizations were down in the three month period ended June 30, 2003 as a result of excluding the beneficial effects of the above market, 110.0 million pound annual metal delivery, fixed price contract that remains in place for 2003 and 2004 (see the discussion of the contract termination in Note 7 to the Consolidated Financial Statements). In compliance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the Company marked the entire contract to market in the first quarter of 2003, resulting in a before tax gain of $15.6 million in that quarter. Net Sales for the second quarter 2003 would have been increased by $3.5 million had the Company accounted for the contract on the same basis as last year. Net sales for the six months ended June 30, 2003 increased $15.7 million. Shipment volume increased 21.6 million pounds to 547.1 million pounds from 525.5 million pounds from the 30 same period in 2002. The increased shipment volume, primarily a result of the acquisition of the "Acquired Assets" on April 1, 2003, accounted for an increase of $14.8 million with the remaining increase of $0.9 million due to higher realized prices in the current six month period partially offset by the mark to market impact discussed in the preceding paragraph. Gross profit. Gross profit for the three months ended June 30, 2003 increased $2.8 million from the same period in 2002. The additional $15.8 million in Net sales in the current quarter were offset by Cost of goods sold increases of $13.0 million, primarily a result of higher shipment volumes as disclosed in the previous paragraph. Net reductions of $1.0 million in depreciation and power contract amortization costs and higher LCM credits of $1.0 million partially offset the increase in cost of goods sold due to the volume increase. For the six months ended June 30, 2003, gross profit increased $3.2 million from the same period in 2002. The increase is primarily due to the additional shipment volume in the current quarter. Selling, general and administrative expenses. Selling, general and administrative expenses for the three month and six month periods ending June 30, 2003 increased $0.3 million from the same periods in 2002. Selling, general and administrative expenses as a percentage of revenue remained consistent at 2.2% for the six months ended June 30, 2003 compared to 2.2% for the six months ended June 30, 2002. Operating income. Operating income for the three month and six month periods ending June 30, 2003 increased $2.5 million and $2.9 million respectively from the same periods in 2002 for the reasons discussed above. Interest Expense - third party. Third party interest expense during the three months and six months ended June 30, 2003 increased $0.4 million from the same periods in 2002. The increase is due primarily to less capitalized interest in the current year period. Interest Expense - related party. Related party interest expense during the three month and six month periods ending June 30, 2003 was $1.0 million as a result of interest charges on the Glencore Note associated with the acquisition of the Acquired Assets on April 1, 2003 (see the discussion of the Glencore Note in Note 5 to the Consolidated Financial Statements). Net Gain on Forward Contracts. Net Gain on Forward Contracts for the three and six month periods ending June 30, 2003 were $0.2 million and $41.9 million respectively with no gain or loss reported for the same periods in 2002. On April 1, 2000, the Company entered into an agreement, expiring December 31, 2009, with Glencore to sell and deliver monthly, primary aluminum totaling approximately 110.0 million pounds per year at a fixed price for the years 2002 through 2009 (the "Original Sales Contract"). In January 2003, Century and Glencore agreed to terminate and settle the Original Sales Contract for the years 2005 through 2009 (see the discussion of the contract termination in Note 7 to the Consolidated Financial Statements). Because the Company and Glencore intended to net settle a significant portion of the Original Sales Contract, it no longer qualified for the "normal" exception of SFAS No. 133, requiring the Company to mark it to current fair value in its entirety. Accordingly, in the first quarter of 2003 the Company recorded a derivative asset and a pre-tax gain of $41.7 million. No gain or loss on forward contracts was recognized in the three or six month periods ended June 30, 2002 because delivery on the contract under its original fixed price terms was 31 considered probable and the contract qualified as a normal sales contract under SFAS 133, as amended. Other Expense. Other Expense for the three months ended June 30, 2003 increased $0.6 million from the same period in 2002. The increase is primarily due to write-offs of certain fixed assets in the current quarter. For the six months ended June 30, 2003, Other Expense increased $0.4 million from the same period in 2002 for the reasons discussed above, offset by a gain on disposal of assets in the first quarter of 2003. Tax Provision/Benefit. Income tax benefit for the three months ended June 30, 2003 increased $0.3 million from the same period in 2002. For the six months ended June 30, 2003 income tax expense increased $14.9 million from the same period in 2002. The change in income taxes was due to the $43.1 million increase in the Income (Loss) Before Income Taxes in the six months ended June 30, 2003 compared to the same period in 2002. The increase in Income (Loss) Before Income Taxes was primarily the result of the Net Gain on Forward Contracts discussed above. Minority Interest. Prior to the acquisition of the Acquired Assets, Minority interest reflected Glencore's interest in the net operating results of Century Aluminum of Kentucky LLC, ("LLC") which included Glencore's 20% share of the power contract amortization expense. Subsequent to the acquisition of the Acquired Assets, the Company no longer has a minority interest. Cumulative Effect of Change in Accounting Principle. The Company adopted Financial Accounting Standard No. 143, "Accounting for Asset Retirement Obligations" during the three months ended March 31, 2003. The cumulative effect of adopting this standard was a one-time, non-cash charge of $5.9 million, net of tax of $3.4 million. Net Income or Loss. Net loss for the three months ended June 30, 2003 increased $0.4 million from the same period in 2002. Net income for the six months ended June 30, 2003 increased $20.7 million from the same period in 2002. The reasons for the change in profitability are discussed above. Liquidity and Capital Resources Revolving Credit Facility On January 14, 2003, Moody's Investor Service ("Moody's") issued an announcement revising its long-term debt ratings for the Company. Moody's lowered the rating on the Company's senior secured revolving credit facility from Ba2 to Ba3. The availability of funds under the revolving credit facility is subject to a $30.0 million reserve and limited by a specified borrowing base consisting of certain eligible accounts receivable and inventory. The Company expects that the borrowing base, less the reserve, will 32 permit the Company to borrow approximately $50.0 to $60.0 million under the revolving credit facility. Working Capital Working capital was $84.2 million at June 30, 2003. The Company believes that its working capital will be consistent with past experience and that cash flow from operations and borrowing availability under the revolving credit facility should be sufficient to meet working capital needs. Historical The Company's statements of cash flows for the six months ended June 30, 2003 and 2002 are summarized below:
Six months ended June 30, 2003 2002 -------- -------- (dollars in thousands) Net cash provided by operating activities .......... $ 49,728 $ 20,205 Net cash used in investing activities .............. (70,137) (10,852) Net cash used in financing activities .............. (308) (2,558) -------- -------- Increase (Decrease) in cash ........................ $(20,717) $ 6,795 ======== ========
Net cash from operating activities in the first six months of 2003 was $29.5 million higher than the same period in 2002. Cash flows from operating activities increased primarily due to the $35.5 million settlement received during the current quarter for the termination of the Original Sales Contract and entering the New Sales Contract with Glencore for the years 2005 through 2009. The Company's net cash used for investing activities during the six month periods ended June 30, 2003 increased $59.3 million from the same period in 2002 with $59.8 million of the increase being a direct result of the acquisition of the Acquired Assets on April 1, 2003. Net cash used in financing activities during the six month period ending June 30, 2003 decreased $2.3 million due to the suspension of common and preferred stock dividend payments. Century suspended its common and preferred stock dividends in the fourth quarter of 2002 because the Company was near the limits on allowable dividend payments under the covenants in its bond indenture. 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 $1.8 million and $1.4 million at June 30, 2003 and December 31, 2002, respectively. The Company believes that 33 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 may change, and the Company may become subject to more stringent environmental laws and regulations in the future. 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 6 to the Consolidated Financial Statements contained herein. The Company may be required to make post-closing payments to Southwire up to an aggregate maximum of $7.0 million if the price of primary aluminum on the LME exceeds specified levels during the seven years following closing of the Hawesville acquisition in 2001. Prior to April 1, 2003, Glencore was responsible for its pro rata portion of any post-closing payments made to Southwire. After April 1, 2003, with the completion of the acquisition of the 20% interest in the Hawesville facility owned by Glencore, the Company assumed Glencore's obligations for any future post-closing payments to Southwire that may be required. New Accounting Standards In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company will apply the provisions of the Statement prospectively for any applicable contracts. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective for the Company beginning July 1, 2003. The Company has reviewed its current financial instruments and does not believe that any are within the scope of this Statement. The Company will apply the provisions of the Statement prospectively for any future financial instruments that are within the scope of this Statement. 34 Item 3. Quantitative and Qualitative Disclosures About Market Risk Commodity Prices The Company manages its exposure to fluctuations in the price of primary aluminum by selling aluminum at fixed prices for future delivery and through financial instruments as well as by purchasing alumina under supply contracts with prices tied to the same indices as the Company's aluminum sales contracts. The Company's risk management activities do not include trading or speculative transactions. Although the Company has not materially participated in the purchase of call or put options, in cases where Century sells forward primary aluminum, it may purchase call options to benefit from price increases which are significantly above forward sales prices. In addition, it may purchase put options to protect itself from price decreases. In connection with the sale of its aluminum fabricating businesses to Pechiney in September 1999, the Company entered into the Pechiney Metal Agreement, pursuant to which Pechiney purchases, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum produced at the Ravenswood Facility at a variable price referenced to the U.S. Midwest market price. On April 1, 2000, the Company entered into an agreement, expiring December 31, 2009, with Glencore to sell and deliver monthly, primary aluminum totaling approximately 110.0 million pounds per year at a fixed price for the years 2002 through 2009. In January 2003, Century and Glencore agreed to terminate and settle the Original Sales Contract for the years 2005 through 2009. At that time, the parties entered into a new contract (the "New Sales Contract") that requires Century to deliver the same quantity of primary aluminum as did the Original Sales Contract for these years. However, the New Sales Contract provides for variable pricing for the years 2005 through 2009, equal to the monthly average price of aluminum as quoted by the LME for the month preceding delivery of the primary aluminum. For deliveries in the years 2003 and 2004, the sale price of primary aluminum delivered will remain at fixed prices. Prior to the January 2003 agreement to terminate and settle the years 2005 though 2009 of the Original Sales Contract, the Company had been classifying and accounting for it as a Normal Sales contract under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." A contract that is so designated and that meets other conditions established by SFAS No. 133 is exempt from the requirements of SFAS No. 133, although by its term the contract would otherwise be accounted for as a derivative instrument. Accordingly, prior to January, the Original Sales Contract was recorded on an accrual basis of accounting and changes in the fair value of the Original Sales Contract were not recognized. According to SFAS No. 133, it must be probable that at inception and throughout its term, a contract classified as "normal" will not result in a net settlement and result in physical delivery. Because in January 2003 the Company and Glencore intended to net settle a significant portion of the Original Sales Contract, it no longer qualified for the "normal" exception of SFAS No. 133, requiring the Company to mark it to current fair value in its entirety. Accordingly, in the first quarter of 2003 the Company recorded a derivative asset and a pre-tax gain of $41.7 35 million. Of the total recorded gain, $26.1 million relates to the favorable terms of the Original Sales Contract for the years 2005 through 2009, and $15.6 million relates to the favorable terms of the Original Sales Contract for 2003 through 2004. In connection with the Hawesville acquisition, the Company entered into the Southwire Metal Agreement with Southwire to supply 240.0 million pounds of high-purity molten aluminum per year to Southwire's wire and cable manufacturing facility located adjacent to the Hawesville facility at a price determined by reference to the U.S. Midwest Market Price. Under this contract, Southwire will also purchase 60.0 million pounds of standard-grade molten aluminum each year for the first five years of the contract, with an option to purchase an equal amount in each of the remaining five years. The Company and Glencore are each responsible for providing a pro rata portion of the aluminum supplied to Southwire under the Southwire Metal Agreement. In connection with the acquisition of the 20% interest in the Hawesville facility owned by Glencore on April 1, 2003, the Company assumed Glencore's delivery obligations under the Southwire Metal agreement. Apart from the Pechiney Metal Agreement, Glencore Metal Agreement, Original Sales Contract, New Sales Contract and Southwire Metal Agreement the Company had forward delivery contracts to sell 193.6 and 329.0 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Of these forward delivery contracts, the Company had fixed price commitments to sell 36.2 and 42.9 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Forward delivery contracts of 19.3 million pounds and 0.3 million pounds at June 30, 2003 and December 31, 2002, respectively, were with the Glencore Group. The Company is party to long-term supply agreements to purchase alumina with Glencore that extend through 2006. These agreements provide for a fixed quantity of alumina at prices determined by a market-based formula (as such term is described below). In addition, as part of its acquisition of an additional 23% interest in the Mt. Holly Facility, the Company assumed a supply agreement with Glencore for the alumina raw material requirements relative to the additional interest. The unit cost is also determined by a market-based formula. This alumina supply agreement terminates in 2008. As part of its Hawesville acquisition, the Company assumed an alumina supply agreement with Kaiser. That agreement will terminate in 2005 and is a variable priced market based contract. See the discussion of the Kaiser Bankruptcy information at Note 7 to the Consolidated Financial Statements. On May 30, 2003, the Company announced that it had entered into a new alumina supply contract with Kaiser. The new contract will cover all of the alumina requirements for the Hawesville facility operations for the period January 1, 2006 through December 31, 2008. The price of alumina purchased under the foregoing contracts will be indexed to the price of primary aluminum on the LME. At June 30, 2003 and December 31, 2002, the Company had entered into 129.5 million pounds and 181.0 million pounds, respectively, of fixed priced forward primary aluminum financial sales contracts primarily with the Glencore Group to mitigate the risk of commodity price fluctuations inherent in its business. Certain of these financial sales contracts are accounted for as cash flow hedges depending on the Company's designation of each contract at its inception. At June 30, 2003 and December 31, 2002, 103.1 million pounds and 181.0 million pounds, respectively, were designated cash flows hedges. These contracts will be 36 settled in cash at various dates in 2003 and 2004. Additionally, in order to mitigate the volatility of the natural gas markets, the Company enters into fixed price forward financial purchase contracts, which settle in cash in the period corresponding to the intended usage of natural gas. At June 30, 2003 and December 31, 2002, the Company had financial instruments for 2.3 million and 1.5 million DTH of natural gas, respectively (one decatherm, or DTH, is equivalent to one million British Thermal Units). These financial instruments are accounted for as cash flow hedges and are scheduled for settlement at various dates in 2003 through 2005. On a hypothetical basis, a $0.01 per pound increase or decrease in the market price of primary aluminum is estimated to have an unfavorable or favorable impact of $0.6 million after tax on accumulated other comprehensive income and $0.2 million on Net income for the period ended June 30, 2003 as a result of the forward primary aluminum financial sale contracts entered into by the Company at June 30, 2003. On a hypothetical basis, a $0.50 per DTH decrease or increase in the market price of natural gas is estimated to have an unfavorable or favorable impact of $0.7 million after tax on accumulated other comprehensive income for the period ended June 30, 2003 as a result of the forward natural gas financial purchase contracts entered into by the Company at June 30, 2003. The Company's metals and natural gas risk management activities are subject to the management, control and direction of senior management. The metals related activities are regularly reported to the Board of Directors of Century. 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 forward delivery contracts, or the offsetting impact upon the sales price of primary aluminum products. Because all of the Company's alumina contracts are indexed to the LME price for aluminum, beginning in 2002, they act as a natural hedge for approximately 25% of the Company's production. Interest Rates The Company's primary debt obligations are the outstanding Notes, the Glencore Note, borrowings under its revolving credit facility and the industrial revenue bonds the Company assumed in connection with the Hawesville acquisition. Because the Notes and the Glencore Note bear a fixed rate of interest, changes in interest rates do not subject the Company to changes in future interest expense with respect to the outstanding notes. Borrowings under the Company's revolving credit facility, if any, are at variable rates at a margin over LIBOR or the Fleet National Bank base rate, as defined in the revolving credit facility. The industrial revenue bonds bear interest at variable rates determined by reference to the interest rate of similar instruments in the industrial revenue bond market. At June 30, 2003 and December 31, 2002, the Company had $7.8 million of variable rate borrowings. A hypothetical 1% increase in the interest rate would increase the Company's annual interest expense by $0.1 million, assuming no debt reduction. The Company's primary financial instruments are cash and short-term investments, including cash in bank accounts and other highly rated liquid money market investments and government securities. 37 Item 4. Controls and Procedures a. Evaluation of Disclosure Controls and Procedures As of June 30, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Company's Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. b. Changes in Internal Control over Financial Reporting There have been no significant changes in the Company's internal controls over financial reporting during the three month period ended June 30, 2003. 38 Part II. OTHER INFORMATION Item 3. Defaults Upon Senior Securities (a) Material Defaults of indebtedness - None (b) Dividend Arrearages - As of June 30, 2003, the Company had total preferred dividend arrearages on its 8.0% cumulative convertible preferred stock of $1.5 million or $3.00 per share of preferred stock. Item 4. Submission of Matters to a Vote of Stockholders The Annual Meeting of Stockholders was held June 24, 2003. The following are the results of Stockholder voting on proposals that were presented and adopted: 1. The election of the following directors for a term of three (3) years expiring at the Annual Meeting of Stockholders to be held in 2006: For Withheld --- -------- Roman A. Bninski 20,221,333 215,340 Stuart M. Schreiber 20,219,581 217,092 Willy R. Strothotte 19,765,163 671,510 2. To amend the Restated Certificate of Incorporation of the Company to increase the maximum number of directors authorized to serve on the Board of Directors from nine (9) to eleven (11). For 20,181,061 Against 68,895 Withheld 186,716 Broker Non-Vote 0 3. To ratify the appointment of Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ending December 31, 2003. For 20,100,909 Against 333,501 Withheld 2,263 Broker Non-Vote 0 39 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - Exhibit No. Exhibit Description ----------- ------------------- 3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Company, dated June 24, 2003. 3.2 Restated Bylaws of the Company (as amended through June 24, 2003.) 4.1 Amendment to Indenture, dated as of May 5, 2003, by and among the Company, the Guarantors party thereto and Wilmington Trust Company 10.1* Alumina Purchase Agreement, dated as of December 18, 1997, by and between Kaiser Aluminum and Chemical Corporation ("Kaiser") and Southwire Company ("Southwire") 10.2 Consent to Assignment and Guarantee, dated as of April 2, 2001, by and among Kaiser, the Company and Century Aluminum of Kentucky LLC ("CAK") 10.3* Alumina Purchase Agreement, dated as of May 26, 2003, by and between Kaiser and CAK. 31.1 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 31.2 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). *Confidential information has been omitted from this exhibit pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission. 40 (b) Reports on Form 8-K - During the quarter ended June 30, 2003, the Company filed the following three reports on Form 8-K with the Securities and Exchange Commission: 1. Form 8-K dated April 1, 2003, reporting the Company's acquisition of the remaining 20 percent interest in the Hawesville, KY aluminum reduction plant owned by Glencore. 2. Form 8-K dated April 29, 2003, attaching the Company's earnings report for the quarter ended March 31, 2003. 3. Form 8-K dated May 30, 2003, reporting that the Company entered into a new alumina supply contract with Kaiser covering the Hawesville facility's requirements for the period from January 1, 2006 through December 31, 2008. 41 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: August 11, 2003 By: /s/ Gerald A. Meyers --------------- ----------------------------------------------- Gerald A. Meyers Chief Executive Officer and President Date: August 11, 2003 By: /s/ David W. Beckley --------------- ----------------------------------------------- David W. Beckley Executive Vice-President/Chief Financial Officer 42 EXHIBIT INDEX Exhibit No. Exhibit Description ----------- ------------------- 3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Company, dated June 24, 2003. 3.2 Restated Bylaws of the Company (as amended through June 24, 2003.) 4.1 Amendment to Indenture, dated as of May 5, 2003, by and among the Company, the Guarantors party thereto and Wilmington Trust Company 10.1* Alumina Purchase Agreement, dated as of December 18, 1997, by and between Kaiser Aluminum and Chemical Corporation ("Kaiser") and Southwire Company ("Southwire") 10.2 Consent to Assignment and Guarantee, dated as of April 2, 2001, by and among Kaiser, the Company and Century Aluminum of Kentucky LLC ("CAK") 10.3* Alumina Purchase Agreement, dated as of May 26, 2003, by and between Kaiser and CAK. 31.1 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 31.2 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). *Confidential information has been omitted from this exhibit pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.