1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 0-27918 ------------------------ CENTURY ALUMINUM COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <TABLE> <S> <C> DELAWARE 13-3070826 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2511 GARDEN ROAD, BUILDING A, SUITE 200, MONTEREY, CALIFORNIA 93940 (ADDRESS OF REGISTRANT'S PRINCIPAL OFFICES) (ZIP CODE) </TABLE> REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (831) 642-9300 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF EACH CLASS COMMON STOCK, $0.01 PAR VALUE PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 14, 2001, 20,359,370 shares of common stock of the registrant were issued and outstanding. Based upon the NASDAQ closing price on February 14, 2001, the aggregate market value of the common stock held by non-affiliates of the registrant was $182,986,183. DOCUMENTS INCORPORATED BY REFERENCE: None - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 PART I. FORWARD-LOOKING STATEMENTS -- CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995. This annual report on Form 10-K 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 1 -- Business," "Part II, Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Part II, Item 8 -- Financial Statements and Supplementary Data." 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. ITEM 1. BUSINESS Century Aluminum Company ("Century" or the "Company") is a leading North American producer of primary aluminum. Century's principal subsidiary, Century Aluminum of West Virginia, Inc. ("Century of West Virginia"), formerly known as Ravenswood Aluminum Corporation, owns and operates a reduction facility, strategically located on the Ohio River in Ravenswood, West Virginia ("Ravenswood"). Century of West Virginia, through its wholly owned subsidiary, Berkeley Aluminum, Inc. ("Berkeley"), also owns a 49.67% undivided interest in a reduction facility in Mt. Holly, South Carolina ("Mt. Holly"). The remaining undivided interest in Mt. Holly is owned by a wholly-owned subsidiary of Alcoa, Inc. The Alcoa entity also operates Mt. Holly. Century's reduction facilities have an aggregate annual capacity of approximately 613 million pounds of primary aluminum. In 2000, Century produced 573 million pounds of primary aluminum. The Company operates in one business segment. Prior to April 1996, the Company was an indirect, wholly owned subsidiary of Glencore International AG ("Glencore" and, together with its subsidiaries, the "Glencore Group"). In April 1996, the Company completed an initial public offering of its common stock. At December 31, 2000, the Glencore Group owned 39% of Century's common shares outstanding. On August 31, 2000, the Company entered into a stock purchase agreement with Southwire Company ("Southwire"), a privately held wire and cable manufacturing company. Under this agreement, the Company anticipates acquiring all of the outstanding equity securities of Metalsco Ltd., a wholly-owned subsidiary of Southwire which owns NSA Ltd. ("NSA") an entity that operates an aluminum reduction plant in Hawesville, Kentucky (the "Hawesville facility"). The Hawesville facility has the capacity to produce 237,000 metric tons (523 million pounds) of primary aluminum per year. The Company also anticipates acquiring from Southwire, certain land, facilities and rights related to NSA's aluminum reduction operations which are not held by NSA. The purchase price is $460.0 million plus the assumption of $7.8 million in industrial revenue bonds and is subject to certain post-closing adjustments. Following the sale of the Hawesville facility to the Company, the Company has agreed it will sell molten metal at a market-based price to Southwire's rod and wire mill which is adjacent to the Hawesville facility. The Company and Glencore have entered into a memorandum of understanding under which Glencore will effectively purchase a 20% undivided interest in the Hawesville facility. To support the Company's financing of the transaction, Glencore also will purchase $25.0 million in convertible preferred stock of the 1
3 Company. This stock will have a coupon of 8% and be convertible into the Company's common stock at a 20% premium over the common stock's average price during the 20 trading days immediately prior to March 23, 2001. Completion of the purchase is contingent upon, among other matters, the Company concluding financing for the acquisition. Effective April 1, 2000, Century, through its wholly-owned indirect subsidiary Berkeley, increased its 26.67% undivided interest in Mt. Holly to 49.67% by purchasing a 23% undivided interest from Xstrata AG ("Xstrata"), a publicly traded Swiss company. As part of the purchase, Berkeley also acquired Xstrata's 23% interest in the general partnership which operates and maintains Mt. Holly (the "Operating Partnership", and together with Mt. Holly, the "Mt. Holly Assets"). Prior to Berkeley's purchase of the Mt. Holly Assets, it held a 26.67% undivided interest in Mt. Holly and in the Operating Partnership. Glencore is a major shareholder of Xstrata. The sale was completed pursuant to an Asset Purchase Agreement dated as of March 31, 2000 (the "Mt. Holly Purchase Agreement") by and between Berkeley and Xstrata. The aggregate purchase price for the Mt. Holly Assets was $94.7 million. Under the terms of the Mt. Holly Purchase Agreement, Berkeley agreed to assume certain of Xstrata's obligations and liabilities relating to the Mt. Holly Assets. The terms of the Mt. Holly Purchase Agreement were determined through arms'-length negotiations between the parties. The Company used available cash to complete the purchase. Mt. Holly has the capacity to produce up to 480 million pounds of primary aluminum per year. Century's 49.67% ownership represents 238.4 million pounds of this capacity. On September 21, 1999, the Company completed the sale to Pechiney Rolled Products, LLC, a Delaware limited liability company ("Pechiney"), of certain assets and the assumption of certain liabilities of Century of West Virginia's rolled products unit at Ravenswood, West Virginia (the "Rolling Business") and all of the issued and outstanding shares of common stock of Century Cast Plate, Inc. (together the "fabricating businesses"). In connection with the sale of the fabricating businesses, Century of West Virginia and Pechiney entered into a Molten Aluminum Purchase Agreement dated as of September 21, 1999 (the "Metal Agreement"). Pursuant to the Metal Agreement, Pechiney has agreed to purchase, and Century of West Virginia has agreed to provide, approximately 320 million pounds of molten aluminum produced at Ravenswood for a price which is variable and determined by reference to a U.S. Midwest Market Index. In addition, Pechiney has agreed to provide casting services to Century of West Virginia in connection with the excess molten aluminum produced at Ravenswood which is not purchased by Pechiney under the Metal Agreement. Ravenswood produces primary aluminum in molten and ingot form. Molten metal is delivered to the casting operation sold by the Company to Pechiney. Ingot produced by Ravenswood is primarily delivered to customers other than Pechiney. Through its interest in the Mt. Holly Facility, Century produces primary aluminum products in the form of t-ingot, extrusion billet, rolling ingot and foundry ingot. Extrusion billet and other shaped primary aluminum products are considered to be premium products and, accordingly, sell at a premium to the commodity-priced aluminum ingot. The Mt. Holly Facility, constructed in 1980, is the most recently built reduction facility in the United States. Since January 1, 1996, Century's requirements for alumina, the raw material used by its reduction facilities to produce primary aluminum, have been purchased pursuant to a long-term fixed-price supply agreement with Alcoa L.L.C. and Alcoa Australia. This supply agreement will terminate at the end of 2001 and be replaced by a new long-term alumina supply agreement between the Company and Glencore. This new alumina supply agreement provides for a fixed quantity of alumina at prices determined by a market based formula. In conjunction with the purchase of an additional 23% ownership interest in Mt. Holly, the Company assumed an alumina supply agreement, also with Glencore, that provides for a fixed quantity of alumina at prices determined by a market based formula. The Company uses significant amounts of electricity in the aluminum reduction process. To fulfill its power requirements at Ravenswood, the Company purchases electricity from Ohio Power under a long-term, fixed price power supply agreement. Electrical power for Mt. Holly is provided pursuant to a contract with the South Carolina Public Service Authority. That contract provides fixed pricing but is subject to modification for fuel adjustments and demand sales. 2
4 Subsequent to the purchase of an additional 23% interest in Mt. Holly from Xstrata, the Company entered into a ten year agreement with Glencore to sell approximately 110.0 million pounds of primary aluminum products per year. Selling prices for 2000 and 2001 are determined by a market based formula. Selling prices for the years 2002 through 2009 are at a fixed price as defined in the agreement. INDUSTRY OVERVIEW The aluminum industry is highly cyclical, and the market prices of alumina and primary aluminum (which is traded as a commodity) have been volatile from time to time. The most commonly used indicator for pricing primary aluminum is the price per metric tonne for transactions on the London Metals Exchange ("LME"). The LME price does not represent the actual price for the Company's products; rather, it is the most commonly used benchmark for pricing primary aluminum in the aluminum industry. Because primary aluminum is an actively traded commodity, prices have fluctuated widely. Over the past 10 years, the average LME cash price has ranged from a low of $0.52 per pound in 1993 to a high of $0.82 per pound in 1995. In 1998, selling by investment funds, consumer hesitation in anticipation of lower prices and economic uncertainty in Asian markets depressed the LME cash price. Prices continued to decline early in 1999 but rebounded as the year progressed, primarily due to improving worldwide economic conditions. In 2000, prices continued to improve during the first quarter but softened somewhat for the rest of the year. The average LME cash price was $0.70, $0.62 and $0.62 per pound for the years ended December 31, 2000, 1999 and 1998, respectively. PRODUCTS AND MARKETS The Company produces and sells primary aluminum, including premium primary product such as rolling ingot and extrusion billet. The Company's strategy is to maximize smelter productivity and minimize related operating costs. The Company intends to implement this strategy through process improvement initiatives and strategic acquisitions which reduce its overall cost of producing molten metal. For instance, the recent acquisition of Xstrata's interest in Mt. Holly increased the Company's capacity by approximately 110 million pounds and reduced its overall average cash cost of production. The Company expects the acquisition of NSA, if completed, will further reduce its overall average cash cost of production. COMPETITION The market for primary aluminum is diverse and highly competitive. The Company competes in the production and sale of primary aluminum with numerous other producers in North America and with imported products, principally from Europe, Venezuela and the Commonwealth of Independent States. The Company competes on the basis of quality, price, timeliness of delivery and customer service. Some of the Company's competitors have substantially greater manufacturing and financial resources, and some have cost structures with respect to alumina, electricity and labor that are more advantageous than those of the Company. Among the Company's principal competitors are Alcoa, Alcan and Kaiser Aluminum. Aluminum also competes with other materials such as steel, plastic and glass for various applications. Higher or lower aluminum prices tend to make aluminum products less or more competitive with these alternative materials. PRICING Century offers a number of pricing alternatives to its customers which, combined with the Company's metals risk management program, are designed to lock-in a certain level of price stability on its primary aluminum production. Pricing of the Company's products is generally offered on the following bases: (i) a fixed-price basis, where the customer pays an agreed upon price over an extended period of time but usually less than one year or (ii) an indexed price, where the customer pays an agreed-upon differential that is added to an established 3
5 index, such as the LME. The Company's shipments to Pechiney are priced on an indexed basis as defined in the Metal Agreement and the Company has a contract with Glencore to ship 110 million pounds per year through 2009 priced on a market index basis for the first two years and a fixed price for 2002 through 2009. SALES Century serves customers principally in the industrial sector of the economy. There can be no assurance that any of the Company's major customers will continue to purchase their aluminum requirements from the Company at current volumes. Therefore, the loss of any of these customers, or a significant reduction in the amount of business they do with us, could have a material adverse effect on our operating results. For financial information regarding export sales, see Note 16 to the Consolidated Financial Statements. Sales of primary aluminum products to the Glencore Group amounted to $129.3 million, $68.8 million and $74.3 million for the years ended 2000, 1999 and 1998, respectively. Sales to the Glencore Group represented 30.2%, 12.1% and 11.4% of the net sales of the Company for the years ended 2000, 1999 and 1998, respectively. The Glencore Group has priced and unpriced agreements with the Company to purchase, on an arms-length basis, approximately 1.0 billion pounds of primary aluminum products during 2001 through 2009. However, there can be no assurance that the Company will continue to do business with the Glencore Group beyond the existing agreements. BACKLOG Backlog is not a significant measure for the Company since primary aluminum is an actively traded commodity. ENVIRONMENTAL MATTERS The Company spends significant amounts for compliance with environmental laws and regulations. For the years ending December 31, 2001, 2002, and 2003 the Company has planned environmental capital expenditures of approximately $1.8 million, $4.5 million and $3.9 million, respectively. In addition, the Company expects to incur operating expenses relating to environmental matters of approximately $4.9 million in each of the years ending December 31, 2001, 2002 and 2003. As part of its general capital expenditure plan, the Company also expects to incur capital expenditures for other capital projects that may, in addition to improving operations, reduce certain environmental impacts. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Environmental Expenditures and Other Contingencies." The 1990 amendments to the Clean Air Act impose stringent standards on aluminum industry air emissions. These amendments will affect the operations of the Company's facilities. Technology-based standards relating to smelters and carbon plants have been promulgated. However, the Company cannot predict the total expenditures the Company will incur to comply with these standards. The Company's general capital expenditure plan includes certain projects designed to improve the Company's compliance with respect to both known and anticipated requirements. Pursuant to an Environmental Protection Agency ("EPA") order issued in 1994 under Section 3008(h) (the "3008(h) order") of the Resource Conservation and Recovery Act ("RCRA"), Century of West Virginia is performing remediation measures at a former oil pond area and in connection with cyanide contamination in the groundwater. Century of West Virginia also conducted and, in December 1999, submitted to the EPA a RCRA facility investigation ("RFI") evaluating other areas that may have contamination exceeding certain levels. After the RFI is complete, Ravenswood will have 60 days within which to submit a corrective measures study ("CMS") to the EPA proposing means of remediating areas that may require cleanup. If any cleanup is required, EPA would issue a subsequent order. Ravenswood believes this process will not be completed before mid 2001. The Company is aware of some environmental contamination at Ravenswood, and it is likely cleanup activities will be required in two areas of the facility. Ravenswood believes a significant portion of this contamination is attributable to the operations of a prior owner and will be the financial responsibility of that owner, as discussed below. 4
6 Prior to the Company's acquisition of Ravenswood, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated the facility for approximately thirty years. Many of the conditions which Century of West Virginia investigated under the 3008(h) order exist because of activities which occurred during Kaiser's ownership and operation. With respect to those conditions, Kaiser will be responsible for the costs of required cleanup under the terms of the Kaiser Purchase Agreement. In addition, Kaiser retained title to certain land within the Ravenswood premises and retains full responsibility for those areas. Under current environmental laws, the Company may be required to remediate any contamination which was discharged from areas which Kaiser owns or previously owned or operated. However, if such remediation is required, the Company believes Kaiser will be liable for some or all of the costs thereof pursuant to the Kaiser Purchase Agreement. In connection with the sale to Pechiney of the fabricating businesses, the Company and Century of West Virginia provided Pechiney with certain indemnifications. Those include the indemnification rights Century of West Virginia and the Company, respectively, have under the Kaiser Purchase Agreement (with respect to the real property transferred to Pechiney) and the Company's Cast Plate, Inc., Stock Purchase Agreement with Alcoa. The Pechiney Purchase Agreement provides further indemnifications which are limited, in general, to pre-closing conditions which were not disclosed to Pechiney or to off site migration of hazardous substances from pre-closing acts or omissions of Century of West Virginia. Environmental indemnifications under the Pechiney Purchase Agreement expire September 20, 2005. They are payable only to the extent they exceed $2 million. The Company, together with all other past and present owners of an alumina facility at St. Croix, Virgin Islands, has entered into an Administrative Order on Consent with the Environmental Protection Agency ("Order") pursuant to which the signatories have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage oil floating on top of groundwater underlying the facility. 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 compensate the other signatories by paying them the fair market value for the petroleum 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. The Company also gave certain environmental indemnity rights to St. Croix Alumina, LLC ("St. Croix"), an indirect affiliate of Alcoa, Inc., when it sold the facility to St. Croix. Those rights extend only to environmental conditions arising from Vialco's operation of the facility and then only after St. Croix has spent $0.3 million on such conditions. Management does not believe Vialco will have any indemnification obligation to St. Croix arising out of the Order. Further, management does not believe Vialco's liability under this Order will have a material adverse effect on the Company's financial condition, results of operations, or liquidity. It is the Company's policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental related accrued liabilities were $0.9 million at December 31, 2000 and 1999. All accruals have been recorded without giving effect to any possible 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 material adverse effect on the Company's financial condition, results of operations, or liquidity. RESEARCH AND DEVELOPMENT Century performs ongoing process development work primarily using in-house engineering resources. The Company has most recently been focusing on efforts to refine the computer control of pots and to reduce 5
7 electricity usage by using different anode stub configurations. Expenditures for third-party research and development totaled $0.8 million and $1.7 million in 1999 and 1998, respectively. No third-party expenditures were incurred in 2000 and none are planned for 2001. PATENTS AND TRADEMARKS The Company owns or has rights to use a number of patents or patent applications relating to various aspects of its operations. The Company does not consider its business to be materially dependent on any of these patents. EMPLOYEES AND LABOR RELATIONS The Company currently employs approximately 690 persons. Century of West Virginia's present work force is comprised of approximately 556 hourly employees, represented by the United Steelworkers of America ("USWA"), and approximately 120 salaried personnel. The corporate office is comprised of 14 salaried personnel. Century of West Virginia's hourly employees are currently working under a four year labor agreement with the USWA which expires on May 31, 2003. Mt. Holly is operated by a 659 person workforce employed by Alcoa. The approximately 422 hourly employees at Mt. Holly are not represented by a labor union. Century maintains noncontributory defined benefit pension plans, postretirement healthcare and life insurance benefit plans and defined contribution 401(k) plans for its salaried and hourly employees. Management believes that its relations with its employees are good. ITEM 2. PROPERTIES Century of West Virginia's facility houses the Company's principal operations. The facility occupies 350 acres on a site totaling 2,290 acres strategically located on the Ohio River near Ravenswood, West Virginia, 165 miles southwest of Pittsburgh, Pennsylvania and 45 miles north of Charleston, West Virginia. The Company's reduction facilities at Ravenswood and Mt. Holly have an aggregate annual capacity of approximately 613 million pounds of primary aluminum. Century of West Virginia's reduction facility, which was built in 1955, has an annual production capacity of approximately 375 million pounds and produces primary aluminum. Approximately 320 million pounds of Century of West Virginia's production is used to satisfy the primary aluminum requirements of Pechiney with the balance sold in the form of sow to other outside parties. Mt. Holly was constructed in 1980 and is the most recently constructed reduction facility in the United States. Mt. Holly has a total production capacity of approximately 480 million pounds, of which Century owns a 49.67% undivided interest. The remaining undivided interest in Mt. Holly is owned by Alumax of South Carolina, Inc. ("ASC"), a subsidiary of Alcoa. ASC manages and operates the facility pursuant to an Owners Agreement, prohibiting the disposal of the interest held by any of the owners without the consent of the other owners and providing for certain rights of refusal. Pursuant to the Owners Agreement, each owner furnishes its own alumina, or alumina owned by an affiliate, for conversion to aluminum and is responsible for its pro rata share of the operating and conversion costs. Equipment failures at Ravenswood or at Mt. Holly 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. 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. In addition to equipment failures, the facilities are also subject to the risk of catastrophic loss. The Company believes that it maintains adequate property damage insurance to provide for reconstruction of damaged equipment, as well as business interruption insurance to mitigate losses resulting from any production shutdown caused by an insured loss. 6
8 ITEM 3. LEGAL PROCEEDINGS While Century of West Virginia has been a named defendant (along with many other companies) in approximately 2,362 civil actions brought by employees of third party contractors who allege 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 settled as to the Company and as to Kaiser. Approximately 10 of those civil actions alleged exposure during the period the Company owned Ravenswood, and the Company has agreed to settlements for non-material amounts. The Company is awaiting receipt of final documentation of those settlements and entry of dismissal orders. Management believes there are no unsettled asbestos cases pending against the Company. 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. For a description of certain environmental matters involving the Company, see Item 1 "Environmental Matters." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the fourth quarter of 2000. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of the Company. Each of such persons serves at the discretion of the Board of Directors. <TABLE> <CAPTION> BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AGE DURING THE PAST 5 YEARS; POSITIONS HELD WITH COMPANY - ---- --- ------------------------------------------------------------ <S> <C> <C> Craig A. Davis................. 60 Chairman and Chief Executive Officer of the Company and Chairman and Chief Executive Officer of Century Aluminum of West Virginia for more than five years. Gerald A. Meyers............... 51 President and Chief Operating Officer of the Company and President and Chief Operating Officer of Century Aluminum of West Virginia for more than five years. Gerald J. Kitchen.............. 60 Executive Vice President, General Counsel and Chief Administrative Officer of the Company and General Counsel and Chief Administrative Officer of Century Aluminum of West Virginia for more than five years. David W. Beckley............... 56 Executive Vice President and Chief Financial Officer of the Company and Vice President and Chief Financial Officer of Century Aluminum of West Virginia for more than five years. E. Jack Gates.................. 59 Vice President of the Company and Century Aluminum of West Virginia since December 2000; various positions with Reynolds Metals Company from 1964 through April 1997; President and Chief Executive Officer of F.G. Pruitt, Inc. (a land management and construction management company) from June 1997 until December 2000. Daniel J. Krofcheck............ 47 Vice President and Treasurer of the Company since September 1998; Treasurer of the Company from September 1997 through August 1998; various positions with H.J. Heinz Company from 1988 through September 1997. </TABLE> 7
9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the NASDAQ National Market tier of the NASDAQ Stock Market under the Symbol: CENX. The following table sets forth, on a quarterly basis, the high and low sales prices of the Common Stock during the two most recent fiscal years. <TABLE> <CAPTION> HIGH LOW ------ ------ <S> <C> <C> 2000 First Quarter............................................. $16.88 $11.94 Second Quarter............................................ $15.44 $10.19 Third Quarter............................................. $13.63 $11.69 Fourth Quarter............................................ $12.56 $ 6.94 1999 First Quarter............................................. $ 9.88 $ 4.19 Second Quarter............................................ $ 9.00 $ 5.13 Third Quarter............................................. $11.88 $ 6.25 Fourth Quarter............................................ $15.13 $ 8.75 </TABLE> The Company declared and paid dividends of $0.20 per share of Common Stock during 2000 and 1999. The Company's amended loan agreement contains, among other things, restrictions on the payment of dividends by the Company. See Note 5 to the Consolidated Financial Statements. At December 31, 2000, there were 25 holders of record and approximately 1000 beneficial owners of the Company's common stock. 8
10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company for the years indicated. The selected consolidated financial data for and as of the end of each of the years in the three-year period ended December 31, 2000 are derived from the Consolidated Financial Statements of the Company included elsewhere herein which have been audited by Deloitte & Touche LLP. The selected consolidated financial data for and as of the years ended December 31, 1997 and 1996 is derived from the audited consolidated financial statements of the Company which are not included herein. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and notes thereto appearing in Items 7 and 8, respectively. <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ---------------------------------------------------- 2000(2) 1999(1) 1998 1997 1996 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net sales -- third party customers............. $299,277 $497,475 $576,006 $615,467 $550,168 Net sales -- related parties................... 129,320 68,801 74,252 105,521 138,711 -------- -------- -------- -------- -------- Total net sales................................ 428,597 566,276 650,258 720,988 688,879 Cost of goods sold(4).......................... 396,139 572,921 611,796 691,887 636,486 -------- -------- -------- -------- -------- Gross profit (loss)............................ 32,458 (6,645) 38,462 29,101 52,393 Selling, general and administrative expenses... 13,931 18,884 19,246 17,948 18,614 -------- -------- -------- -------- -------- Operating income (loss)........................ 18,527 (25,529) 19,216 11,153 33,779 Gain on sale of fabricating businesses......... 5,156 41,130 -- -- -- Interest income (expense) -- net............... 2,267 (3,535) (2,204) (3,066) (2,058) Other income (expense)(3)...................... 6,461 (789) 553 419 91 Net gain (loss) on forward contracts........... 4,195 (5,368) 10,574 (6,837) (6,670) -------- -------- -------- -------- -------- Income from continuing operations before income taxes and extraordinary item................. 36,606 5,909 28,139 1,669 25,142 Income tax expense............................. (11,301) (628) (10,202) (601) (8,902) -------- -------- -------- -------- -------- Income from continuing operations before extraordinary item........................... 25,305 5,281 17,937 1,068 16,240 Extraordinary item -- write off of deferred bank fees, net of income tax benefit of $766......................................... -- (1,362) -- -- -- -------- -------- -------- -------- -------- Income from continuing operations.............. 25,305 3,919 17,937 1,068 16,240 Income from discontinued operations -- net of income taxes................................. -- -- -- -- 264 -------- -------- -------- -------- -------- Net income..................................... $ 25,305 $ 3,919 $ 17,937 $ 1,068 $ 16,504 ======== ======== ======== ======== ======== BASIC EARNINGS PER SHARE: Income from continuing operations before extraordinary item........................... $ 1.25 $ 0.26 $ 0.90 $ 0.05 $ 0.78 Extraordinary item............................. -- (0.07) -- -- -- Income from continuing operations.............. 1.25 0.19 0.90 0.05 0.78 Income from discontinued operations............ -- -- -- -- 0.01 -------- -------- -------- -------- -------- Net income..................................... $ 1.25 $ 0.19 $ 0.90 $ 0.05 $ 0.79 ======== ======== ======== ======== ======== DILUTED EARNINGS PER SHARE: Income from continuing operations before extraordinary item........................... $ 1.24 $ 0.26 $ 0.89 $ 0.05 $ 0.78 Extraordinary item............................. -- (0.07) -- -- -- -------- -------- -------- -------- -------- Income from continuing operations.............. 1.24 0.19 0.89 0.05 0.78 Income from discontinued operations............ -- -- -- -- 0.01 -------- -------- -------- -------- -------- Net income..................................... $ 1.24 $ 0.19 $ 0.89 $ 0.05 $ 0.79 ======== ======== ======== ======== ======== Cash dividends declared and paid per common share.......................................... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.15 </TABLE> 9
11 <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ---------------------------------------------------- 2000(2) 1999(1) 1998 1997 1996 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> BALANCE SHEET DATA (AT PERIOD END): Working capital................................ $ 76,701 $124,391 $188,156 $180,524 $170,037 Total assets................................... 333,770 310,802 545,630 507,148 473,731 Long-term debt................................. -- -- 89,389 58,950 24,356 Total noncurrent liabilities................... 74,511 58,831 252,782 220,604 190,092 Total shareholders' equity..................... 202,639 179,728 177,483 163,546 166,478 </TABLE> - --------------- (1) On September 21, 1999, the Company sold its fabricating businesses to Pechiney. Accordingly, the results of operations for 1999 do not include the fabricating businesses after such date. Similarly, balance sheet data as of December 31, 1999 does not include the fabricating businesses. (2) Effective April 1, 2000, the Company purchased an additional 23% interest in Mt. Holly. Accordingly, the results of operations for 2000 include the additional interest beginning from such date. Also, balance sheet data as of December 31, 2000 includes the additional interest in Mt. Holly. (3) Included in other income for the year ended December 31, 2000 is approximately $6.1 million received in partial settlement of the Company's approximately $10.0 million claim with the Company's insurance carrier for property damage and business interruption losses resulting from an illegal strike at the Ravenswood facility in August 1999. (4) Cost of goods sold in 2000 has been reduced by $1.8 million for alumina sales. 10
12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company, including the notes thereto, appearing in Item 8. OVERVIEW The Company is a manufacturer of primary aluminum and the Company's net sales are derived from the sale of such primary aluminum. On September 21, 1999, the Company and Century of West Virginia sold their fabricating businesses. Accordingly, the following information includes the operations of these businesses through September 21, 1999. Effective April 1, 2000, the Company purchased an additional 23% interest in Mt. Holly for cash consideration of $94.7 million. This purchase increased Century's ownership to 49.67%. Mt. Holly has the capacity to produce up to 480 million pounds of primary aluminum per year. Century's ownership represents 238.4 million pounds of this capacity. On August 31, 2000, the Company entered into a stock purchase agreement with Southwire. Under this agreement, the Company anticipates acquiring all of the outstanding equity securities of Metalsco Ltd., a wholly-owned subsidiary of Southwire which owns NSA, an entity that owns and operates the Hawesville facility. The Hawesville facility has the capacity to produce 237,000 metric tons (523 million pounds) of primary aluminum per year. The Company also anticipates acquiring from Southwire, certain land, facilities and rights related to NSA's aluminum reduction operations which are not held by NSA. The purchase price is $460.0 million plus the assumption of $7.8 million in industrial revenue bonds and is subject to certain post-closing adjustments. The Company and Glencore have entered into a memorandum of understanding under which Glencore will effectively purchase a 20% undivided interest in the Hawesville facility. To support the Company's financing of the transaction, Glencore also will purchase $25.0 million in convertible preferred stock of the Company. This stock will have a coupon of 8% and be convertible into the Company's common stock at a 20% premium over the common stock's average price during the 20 trading days immediately prior to the closing of the acquisition. Completion of the purchase is contingent upon, among other matters, the Company concluding financing for the acquisition. The aluminum industry is highly cyclical and the market price of primary aluminum (which trades as a commodity) is determined by worldwide supply and demand conditions, and as such, is highly volatile. For example, over the past 13 years, the average LME cash price has ranged from a low of $0.52 per pound in 1993 to a high of $1.17 per pound in 1988. The cash price for primary aluminum traded on the LME has averaged $.70, $0.62 and $0.62 per pound for the years 2000, 1999, and 1998, respectively. The Company's results of operations depend to a large degree on the market prices of primary aluminum. Any adverse changes in the conditions that affect the market price of primary aluminum could have a material adverse affect on the Company's results of operations. Of the approximately 369 million pounds of primary aluminum produced at Century of West Virginia's reduction facility in 2000, approximately 323 million pounds was used by Pechiney, with the balance sold primarily to the Glencore Group and third parties at market prices. The Company's interest in Mt. Holly amounted to approximately 205 million pounds of primary aluminum production in 2000. During 2000, Glencore purchased 141.9 million pounds of primary aluminum that was produced at Mt. Holly. Century's remaining share of Mt. Holly's production was sold to third parties. In total, the Company shipped 177.9 million pounds of primary aluminum products to the Glencore Group in 2000. Revenues from these shipments amounted to $129.3 million (representing 30.2% of 2000 net sales). The Glencore Group has priced and unpriced agreements with the Company to purchase, on an arms length basis, approximately 1.0 billion pounds of primary aluminum products during 2001 through 2009. 11
13 The principal elements comprising the Company's cost of goods sold are raw materials, energy and labor. The major raw materials and energy sources used by the Company in its production process are alumina, coal tar pitch, petroleum coke, aluminum fluoride and electricity. The market price of alumina has been volatile from time to time. Pursuant to the terms of an alumina supply agreement with Alcoa since January 1, 1996, Century has paid a fixed price for alumina, subject to fixed annual price increases of approximately 2.5%. This agreement will expire at the end of 2001 and be replaced by a new long-term supply agreement with Glencore. This new agreement provides for a fixed quantity of alumina at prices determined by a market-based formula. In addition, as part of its acquisition of an additional 23% interest in Mt. Holly, the Company assumed a supply agreement with Glencore for the alumina raw material requirements relative to the additional interest. The unit cost is also determined by a market based formula. This alumina supply agreement expires in 2008. The Company uses significant amounts of electricity in the aluminum reduction process. A shortage of electrical power at affordable rates has caused a number of the Company's competitors to curtail production at certain of their reduction facilities. Due to the general availability of power and the Company's use of fixed contract pricing, no such curtailment is anticipated at either of the Company's facilities. To fulfill its power requirements at Ravenswood, the Company purchases electricity from Ohio Power at a fixed price pursuant to a power supply agreement which terminates on July 31, 2003. Since, under the terms of the agreement, the power rate is fixed, the Company's margins could be adversely affected if aluminum prices decrease. Power for Mt. Holly is provided under a contract with the South Carolina Public Service Authority. That contract provides fixed pricing but is subject to modification for fuel adjustments and demand sales. It terminates December 31, 2005. On June 1, 1999, the Company entered into a new four year labor contract with its hourly workers at Ravenswood. The agreement calls for fixed increases in hourly wages in 1999, 2000, 2001 and 2002. In August 1999, an illegal, one-day work stoppage temporarily shut down one of the Company's four production lines at Ravenswood. The cost of this work stoppage is estimated to be approximately $10.0 million including equipment damaged as a result of the production line shutdown. The Company has filed a claim with its insurance carrier for business interruption and equipment damage relative to the work stoppage and has received partial settlement of approximately $6.1 million from the carrier as of December 31, 2000. RESULTS OF OPERATIONS The following table sets forth, for the years indicated, the percentage relationship to net sales of certain items included in the Company's statements of operations. <TABLE> <CAPTION> PERCENTAGE OF NET SALES ----------------------- 2000 1999 1998 ----- ----- ----- <S> <C> <C> <C> Net sales................................................... 100.0% 100.0% 100.0% Cost of goods sold.......................................... 92.4 101.2 94.1 ----- ----- ----- Gross profit (loss).................................... 7.6 (1.2) 5.9 Selling, general and administrative expenses................ 3.3 3.3 3.0 ----- ----- ----- Operating income (loss)................................ 4.3 (4.5) 2.9 Gain on sale of fabricating businesses...................... 1.2 7.2 -- Interest income (expense) -- net............................ 0.5 (0.6) (0.3) Other income (expense)...................................... 1.5 (0.1) 0.1 Net gain (loss) on forward contracts........................ 1.0 (1.0) 1.6 ----- ----- ----- Income from continuing operations before income taxes....... 8.5 1.0 4.3 Income tax expense.......................................... (2.6) (0.1) (1.6) ----- ----- ----- Income from continuing operations before extraordinary item................................................... 5.9% 0.9% 2.7% ===== ===== ===== </TABLE> 12
14 The following table sets forth, for the periods indicated, the pounds and the average sales price per pound for certain of the Company's products: <TABLE> <CAPTION> SHEET AND PLATE PRODUCTS PRIMARY ALUMINUM ----------------------------------------- ------------------- DIRECT(1) TOLL DIRECT(1)(2) ------------------- ------------------ ------------------- POUNDS $/POUNDS POUNDS $/POUNDS POUNDS $/POUNDS ------- -------- ------ -------- ------- -------- (POUNDS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> 2000 First Quarter.......... -- -- -- -- 128,082 $0.75 Second Quarter......... -- -- -- -- 149,530 $0.73 Third Quarter.......... -- -- -- -- 151,219 $0.73 Fourth Quarter......... -- -- -- -- 152,787 $0.73 ------- ----- ------ ----- ------- ----- Total............... -- -- -- -- 581,618 $0.74 1999 First Quarter.......... 113,751 $1.18 4,405 $0.25 122,250 $0.63 Second Quarter......... 113,579 $1.17 2,357 $0.23 131,018 $0.63 Third Quarter (3)...... 100,339 $1.16 1,818 $0.23 116,583 $0.66 Fourth Quarter......... -- $ -- -- $ -- 115,991 $0.70 ------- ----- ------ ----- ------- ----- Total............... 327,669 $1.17 8,580 $0.24 485,842 $0.65 1998 First Quarter.......... 114,618 $1.23 7,154 $0.31 123,584 $0.75 Second Quarter......... 103,355 $1.23 9,592 $0.26 123,620 $0.72 Third Quarter.......... 109,205 $1.20 6,718 $0.29 128,652 $0.68 Fourth Quarter......... 106,437 $1.19 4,778 $0.38 120,650 $0.68 ------- ----- ------ ----- ------- ----- Total............... 433,615 $1.21 28,242 $0.30 496,506 $0.71 </TABLE> - --------------- (1) Does not include materials and products processed by the Company for a fee ("tolling") and forward sales contracts without physical delivery. (2) For the years 1999 and 1998, the primary aluminum segment includes intersegment sales to the sheet and plate products segment. (3) The Company sold its fabricating businesses to Pechiney in September 1999. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Net Sales. Consolidated net sales decreased 24.3% to $428.6 million in 2000 from $566.3 million in 1999. The decrease was primarily the result of the sale of the Company's former fabricating businesses in September 1999, partially offset by increased average unit selling prices, higher primary aluminum shipments and the acquisition of an additional interest in Mt. Holly in April 2000. Shipments in 1999 were impacted by the illegal strike at Century of West Virginia's Ravenswood facility in August 1999. Gross Profit and Loss. Gross profit for the year ended December 31, 2000 was $32.5 million compared to a loss of $6.6 million for the year ended December 31, 1999. The increase in gross profit from 1999 to 2000 was primarily due to higher unit selling prices, increased shipments, reduced charges for inventory writedowns and sales of alumina. Selling, General and Administrative Expenses. Consolidated selling, general and administrative expenses decreased 26.5% to $13.9 million in 2000 from $18.9 million in 1999. The decrease was due to the sale of the Company's former fabricating businesses in September 1999. Gain on Sale of Fabricating Businesses. For the year ended December 31, 2000, the Company recorded a gain on the sale of its fabricating businesses of $5.2 million. This resulted from the settlement of post-closing adjustments to the transaction as originally recorded. For the year ended December 31, 1999, the Company recorded a gain on the sale of its fabricating businesses of $41.1 million. 13
15 Interest -- Net. Interest income for the year ended December 31, 2000 was $2.3 million compared to interest expense of $3.5 million for the year ended December 31, 1999. The change in interest was due to the lack of borrowing and increased earnings on invested cash in 2000. Other Income or Expense. Other income was $6.5 million in 2000 compared to other expense of $0.8 million in 1999. The increase in other income was primarily due to the receipt of approximately $6.1 million in partial settlement of the Company's claim with its insurance providers relative to property damage and business interruption losses resulting from the illegal strike at Century of West Virginia's Ravenswood facility in August 1999. Net Gains or Losses on Forward Contracts. Net gains on forward contracts were $4.2 million in 2000 compared to a net loss on forward contracts of $5.4 million in 1999. The increase resulted from lower market prices for primary aluminum as of December 31, 2000 as compared to the value of the Company's forward sales contracts on that date. Tax Provision. Income tax expense for the year ended December 31, 2000 was $11.3 million compared to $0.6 million for the same period in 1999. The increase was primarily due to higher operating income in 2000. Income tax expense for the year ended December 31, 2000 and 1999, respectively, includes a $2.4 million and $1.5 million reduction in estimated income taxes payable. Net Income. Net income increased to $25.3 million in 2000 from $3.9 million in 1999. The increase was due to higher unit selling prices, increased primary aluminum shipments, the purchase of the additional interest in Mt. Holly and proceeds received in partial settlement of the Company's claim with its insurance providers. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Net Sales. Consolidated net sales decreased $84.0 million (or 12.9%) in 1999 to $566.3 million from $650.3 million in 1998. The decrease was partially a result of the sale of the Company's former fabricating businesses in September 1999 and reduced average unit selling prices. Primary aluminum product sales (including shipments to the fabricating businesses of $136.8 million) decreased $32.9 million (or 9.4%) in 1999 to $317.4 million from $350.3 million in 1998 (including shipments to the fabricating businesses of $234.5 million). The decrease was a result of reduced volumes caused by the illegal strike at Century of West Virginia's Ravenswood facility in August 1999 and to reduced average unit selling prices during 1999 as compared to the average in 1998. Gross Profit and Loss. The Company reported a gross loss of $6.6 million in 1999 compared to a gross profit of $38.5 million in 1998 or a decrease of $45.1 million. The decrease primarily resulted from lower unit selling prices, the costs and effects of lost production of approximately $10 million resulting from the illegal strike in August 1999, a charge of $12.3 million for inventory writedowns and LIFO adjustments, and the sale of the Company's former fabricating businesses. Selling, General and Administrative Expenses. Consolidated selling, general and administrative expenses of $18.9 million in 1999 were slightly lower than expenses of $19.2 million in 1998. The decrease was due to the sale of the fabricating businesses partially offset by increased professional fee expenses. Gain on Sale of Fabricating Businesses. The gain on the sale of the fabricating businesses of $41.1 million in 1999 represents the excess of proceeds received over the net assets sold to Pechiney on September 21, 1999, adjusted for the expected effects of certain post-closing adjustments. Interest Expense -- Net. Interest expense increased $1.3 million to $3.5 million in 1999 from $2.2 million in 1998. The increase was due to reduced capitalized interest in 1999 compared to 1998 and to higher borrowings during the first three quarters of 1999 compared to the same period in 1998, partially offset by interest income earned in the fourth quarter of 1999. 14
16 Net Gains or Losses on Forward Contracts. The Company incurred a net loss on forward contracts of $5.4 million in 1999 compared to a net gain of $10.6 million in 1998. The decrease resulted from steadily increasing market prices for primary aluminum during 1999 which reduced the value of the Company's forward sales contracts. Tax Provision. Tax expense for 1999 was $0.6 million compared to $10.2 million in 1998. The decrease was primarily the result of reduced operating income. Net Income. Net income for the year ended 1999 was $3.9 million compared to $17.9 million for 1998. The decrease was a result of lower average unit selling prices, reduced volumes, a charge for inventory writedowns and LIFO adjustments, and the costs and effects of lost production from the illegal strike in August 1999. The decrease was substantially offset by the gain on the sale of the fabricating businesses. LIQUIDITY AND CAPITAL RESOURCES Working capital amounted to $76.7 million and $124.4 million at December 31, 2000 and 1999, respectively. The decrease in working capital primarily relates to a reduction in cash due to the purchase of the additional interest in Mt. Holly. The Company's statements of cash flows for the years indicated are summarized below: <TABLE> <CAPTION> 2000 1999 1998 --------- -------- ------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> Net cash provided by (used in) operating activities........ $ 58,103 $(44,190) $25,369 Net cash (used in) provided by investing activities........ (106,158) 222,886 (51,838) Net cash (used in) provided by financing activities........ (4,170) (93,521) 26,439 --------- -------- ------- (Decrease) increase in cash................................ $ (52,225) $ 85,175 $ (30) ========= ======== ======= </TABLE> Net cash provided by operating activities was $58.1 million during 2000. Net cash used in operating activities was $44.2 million in 1999. Net cash provided by operations was $25.4 million during 1998. The 2000 increase was primarily the result of increased income from operations in that year and a reduced investment in accounts receivable as of December 31, 2000. The 1999 decrease was primarily the result of reduced income from operations in that year. The Company's net cash used in investing activities was $106.2 million in 2000. The net cash provided by investing activities was $222.9 million in 1999. The net cash used in investing activities was $51.8 million during 1998. The large decrease in cash flow from investing activities in 2000 was a result of the use of cash to purchase an additional interest in Mt. Holly in April 2000 compared to the receipt of cash from the sale of the fabricating businesses in September 1999. Capital expenditures were $17.6 million, $23.0 million and $44.3 million for the years ended December 31, 2000, 1999 and 1998, respectively. The Company used these expenditures to purchase, modernize or upgrade production equipment, maintain facilities and comply with environmental regulations. Capital expenditures for 2001 are expected to be approximately $18.0 million and will be principally related to upgrading production equipment, maintaining facilities and complying with environmental requirements. Net cash used in financing activities was $4.2 million and $93.5 million in 2000 and 1999, respectively. Net cash provided by financing activities was $26.4 million in 1998. The improved cash flow from financing activities in 2000 was a result of the lack of borrowing activity in 2000. In 1999, the Company utilized a portion of the proceeds from the sale of the fabricating businesses to retire all of its outstanding bank debt. On March 31, 1999, the Company entered into an agreement with BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to $180.0 million of credit facilities to refinance indebtedness, to finance certain capital expenditures and for other general corporate purposes. The borrowing base for purposes of determining availability is based upon certain eligible inventory and receivables. The credit facilities consisted of a revolving loan of up to $160.0 million and a term loan of $20.0 million. The revolving loan is secured by the inventory and receivables of Century of West Virginia and 15
17 Berkeley. As a result of the sale of the fabricating businesses and the Company's purchase of Xstrata's interest in the Mt. Holly facility, the Company and its lenders agreed to reduce the revolving credit facilities from $160.0 million to $67.1 million. The bank agreement, as amended, provides for various restrictive covenants, including the following: (i) standard restrictions on dispositions of property and assets except in the ordinary course of business, (ii) restrictions on the incurrence of indebtedness and liens and the making of capital expenditures and investments, (iii) a prohibition on the payment of dividends except dividends up to $5.0 million per year, (iv) a prohibition on change of business or change of control and (v) maintenance of certain financial ratios. The Company is evaluating various options to fund its proposed $460 million purchase of NSA. Options include significant debt financing which would substantially increase the Company's leverage. The Company's liquidity requirements arise primarily from working capital needs and capital investments. The Company believes that cash flows from operations and funds available under its Bank Agreement will be sufficient to fund its working capital requirements, capital expenditures and debt service in the near term and for the foreseeable future. ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES The Company spends significant amounts for compliance with environmental laws and regulations. In addition, past manufacturing activities have resulted in environmental impacts requiring remediation. Pursuant to certain environmental laws, the Company, regardless of fault, may be liable for the costs of remediation of contaminated property or for the amelioration of damage to natural resources. Although the Company believes, based upon information currently available to management, that it will not have liabilities in this regard which are likely to have a material adverse effect on the Company, there can be no assurance that future remedial requirements at currently and formerly owned or operated properties or adjacent areas will not result in a material adverse effect on the Company's financial condition, results of operations or liquidity. The Company has planned environmental capital expenditures for the years ending December 31, 2001, 2002, and 2003 of approximately $1.8 million, $4.5 million and $3.9 million, respectively. In addition, the Company expects to incur operating expenses relating to environmental matters of approximately $4.9 million in each of the years ending December 31, 2001, 2002 and 2003. As part of its general capital expenditure plan, the Company also expects to incur capital expenditures for other capital projects that may, in addition to improving operations, reduce certain environmental impacts. See Item 1 "Environmental Matters". 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 Item 3 "Legal Proceedings". NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133. "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138 which amended certain provisions of SFAS No. 133, including an amendment to expand the normal purchase and sale exemption for supply contracts. The Company has adopted the provisions of SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001. Most of the Company's fixed priced commitments qualified for the normal purchase and sale exemption provided in SFAS No. 138. The Company's primary aluminum financial instruments, which are currently recorded at fair value through the statement of operations, have been designated as cash flow hedges as of January 1, 2001. The Company's natural gas financial instruments have been designated as a hedge and recorded at fair value on the balance sheet through December 31, 2000. These natural gas contracts have also been designated as cash flow hedges as of January 1, 2001. The transition adjustment required on January 1, 16
18 2001 for the Company's adoption of SFAS No. 133 resulted in an after-tax reduction of accrued liabilities by $0.9 million and an after tax increase in other comprehensive income of $0.9 million. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB No. 101 provides additional guidance on revenue recognition, as well as criteria for when revenue is generally realized and earned. The Company adopted SAB No. 101 during the fourth quarter and there was no impact on its results of operations or financial position. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK COMMODITY PRICES Century produces primary aluminum products and the Company's earnings are exposed to aluminum price fluctuations. The Company manages this risk through the issuance of fixed price commitments and financial instruments. The Company does not engage in trading or speculative transactions. Although the Company has not materially participated in the purchase of call options, in cases where the Company sells forward primary aluminum, it may purchase call options to preserve the benefit from price increases significantly above forward sales prices. In addition, it may purchase put options to protect itself from price decreases. In connection with the sale of the aluminum fabricating businesses in September 1999, the Company entered into a Molten Aluminum Purchase Agreement (the "Metal Agreement") with Pechiney, that shall continue in effect until July 31, 2003 with provisions for extension. Pursuant to the Metal Agreement, Pechiney has agreed to purchase and the Company has agreed to deliver, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum. The selling price is determined by a market based formula. Subsequent to the purchase of an additional 23% interest in MHAC from Xstrata, the Company entered into a ten year agreement with Glencore (the "Glencore Metal Agreement") to sell approximately 110.0 million pounds of primary aluminum products per year. Selling prices for the first two years are determined by a market based formula. The remaining eight years of the contract are at a fixed price as defined in the agreement. Exclusive of the Metal Agreement and the Glencore Metal Agreement, the Company had fixed price commitments to sell 50.3 million pounds and 124.4 million pounds of primary aluminum at December 31, 2000 and 1999, respectively. Of the total fixed price sales commitments, 14.7 million pounds and 68.3 million pounds at December 31, 2000 and 1999, respectively, were with the Glencore Group. The Company had no fixed price commitments to purchase aluminum at December 31, 2000 or December 31, 1999. The Company entered into a long-term supply agreement for 936.0 million pounds of alumina annually, beginning January 1, 1996. That agreement will terminate at the end of 2001 and be replaced by a new long-term supply agreement with Glencore. This new agreement provides for a fixed quantity of alumina at prices determined by a market-based formula. In addition, as part of its acquisition of an additional 23% interest in Mt. Holly, the Company assumed a supply agreement with Glencore for the alumina raw material requirements relative to the additional interest. The unit cost is also determined by a market based formula. The alumina supply agreement terminates in 2008. At December 31, 2000 and 1999, the Company had entered into 453.5 million and 60.0 million pounds, respectively, of forward primary aluminum sales contracts to mitigate the risk of commodity price fluctuations inherent in its anticipated future shipments. Of these contracts, 396.4 million and 60.0 million pounds were with the Glencore Group as of December 31, 2000 and 1999, respectively. The contracts will be settled in cash at various dates in 2001 through 2003. Based on market prices at December 31, 2000, the forward sales contracts could have been settled by the Company receiving approximately $1.7 million. The actual settlement was and will be based on market prices on the respective settlement dates. At December 31, 2000, the Company had entered into forward natural gas purchase contracts to mitigate the risk of commodity price fluctuations inherent in its anticipated future natural gas requirements. The 17
19 contracts will be settled in cash at various dates in 2001. Based on market prices at December 31, 2000, the forward purchase contracts could have been settled by the Company receiving approximately $1.5 million. The actual settlement will be based on market prices on the respective settlement dates. A hypothetical $0.01 per pound increase in the market price of primary aluminum is estimated to have an unfavorable impact of $4.5 million on pre-tax income in 2001 as a result of the forward primary aluminum sale contracts entered into by the Company at December 31, 2000. This quantification of the Company's exposure to the commodity price of aluminum is necessarily limited, as it does not take into consideration the Company's inventory or fixed price commitments. A hypothetical $1.00 per decatherm decrease in the market price of natural gas is estimated to have an unfavorable impact of $0.8 million on pre-tax income in 2001 as a result of the forward natural gas purchase contracts entered into by the Company at December 31, 2000. Actual changes in commodity prices may differ from hypothetical changes. All gains and losses from forward contract activity are reported separately in the statements of operations. Unrealized gains or losses on the forward primary aluminum contracts, realized gains or losses from the cash settlement of the forward primary aluminum contracts, and reversals of prior period unrealized losses are reported as either gains or losses on forward contracts. Beginning January 1, 2001, the Company designated its primary aluminum financial instruments as cash flow hedges (see "New Accounting Standards" in Item 7). The Company's forward natural gas purchase contracts have been designated as hedges and unrealized gains or losses are deferred in the balance sheet until the hedged transaction occurs. Century monitors its overall position, and its metals and natural gas risk management activities are subject to the management, control and direction of senior management. These activities are regularly reported to the Board of Directors of Century. 18
20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ----- <S> <C> Independent Auditors' Report................................ 20 Consolidated Balance Sheets at December 31, 2000 and 1999... 21 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998.......................... 22 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998.............. 23 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................... 24 Notes to the Consolidated Financial Statements.............. 25-46 </TABLE> 19
21 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Century Aluminum Company: We have audited the accompanying consolidated balance sheets of Century Aluminum Company and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Century Aluminum Company and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania February 16, 2001 20
22 CENTURY ALUMINUM COMPANY CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> DECEMBER 31, ---------------------- 2000 1999 --------- --------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 32,962 $ 85,187 Restricted cash equivalents............................... -- 5,642 Accounts receivable, trade -- net......................... 31,119 38,499 Due from affiliates....................................... 15,672 15,991 Inventories............................................... 44,081 44,936 Prepaid and other assets.................................. 9,487 6,379 -------- -------- Total current assets................................... 133,321 196,634 Property, Plant and Equipment -- Net........................ 184,526 105,158 Other Assets................................................ 15,923 9,010 -------- -------- Total............................................. $333,770 $310,802 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade................................... $ 30,072 $ 29,134 Due to affiliates......................................... 3,985 10,737 Accrued and other current liabilities..................... 17,739 27,770 Accrued employee benefits costs -- current portion........ 4,824 4,602 -------- -------- Total current liabilities.............................. 56,620 72,243 -------- -------- Accrued Pension Benefits Costs -- Less current portion...... 3,656 3,589 Accrued Postretirement Benefits Costs -- Less current portion................................................... 42,170 39,391 Other Liabilities........................................... 6,560 9,073 Deferred Taxes.............................................. 22,125 6,778 -------- -------- Total noncurrent liabilities........................... 74,511 58,831 -------- -------- CONTINGENCIES AND COMMITMENTS (NOTE 12) SHAREHOLDERS' EQUITY: Common Stock (one cent par value, 50,000,000 shares authorized; 20,339,203 and 20,202,538 shares issued and outstanding at December 31, 2000 and 1999, respectively).......................................... 203 202 Additional paid-in capital................................ 166,184 164,409 Retained earnings......................................... 36,252 15,117 -------- -------- Total shareholders' equity............................. 202,639 179,728 -------- -------- Total............................................. $333,770 $310,802 ======== ======== </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 21
23 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> NET SALES: Third-party customers..................................... $299,277 $497,475 $576,006 Related parties........................................... 129,320 68,801 74,252 -------- -------- -------- 428,597 566,276 650,258 Cost of Goods Sold.......................................... 396,139 572,921 611,796 -------- -------- -------- Gross Profit (Loss)......................................... 32,458 (6,645) 38,462 Selling, General and Administrative Expenses................ 13,931 18,884 19,246 -------- -------- -------- Operating Income (Loss)..................................... 18,527 (25,529) 19,216 Gain on Sale of Fabricating Businesses...................... 5,156 41,130 -- Interest Income (Expense) -- Net............................ 2,267 (3,535) (2,204) Other Income (Expense) -- Net.............................. 6,461 (789) 553 Net Gain (Loss) on Forward Contracts........................ 4,195 (5,368) 10,574 -------- -------- -------- Income Before Income Taxes and Extraordinary Item........... 36,606 5,909 28,139 Income Tax Expense.......................................... (11,301) (628) (10,202) -------- -------- -------- Income Before Extraordinary Item............................ 25,305 5,281 17,937 Extraordinary Item -- Write Off of Deferred Bank Fees, Net of Income Tax Benefit of $766............................. -- (1,362) -- -------- -------- -------- Net Income.................................................. $ 25,305 $ 3,919 $ 17,937 ======== ======== ======== BASIC EARNINGS PER SHARE: Income before extraordinary item.......................... $ 1.25 $ 0.26 $ 0.90 Extraordinary item........................................ -- (0.07) -- -------- -------- -------- Net Income................................................ $ 1.25 $ 0.19 $ 0.90 ======== ======== ======== DILUTED EARNINGS PER SHARE: Income before extraordinary item.......................... $ 1.24 $ 0.26 $ 0.89 Extraordinary item........................................ -- (0.07) -- -------- -------- -------- Net Income................................................ $ 1.24 $ 0.19 $ 0.89 ======== ======== ======== Cash Dividends Paid Per Common Share........................ $ 0.20 $ 0.20 $ 0.20 ======== ======== ======== </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 22
24 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> ADDITIONAL TOTAL COMMON PAID-IN RETAINED SHAREHOLDERS' STOCK CAPITAL EARNINGS EQUITY ------ ---------- -------- ------------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> Balance, December 31, 1997...................... $200 $161,953 $ 1,393 $163,546 Net Income.................................... -- -- 17,937 17,937 Dividends..................................... -- -- (4,000) (4,000) ---- -------- ------- -------- Balance, December 31, 1998...................... 200 161,953 15,330 177,483 Net Income.................................... -- -- 3,919 3,919 Issuance of Common Stock...................... 2 2,456 -- 2,458 Dividends..................................... -- -- (4,132) (4,132) ---- -------- ------- -------- Balance, December 31, 1999...................... 202 164,409 15,117 179,728 Net Income.................................... -- -- 25,305 25,305 Issuance of Common Stock...................... 1 1,775 -- 1,776 Dividends..................................... -- -- (4,170) (4,170) ---- -------- ------- -------- Balance, December 31, 2000...................... $203 $166,184 $36,252 $202,639 ==== ======== ======= ======== </TABLE> See notes to consolidated financial statements. 23
25 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ $ 25,305 $ 3,919 $ 17,937 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...................... 14,395 18,749 19,685 Deferred income taxes.............................. 12,448 22,022 (3,767) Pension and other post retirement benefits......... 797 (16,656) (12,021) Workers' compensation.............................. (1,604) (150) (1,314) Inventory reserve.................................. 1,631 1,389 -- Gain on sale of property, plant and equipment...... (337) -- -- Gain on sale of fabricating businesses............. (5,156) (41,130) -- Change in operating assets and liabilities: Accounts receivable, trade -- net................ 7,380 (42,803) 37,588 Due from affiliates.............................. 4,790 (467) (7,674) Inventories...................................... 3,086 26,843 (22,789) Prepaids and other assets........................ (5,391) (9,224) (876) Accounts payable, trade.......................... (712) 8,519 (14,594) Due to affiliates................................ 409 (1,518) (2,087) Accrued and other current liabilities............ 1,621 (15,944) 13,366 Other -- net..................................... (559) 2,261 1,915 --------- --------- --------- Net cash provided by (used in) operating activities....................................... 58,103 (44,190) 25,369 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment............. (17,631) (22,983) (44,259) Proceeds from sale of property, plant and equipment... 565 -- -- Purchase price adjustment related to business acquisitions....................................... -- 296 -- Proceeds from sale of fabricating businesses.......... -- 245,400 -- Business acquisitions................................. (94,734) -- (7,251) Capital contribution to Mt. Holly..................... -- -- (319) Restricted cash deposits.............................. 5,642 173 (9) --------- --------- --------- Net cash (used in) provided by investing activities....................................... (106,158) 222,886 (51,838) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings............................................ -- 340,708 233,610 Repayment of borrowings............................... -- (430,097) (203,171) Dividends............................................. (4,170) (4,132) (4,000) --------- --------- --------- Net cash (used in) provided by financing activities....................................... (4,170) (93,521) 26,439 --------- --------- --------- Increase (Decrease) in Cash........................... (52,225) 85,175 (30) Cash and Cash Equivalents, Beginning of Year.......... 85,187 12 42 --------- --------- --------- Cash and Cash Equivalents, End of Year................ $ 32,962 $ 85,187 $ 12 ========= ========= ========= </TABLE> See notes to consolidated financial statements. 24
26 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation -- Century Aluminum Company ("Century" or the "Company") is a holding company whose principal subsidiary is Century Aluminum of West Virginia, Inc. ("Century of West Virginia"), formerly known as Ravenswood Aluminum Corporation, which operates a primary aluminum reduction facility near Ravenswood, West Virginia. Century of West Virginia, through its wholly-owned subsidiary, Berkeley Aluminum, Inc. ("Berkeley"), holds a 49.67% interest in a partnership which operates a primary aluminum reduction facility in Mt. Holly, South Carolina (the "Mt. Holly Facility") and a 49.67% undivided interest in the property, plant and equipment comprising the Mt. Holly Facility. As of December 31, 2000, the remaining interest in the partnership and the remaining undivided interest in the Mt. Holly Facility are owned by Alumax of South Carolina, Inc., a subsidiary of Alcoa ("ASC"). ASC manages and operates the facility pursuant to an Owners Agreement, prohibiting the disposal of the interest held by any of the owners without the consent of the other owners and providing for certain rights of first refusal. Pursuant to the Owners Agreement, each owner furnishes its own alumina, or alumina owned by an affiliate, for conversion to aluminum and is responsible for its pro rata share of the operating and conversion costs. Prior to April 1996, the Company was an indirect, wholly owned subsidiary of Glencore International AG ("Glencore" and, together with its subsidiaries, the "Glencore Group"). In April 1996, the Company completed an initial public offering of its common stock. At December 31, 2000, the Glencore Group owned 39% of Century's common shares outstanding. On December 31, 1998, the Company acquired a cast aluminum plate business located in Vernon, California, from Alcoa Inc. The business was named Century Cast Plate, Inc. and operated as a wholly owned subsidiary of Century. The business produced cast and machined aluminum plate. On September 21, 1999, the Company completed the sale to Pechiney Rolled Products, LLC, a Delaware limited liability company ("Pechiney"), of certain assets and the assumption of certain liabilities of Century of West Virginia's rolled products unit at Ravenswood, West Virginia (the "Rolling Business") and all of the issued and outstanding shares of common stock of Century Cast Plate, Inc. (together the "fabricating businesses"). The parties consummated the sale pursuant to the Stock and Asset Purchase Agreement dated July 26, 1999 (the "Purchase Agreement") by and among Century, Century of West Virginia and Pechiney. The aggregate purchase price for the fabricating businesses was $234,300. The purchase price was determined by arms-length negotiations between the parties. Century used a portion of the purchase price to repay all of its outstanding bank indebtedness. Effective April 1, 2000, the Company purchased an additional 23% interest in the Mt. Holly Facility for cash consideration of $94,734. This purchase increased Century's ownership to 49.67%. On August 31, 2000, the Company entered into a stock purchase agreement with Southwire Company ("Southwire"), a privately held wire and cable manufacturing company based in Carrollton, Georgia. Under this agreement, the Company will acquire all of the outstanding equity securities of Metalsco Ltd., a wholly-owned subsidiary of Southwire which owns NSA Ltd. ("NSA"), an entity that operates an aluminum reduction operation in Hawesville, Kentucky (the "Hawesville facility"). The Hawesville facility has the capacity to produce 237,000 metric tons (523 million pounds) of primary aluminum per year. The Company will also acquire from Southwire, certain land, facilities and rights related to NSA's aluminum reduction operations which are not held by NSA. The purchase price is $460,000 plus the assumption of $7,800 in industrial revenue bonds and is subject to certain post-closing adjustments. The Company and Glencore have entered into a memorandum of understanding under which Glencore will effectively purchase a 20% undivided interest in the Hawesville facility. To support the Company's financing of the transaction, Glencore also will purchase $25,000 in convertible preferred stock of the 25
27 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) Company. This stock will have a coupon of 8% and be convertible into the Company's common stock at a 20% premium over the common stock's average price during the 20 trading days immediately prior to the closing of the acquisition. Completion of the purchase is contingent upon, among other matters, the Company concluding financing for the acquisition. The Company's historical results of operations included in the accompanying consolidated financial statements may not be indicative of the results of operations to be expected in the future. Principles of Consolidation -- The consolidated financial statements include the accounts of Century Aluminum Company and its subsidiaries, after elimination of all significant intercompany transactions and accounts. Berkeley's interest in the Mt. Holly partnership is accounted for under the equity method. There are no material undistributed earnings in the Mt. Holly partnership. Revenue -- Revenue is generally recognized when goods are shipped and title passes to customers in accordance with contract terms. In some instances, the Company invoices customers prior to physical shipment of goods. In such instances, revenue is recognized only when the customer has specifically requested such treatment and has made a fixed commitment to purchase the product. The goods must be complete, ready for shipment and physically separated from other inventory with risk of ownership passing to the customer. The Company must retain no performance obligations and a delivery schedule must be obtained. Included in net sales during 1999 and 1998 are tolling fees that the Company earned from smelting, casting and fabricating material supplied by third-party customers. These fees are not related to primary aluminum shipments and, as such, are not present in 2000 and will not be present in future years due to the sale of the fabricating businesses to Pechiney. Net sales include tolling fees of $2,045 and $8,469 for the years ended December 31, 1999 and 1998, respectively. Sales returns and allowances are treated as a reduction of sales and are provided for based on historical experience and current estimates. Cash and Restricted Cash Equivalents -- Cash and restricted cash equivalents are comprised of cash and short-term investments having maturities of less than 90 days at the time of purchase. The carrying amount of cash and restricted cash equivalents approximates fair value. The restricted cash equivalents as of December 31, 1999 represented amounts on deposit with the state of West Virginia to support the Company's workers' compensation self-insurance program in that state. Accounts Receivable -- The accounts receivable, trade are net of an allowance for uncollectable accounts of $285 and $29 at December 31, 2000 and 1999, respectively. Inventories -- Alumina and aluminum inventories are stated at the lower of cost (using the last-in, first-out ("LIFO") method) or market. The remaining inventories (operating and other supplies) are valued at the lower of average cost or market. Property, Plant and Equipment -- Property, plant and equipment is stated at cost. Additions, renewals and improvements are capitalized. Asset and accumulated depreciation accounts are relieved for dispositions with resulting gains or losses included in earnings. Maintenance and repairs are expensed as incurred. Depreciation of plant and equipment is provided for by the straight-line method over the following estimated useful lives: <TABLE> <S> <C> Buildings and improvements.................................. 14 to 40 years Machinery and equipment..................................... 5 to 22 years </TABLE> The Company periodically evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of a separately identifiable, long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the 26
28 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Other Assets -- At December 31, 2000 and 1999, other assets consist primarily of the Company's investment in the Mt. Holly partnership, deferred pension assets and deferred tax assets. Income Taxes -- The Company accounts for income taxes using the liability method, whereby deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In evaluating the Company's ability to realize deferred tax assets, the Company uses judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. Based on the weight of evidence, both negative and positive, including the lack of historical earnings, if it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is established. Interest Expense -- Net -- Interest earned on investments is netted with interest incurred on indebtedness. Interest incurred in the construction of qualifying assets is capitalized as a component of the construction costs. Postemployment Benefits -- The Company provides certain postemployment benefits to former and inactive employees and their dependents during the period following employment, but before retirement. These benefits include salary continuance, supplemental unemployment and disability healthcare. Postemployment benefits are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits." The statement requires recognition of the estimated future cost of providing postemployment benefits on an accrual basis over the active service life of the employee. Fixed-Price Commitments and Forward Contracts -- The Company has entered into various fixed-price commitments to purchase alumina and to sell primary aluminum. The Company has also entered into forward primary aluminum contracts to be settled in cash to manage the Company's exposure to changing primary aluminum prices. These forward contracts have been designated as hedges as of January 1, 2001. Prior to January 1, 2001, a change in market value of a forward contract has been recognized as a gain or loss in the period of change and recognized in the statements of operations as a gain or loss on forward contracts. The Company has also entered into forward natural gas purchase contracts to be settled in cash to manage the Company's exposure to changing natural gas prices. These forward contracts have been designated as hedges. Unrealized gains and losses on the forward natural gas purchase contracts are deferred in the balance sheet until the hedged transaction occurs. Once the hedged transaction occurs, the realized gain or loss is recognized in cost of goods sold in the statement of operations. If future natural gas needs are revised lower than initially anticipated, the futures contracts associated with the reduction no longer qualify for deferral and are marked to market. Mark-to-market gains and losses are recorded in other income in the current period. The effectiveness of natural gas hedges is measured by a historical and probable future high correlation of changes in the fair value of the hedging instruments with changes in value of the hedged item. If correlation ceases to exist, hedge accounting is terminated and gains or losses recorded in other income. To date, high correlation has always been achieved. As of December 31, 2000, the Company had a deferred gain of $1,514 on its natural gas hedges. Financial Instruments -- The Company's financial instruments (principally receivables, payables and forward contracts) are carried at amounts that approximate fair value. 27
29 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) Concentration of Credit Risk -- Financial instruments, in addition to forward contracts, which potentially expose the Company to concentrations of credit risk, consist principally of cash investments and trade receivables. The Company places its cash investments with highly rated financial institutions. At times, such investments may be in excess of the FDIC insurance limit. With the sale of the fabricating businesses to Pechiney, the Company significantly reduced its customer base and thereby increased its concentrations of credit risk with respect to trade receivables. The Company routinely assesses the financial strength of its customers, but generally does not require collateral to support trade receivables. As of December 31, 2000, the Company's receivables from a certain customer were approximately $21,835 or 69.5% of total trade accounts receivable. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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". New Accounting Standards -- In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138 which amended certain provisions of SFAS No. 133, including an amendment to expand the normal purchase and sale exemption for supply contracts. The Company was required to adopt SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001. Most of the Company's fixed priced commitments qualified for the normal purchase and sale exemption provided in SFAS No. 138. The Company's primary aluminum financial instruments, which are currently recorded at fair value through the statement of operations, have been designated as cash flow hedges as of January 1, 2001. The Company's natural gas financial instruments have been designated as a cash flow hedge and recorded at fair value on the balance sheet through December 31, 2000. These natural gas contracts have also been designated as cash flow hedges as of January 1, 2001. The transition adjustment required on January 1, 2001 for the Company's adoption of SFAS No. 133 resulted in an after-tax reduction of accrued liabilities of $924 and an after tax increase in other comprehensive income of $924. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB No. 101 provides additional guidance on revenue recognition, as well as criteria for when revenue is generally realized and earned. The Company adopted SAB No. 101 during the fourth quarter and there was no impact on our results of operations or financial position. 2. ACQUISITIONS AND DISPOSITIONS On August 31, 2000, the Company entered into a stock purchase agreement with Southwire Company ("Southwire"), a privately held wire and cable manufacturing company based in Carrollton, Georgia. Under this agreement, the Company will acquire all of the outstanding equity securities of Metalsco Ltd., a wholly-owned subsidiary of Southwire which owns NSA Ltd. ("NSA"), an entity that operates an aluminum reduction operation in Hawesville, Kentucky (the "Hawesville facility"). The Hawesville facility has the capacity to produce 237,000 metric tons (523 million pounds) of primary aluminum per year. The Company will also acquire from Southwire, certain land, facilities and rights related to NSA's aluminum reduction operations which are not held by NSA. The purchase price is $460,000 plus the assumption of $7,800 in industrial revenue bonds and is subject to certain post-closing adjustments. 28
30 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) The Company and Glencore have entered into a memorandum of understanding under which Glencore will effectively purchase a 20% undivided interest in the Hawesville facility. To support the Company's financing of the transaction, Glencore also will purchase $25,000 in convertible preferred stock of the Company. This stock will have a coupon of 8% and be convertible into the Company's common stock at a 20% premium over the common stock's average price during the 20 trading days immediately prior to the closing of the acquisition. Completion of the purchase is contingent upon, among other matters, the Company concluding financing for the acquisition. Effective April 1, 2000, Century, through its wholly-owned indirect subsidiary Berkeley, increased its 26.67% undivided interest in certain property, plant and equipment of the Mt. Holly Facility to 49.67% by purchasing a 23% undivided interest from Xstrata AG ("Xstrata") a publicly traded Swiss company. As part of the purchase, Berkeley also acquired Xstrata's 23% interest in the general partnership which operates and maintains the Mt. Holly Facility (the "Operating Partnership", and together with the Mt. Holly Facility, the "Mt. Holly Assets"). Prior to Berkeley's purchase of the Mt. Holly Assets, it held a 26.67% undivided interest in the Mt. Holly Facility and the Operating Partnership. Glencore is a major shareholder of Xstrata. The purchase was completed pursuant to an asset purchase agreement dated as of March 31, 2000 (the "Mt. Holly Purchase Agreement") by and between Berkeley and Xstrata. The aggregate purchase price for the Mt. Holly Assets was $94,734. Under the terms of the Mt. Holly Purchase Agreement, Berkeley agreed to assume certain of Xstrata's obligations and liabilities relating to the Mt. Holly Assets. The terms of the Mt. Holly Purchase Agreement were determined through arms'-length negotiations between the parties. The Company used available cash to complete the purchase. The acquisition was accounted for using the purchase method. The following schedule represents the unaudited pro forma results of operations for the year ended December 31, 2000 and 1999 assuming the acquisition of the additional Mt. Holly Assets occurred on January 1, 1999. The unaudited pro forma amounts may not be indicative of the results that actually would have occurred if the transaction described above had been completed and in effect for the periods indicated or the results that may be obtained in the future. The unaudited pro forma amounts includes the effects of the Glencore Metal Agreement (see Note 13) after April 1, 2000. <TABLE> <CAPTION> 2000 1999 -------- -------- (UNAUDITED) <S> <C> <C> Net sales................................................... $446,678 $632,222 Net income (loss) before extraordinary item................. 24,585 (843) Net income (loss)........................................... 24,585 (2,205) Diluted earnings (loss) per share before extraordinary item...................................................... 1.21 (0.04) Diluted earnings (loss) per share........................... $ 1.21 $ (0.11) </TABLE> On September 21, 1999, the Company and Century of West Virginia completed the sale of their fabricating businesses to Pechiney. The transaction involved the sale of certain assets and the assumption of certain liabilities and the sale of all of the issued and outstanding shares of common stock of Century Cast Plate. The aggregate purchase price for the fabricating businesses was $234,300 and the assumption of approximately $163,400 of current and noncurrent liabilities. As a result of this transaction, the Company realized a gain of $41,130 in 1999. Included in the gain are the net effects resulting from the curtailment and settlement of the Company's employee benefit plans associated with the fabricating businesses. The gain was increased by $5,156 in 2000 after resolution of post closing adjustments which affected the fabricating businesses' closing balance sheet as of September 21, 1999. In connection with the sale, Century of West Virginia and Pechiney entered into a Metal Supply Agreement ("Metal Agreement") dated as of September 21, 1999, which shall continue in effect until 29
31 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) July 31, 2003 with provisions for an extension. Pursuant to the Metal Agreement, Pechiney has agreed to purchase and the Company has agreed to deliver substantial quantities (from 23.0 million pounds to 27.0 million pounds per month) of the molten aluminum produced at Century of West Virginia's reduction facility located in Ravenswood, West Virginia. Pricing for shipments to Pechiney is based on a market index as defined in the Metal Agreement. In addition, Pechiney is providing primary aluminum casting services to Century of West Virginia in connection with the excess molten aluminum produced at the Ravenswood, West Virginia reduction facility, which was not purchased by Pechiney. In connection with the transaction, the Company and Pechiney have entered into a Shared Facilities and Shared Services Agreement ("Shared Services Agreement") related to certain services, facilities, and related physical assets that will be shared between the parties. Additionally, as part of the agreement, the Company has agreed to indemnify Pechiney, up to certain limits, for certain claims and environmental matters. 3. INVENTORIES Inventories, at December 31, consist of the following: <TABLE> <CAPTION> 2000 1999 ------- ------- <S> <C> <C> Raw materials............................................... $27,784 $27,271 Work-in-process............................................. 3,286 2,899 Finished goods.............................................. 3,859 5,715 Operating and other supplies................................ 9,152 9,051 ------- ------- $44,081 $44,936 ======= ======= </TABLE> At December 31, 2000 and 1999, approximately 79% and 80%, respectively of inventories were valued at the lower of LIFO cost or market. The excess of the first-in, first-out ("FIFO") cost over the LIFO cost was approximately $490 at December 31, 2000. The excess of the LIFO cost (or market, if lower) of inventory over the FIFO cost was approximately $1,845 at December 31, 1999. Inventory at December 31, 2000 has been written down from LIFO cost to estimated net realizable value. Results of operations include non-cash charges of $1,631 and $12,272 for inventory write-downs and LIFO adjustments for the years ended December 31, 2000 and 1999, respectively. Cost of goods sold has been reduced by $1,759 for alumina sales to Glencore during the year ended December 31, 2000. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at December 31, consists of the following: <TABLE> <CAPTION> 2000 1999 -------- -------- <S> <C> <C> Land and improvements....................................... $ 11,935 $ 4,431 Buildings and improvements.................................. 28,180 20,824 Machinery and equipment..................................... 236,146 154,881 Construction in progress.................................... 20,942 23,304 -------- -------- 297,203 203,440 Less accumulated depreciation............................... 112,677 98,282 -------- -------- $184,526 $105,158 ======== ======== </TABLE> At December 31, 2000 and 1999, the cost of property, plant and equipment includes $136,349 and $56,605, respectively, and accumulated depreciation includes $28,376 and $22,781, respectively, representing the Company's undivided interest in the primary aluminum reduction facility in Mt. Holly, South Carolina. 30
32 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) The Company has various operating lease commitments through 2003 relating to machinery and equipment. Expenses under all operating leases were $310, $1,077 and $1,839 for the years ended December 31, 2000, 1999 and 1998, respectively. There were no noncancelable operating leases as of December 31, 2000. 5. DEBT On March 31, 1999, the Company entered into an agreement with BankBoston, N.A. and the CIT Group/Business Credit, Inc. ("Bank Agreement") to provide up to $160,000 of revolving credit facilities and a $20,000 term loan to refinance indebtedness, to finance certain capital expenditures and for other general corporate purposes. As a result of the Bank Agreement, the Company recorded an after tax extraordinary item of $1,362 to write-off deferred bank fees on its previous financing. The borrowing base for purposes of determining availability under the Bank Agreement was based upon certain eligible inventory and receivables. On September 15, 1999, the Bank Agreement was amended to permit the sale of the fabricating businesses to Pechiney and additionally required that on the closing date the Company repay all amounts outstanding under the revolving credit facilities (see Note 2 to the Consolidated Financial Statements). On September 21, 1999, the Company repaid its outstanding debt under the revolving credit facilities. Subsequently, the amount available on the revolving credit facilities was reduced from $160,000 to $67,083. The revolving credit facilities terminate on March 31, 2004. The Company pays a monthly commitment fee on the unused portion of the revolving credit facilities. The fee is based on the Company's level of performance with respect to a certain financial ratio. Interest on the revolving credit facilities is variable. The applicable rate is determined by adding a defined margin to a base rate. The margin is defined according to the Company's performance with respect to a certain financial ratio. The revolving credit facility provides for various restrictive covenants, including the following: (i) standard restrictions on dispositions of property and assets except in the ordinary course of business, (ii) restrictions on the incurrence of indebtedness and liens and the making of capital expenditures and investments, (iii) a prohibition on the payment of dividends except dividends up to $5,000 per year, (iv) a prohibition on change of business or change of control and (v) maintenance of certain financial ratios. 31
33 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) 6. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS AT DECEMBER 31 <TABLE> <CAPTION> 2000 1999 ------- ------- <S> <C> <C> ACCRUED AND OTHER CURRENT LIABILITIES Income taxes................................................ $ 6,621 $ -- Transaction related costs and accruals...................... -- 18,887 Salaries, wages and benefits................................ 4,453 3,564 Stock compensation.......................................... 1,947 2,236 Other....................................................... 4,718 3,083 ------- ------- $17,739 $27,770 ======= ======= ACCRUED EMPLOYEE BENEFIT COSTS -- Current Portion Postretirement benefits..................................... $ 2,100 $ 1,928 Employee benefits cost...................................... 2,724 2,674 ------- ------- $ 4,824 $ 4,602 ======= ======= OTHER LIABILITIES Workers' compensation....................................... $ 6,191 $ 7,795 Other....................................................... 369 1,278 ------- ------- $ 6,560 $ 9,073 ======= ======= </TABLE> Century of West Virginia is self-insured for workers' compensation, except for certain catastrophic coverage that is provided under State of West Virginia insurance programs. The liability for self-insured workers' compensation claims has been discounted at 6% at December 31, 2000 and 1999. The components of the liability for workers' compensation at December 31 are as follows: <TABLE> <CAPTION> 2000 1999 ------- ------- <S> <C> <C> Undiscounted liability...................................... $11,466 $14,886 Less discount............................................. 3,249 5,065 ------- ------- $ 8,217 $ 9,821 ======= ======= </TABLE> 7. PENSION AND OTHER POSTRETIREMENT BENEFITS Pension Benefits The Company maintains noncontributory defined benefit pension plans covering substantially all of its employees. For salaried employees, plan benefits are based primarily on years of service and average compensation during the later years of employment. For hourly employees, plan benefits are based primarily on a formula that provides a specific benefit for each year of service. The Company's funding policy is to contribute annually an amount based upon actuarial and economic assumptions designed to achieve adequate funding of the projected benefit obligations and to meet the minimum funding requirements of ERISA. Plan assets consist principally of U.S. equity securities, growth funds and fixed income accounts. As explained in Note 12, the Company agreed to make additional contributions to the hourly plan in connection with the initial public offering of the Company's common stock. In addition, the Company provides supplemental executive retirement benefits ("SERB") for its executive officers. 32
34 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) Other Postretirement Benefits (OPEB) In addition to providing pension benefits, the Company provides certain healthcare and life insurance benefits for substantially all retired employees. The Company accounts for these plans in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires the Company to accrue the estimated cost of providing postretirement benefits during the working careers of those employees who could become eligible for such benefits when they retire. The Company funds these benefits as the retirees submit claims. The change in benefit obligations and change in plan assets as of December 31 are as follows: <TABLE> <CAPTION> 2000 1999 ------------------ -------------------- PENSION OPEB PENSION OPEB ------- ------- -------- -------- <S> <C> <C> <C> <C> CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year........... $36,483 $41,146 $158,482 $161,461 Service cost...................................... 1,212 1,697 2,626 2,956 Interest cost..................................... 2,719 3,658 8,005 8,160 Change in liability due to sale of businesses..... -- -- (129,120) (132,661) Plan changes...................................... 2,015 (1,978) 9,769 801 (Gains) losses.................................... 1,956 10,665 (4,912) 8,589 Benefits paid..................................... (2,285) (2,543) (8,367) (8,160) ------- ------- -------- -------- Benefit obligation at end of year................. $42,100 $52,645 $ 36,483 $ 41,146 ======= ======= ======== ======== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year.... $40,724 $ -- $145,470 $ -- Actual return on plan assets...................... (1,005) -- 13,498 -- Change in assets due to sale of businesses........ -- -- (127,618) -- Employer contributions............................ 2,388 2,543 17,740 8,160 Benefits paid..................................... (2,285) (2,543) (8,366) (8,160) ------- ------- -------- -------- Fair value of assets at end of year............... $39,822 $ -- $ 40,724 $ -- ======= ======= ======== ======== FUNDED STATUS OF PLANS Funded status..................................... $ 2,278 $52,645 $ (4,241) $ 41,146 Unrecognized actuarial gain (loss)................ 1,409 (10,450) 8,079 -- Unrecognized transition obligation................ (755) -- (929) -- Unrecognized prior service cost................... (4,951) 2,075 (3,286) 105 ------- ------- -------- -------- Net liability (asset) recognized.................. $(2,019) $44,270 $ (377) $ 41,251 ======= ======= ======== ======== </TABLE> The hourly pension plan had an aggregate benefit obligation of $31,366 and $29,488 and an aggregate fair value of plan assets of $34,430 and $35,639 at December 31, 2000 and 1999, respectively. The salaried pension plan and SERB had an aggregate benefit obligation of $10,734 and $6,995 and an aggregate fair value of plan assets of $5,392 and $5,085 at December 31, 2000 and 1999, respectively. There are no plan assets in the SERB due to the nature of the plan. 33
35 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) Net periodic benefit costs were comprised of the following elements: <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 ----------------- ------------------- ------------------- PENSION OPEB PENSION OPEB PENSION OPEB ------- ------ -------- ------- -------- ------- <S> <C> <C> <C> <C> <C> <C> Service cost................. $1,212 $1,697 $ 2,625 $ 2,956 $ 3,004 $ 3,220 Interest cost................ 2,719 3,658 8,005 8,160 10,383 10,113 Expected return on plan assets..................... (3,601) -- (10,323) -- (11,468) -- Net amortization and deferral................... 416 207 1,010 732 978 670 ------ ------ -------- ------- -------- ------- Net periodic cost............ $ 746 $5,562 $ 1,317 $11,848 $ 2,897 $14,003 ====== ====== ======== ======= ======== ======= </TABLE> The following assumptions were used in the actuarial computations at December 31: <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Discount rate............................................... 7.25% 7.50% 6.75% Rate of increase in future compensation levels Hourly pension plan....................................... 4.00% 4.00% 4.00% Salaried pension plan..................................... 4.00% 4.00% 4.00% Long term rate of return on pension plan assets............. 9.00% 9.00% 9.00% </TABLE> For measurement purposes, a 6.00%, 6.00% and 5.50% annual rate increase in the per capita cost of covered health care benefits was assumed for 2000, 1999 and 1998, respectively. The rates were assumed to remain at 6.00% for 2001 and thereafter. A one-percentage-point increase in the assumed rate of inflation in future medical costs would increase the postretirement benefit obligation at December 31, 2000 by $458 and would increase aggregate 2000 service and interest cost by $1,156. A one-percentage-point decrease in the assumed rate of inflation in future medical costs would decrease the postretirement benefit obligation at December 31, 2000 by $358 and would decrease aggregate 2000 service and interest cost by $878. The Company sponsors a tax-deferred savings plan under which eligible employees may elect to contribute specified percentages of their compensation with the Company providing matching contributions of 60% of the first 6% of a participant's annual compensation contributed to the savings plan. One half of the Company's contribution is invested in the common stock of Century and one half of the Company's contribution is in cash. Company contributions to the savings plan were $241, $585 and $774 for the years ended December 31, 2000, 1999 and 1998, respectively. 8. SHAREHOLDERS' EQUITY Preferred Stock -- Under the Company's Restated Certificate of Incorporation, the Board of Directors is authorized to issue up to 5,000,000 shares of preferred stock, with a par value of one cent per share, in one or more series. The authorized but unissued preferred shares may be issued with such dividend rates, conversion privileges, voting rights, redemption prices and liquidation preferences as the Board of Directors may determine, without action by shareholders. 9. STOCK BASED COMPENSATION 1996 Stock Incentive Plan -- The Company adopted the 1996 Stock Incentive Plan (the "Stock Incentive Plan") for the purpose of awarding performance share units and granting qualified incentive stock options and nonqualified stock options to salaried officers and other key employees of the Company. The Stock Incentive Plan has a term of ten years from its effective date. The number of shares available under the Stock 34
36 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) Incentive Plan is 1,500,000. Granted stock options vest one-third on the grant date and an additional one-third on each of the first and second anniversary dates. The Company awarded 460,000 service based performance share units at the time of the initial public offering and 60,500 units during 2000 for no consideration. The service based performance share units represent the right to receive common stock, on a one-for-one basis on their vesting dates. The value of the service based performance share units is $13 per share for the initial award and $12.86 per share for the units awarded in 2000. The value of the 460,000 units granted in 1996 is being charged to compensation expense over their five year vesting period, which is one-third at the end of each of the third, fourth and fifth anniversary dates. The value of the 60,500 units granted in 2000 is being charged to compensation expense over their three year vesting period which is one-third at January 1, 2001, 2002 and 2003, respectively. During 2000, 136,665 of the service based performance shares became vested and were converted to Common Stock. The Stock Incentive Plan, as presently administered, provides for additional grants upon the attainment of certain established performance goals. As of December 31, 2000, approximately 450,000 performance share units have been authorized and will vest upon the attainment of the performance goals. In 2000, the Company recognized $988 of expense related to the Stock Incentive Plan. The service based performance share units do not affect the issued and outstanding shares of common stock until conversion at the end of the vesting periods. However, the service based performance share units are considered common stock equivalents and therefore are included, using the treasury stock method, in average common shares outstanding for diluted earnings per share computations. Goal based performance share units are not considered common stock equivalents until it becomes probable that performance goals will be obtained. The Company applies APB Opinion 25 and related interpretations in accounting for the 1996 Stock Incentive Plan. Accordingly, no compensation cost has been recognized for the stock option portions of the plan. Had compensation cost for the Stock Incentive Plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have changed to the pro forma amounts indicated below: <TABLE> <CAPTION> 2000 1999 1998 ------- ------ ------- <S> <C> <C> <C> Net Income As Reported.......................................... $25,305 $3,919 $17,937 Pro Forma............................................ $25,115 $4,074 $17,568 Basic earnings per share As Reported.......................................... $ 1.25 $ 0.19 $ 0.90 Pro Forma............................................ $ 1.24 $ 0.20 $ 0.88 Diluted earnings per share As Reported.......................................... $ 1.24 $ 0.19 $ 0.89 Pro Forma............................................ $ 1.23 $ 0.20 $ 0.87 </TABLE> Non-Employee Directors Stock Option Plan -- The Company adopted a non-employee directors stock option plan for the purpose of granting non-qualified stock options to non-employee directors. The number of shares available under this plan is 200,000, of which options for 103,000 shares have been awarded. The initial options vest one-third on the grant date and an additional one-third on each of the first and second anniversary dates. Subsequent options vest one-fourth each calendar quarter. Each option granted under this plan will be exercisable for a period of ten years from the date of grant. 35
37 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) A summary of the status of the Company's Stock Incentive Plan and the Non-Employee Directors Stock Option Plan as of December 31, 2000, 1999 and 1998 and changes during the year ended on those dates is presented below: <TABLE> <CAPTION> 2000 1999 1998 ------------------- -------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE - ------- ------- -------- -------- -------- ------- -------- <S> <C> <C> <C> <C> <C> <C> Outstanding at beginning of year........................ 530,200 $13.19 609,900 $13.15 595,600 $13.31 Granted..................... 73,400 10.45 23,500 9.26 102,900 14.01 Exercised................... -- -- (333) 8.63 -- -- Forfeited................... -- -- (102,867) 12.58 (88,600) 15.22 ------- ------ -------- ------ ------- ------ Outstanding at end of year.... 603,600 $12.77 530,200 $13.19 609,900 $13.15 ======= ====== ======== ====== ======= ====== </TABLE> The following table summarizes information about stock options outstanding at December 31, 2000: <TABLE> <CAPTION> OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------------- ------------------------------- NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE AT WEIGHTED-AVG. EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE PRICE 12/31/00 EXERCISE PRICE - --------------- ----------- ---------------- ------------- -------------- -------------- <S> <C> <C> <C> <C> <C> $14.50 to $16.72 45,500 6.1 years $15.83 45,500 $15.83 $11.50 to $14.49 500,800 5.6 years $13.01 477,133 $13.02 $ 7.03 to $11.49 57,300 9.3 years $ 8.25 33,700 $ 8.69 </TABLE> The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000 and 1999: <TABLE> <CAPTION> 2000 1999 ----- ----- <S> <C> <C> Weighted average fair value per option granted during the year...................................................... $4.05 $2.77 Dividends per quarter....................................... $0.05 $0.05 Risk-free interest rate..................................... 6.47% 5.54% Expected volatility......................................... 30% 30% Expected lives (in years)................................... 5 5 </TABLE> 36
38 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) 10. EARNINGS PER SHARE Basic and diluted earnings per share for income from continuing operations for the years ended December 31, are as follows (shares in thousands): <TABLE> <CAPTION> 2000 1999 1998 ------- ------- ------- <S> <C> <C> <C> BASIC EARNINGS PER SHARE: Numerator: Net income available to common shareholders......... $25,305 $ 3,919 $17,937 Denominator: Average common shares outstanding................... 20,308 20,202 20,000 ------- ------- ------- Basic earnings per share.............................. $ 1.25 $ 0.19 $ 0.90 ======= ======= ======= DILUTED EARNINGS PER SHARE: Numerator: Net income available to common shareholders......... $25,305 $ 3,919 $17,937 Denominator: Average common shares outstanding................... 20,308 20,202 20,000 Effect of dilutive securities: Stock options and performance awards................ 170 155 266 ------- ------- ------- Common shares outstanding, assuming dilution.......... 20,478 20,357 20,266 ------- ------- ------- Diluted earnings per share............................ $ 1.24 $ 0.19 $ 0.89 ======= ======= ======= </TABLE> 11. INCOME TAXES Significant components of the income tax expense from continuing operations consist of the following: <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 -------- ------- -------- <S> <C> <C> <C> FEDERAL: Current benefit (expense)......................... $ 656 $18,850 $(12,487) Deferred (expense) benefit........................ (10,101) (19,183) 3,592 STATE: Current benefit (expense)......................... 491 2,544 (1,482) Deferred (expense) benefit........................ (2,347) (2,839) 175 -------- ------- -------- Total income tax expense....................... $(11,301) $ (628) $(10,202) ======== ======= ======== </TABLE> Income tax expense for the years ended December 31, 2000 and 1999 include reductions in estimated income taxes payable of $2,400 and $1,500, respectively. 37
39 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) A reconciliation of the statutory U.S. Federal income tax rate to the effective income tax rate on income from continuing operations is as follows: <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Federal statutory rate...................................... 35% 35% 35% Effect of: Permanent differences..................................... 1 (2) (2) State taxes, net of Federal benefit....................... 3 3 3 Other..................................................... (8) (25) -- -- --- -- 31% 11% 36% == === == </TABLE> Permanent differences primarily relate to the Company's foreign sales corporation and the meal and entertainment disallowance. Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows: <TABLE> <CAPTION> 2000 1999 -------- -------- <S> <C> <C> FEDERAL Deferred federal tax assets: Accrued postretirement benefit cost....................... $ 1,035 $ -- Accrued liabilities....................................... 5,196 8,758 Federal NOL carried forward............................... -- 2,587 General business credit................................... 165 165 -------- -------- Net deferred federal tax assets........................ 6,396 11,510 Deferred federal tax liabilities: Tax over financial statement depreciation................. (23,018) (18,356) -------- -------- Net deferred federal tax (liability) asset........ (16,622) (6,846) -------- -------- STATE Deferred state tax assets: Accrued postretirement benefit cost....................... 148 -- Accrued liabilities....................................... 680 1,217 State NOL carried forward................................. 1,222 2,343 -------- -------- Net deferred state tax assets.......................... 2,050 3,560 Deferred state tax liabilities: Tax over financial statement depreciation................. (3,288) (2,126) -------- -------- Net deferred state tax asset...................... (1,238) 1,434 -------- -------- Net deferred tax (liability) asset.......................... $(17,860) $ (5,412) ======== ======== </TABLE> Of the $17,860 net deferred tax liability at December 31, 2000, $4,265 is included in current assets. Of the $5,412 net deferred tax liability at December 31, 1999, $1,366 is included in current assets. 38
40 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) 12. CONTINGENCIES AND COMMITMENTS Environmental Contingencies The Company spends significant amounts for compliance with environmental laws and regulations. While the Company believes, based upon information currently available to management, that it will not have liabilities in this regard which are likely to have a material adverse effect on the Company, there can be no assurance that future remedial requirements at currently and formerly owned or operated properties or adjacent areas will not result in a material adverse effect on the Company's financial condition, results of operations or liquidity. The 1990 amendments to the Clean Air Act impose stringent standards on aluminum industry air emissions. These amendments will affect the operations of the Company's facilities. Technology-based standards relating to smelters and carbon plants have been promulgated. However, the Company cannot predict the total expenditures the Company will incur to comply with these standards. The Company's general capital expenditure plan includes certain projects designed to improve the Company's compliance with respect to both known and anticipated requirements. Pursuant to an Environmental Protection Agency ("EPA") order issued in 1994 under Section 3008(h) (the "3008(h) order") of the Resource Conservation and Recovery Act ("RCRA"), Century of West Virginia is performing remediation measures at a former oil pond area and in connection with cyanide contamination in the groundwater. Century of West Virginia also conducted and, in December 1999, submitted to the EPA a RCRA facility investigation ("RFI") evaluating other areas that may have contamination exceeding certain levels. After the RFI is complete, Ravenswood will have 60 days within which to submit a corrective measures study ("CMS") to the EPA proposing means of remediating areas that may require cleanup. If any cleanup is required, EPA would issue a subsequent order. Ravenswood believes this process will not be completed before mid 2001. The Company is aware of some environmental contamination at Ravenswood, and it is likely cleanup activities will be required in two areas of the facility. Ravenswood believes a significant portion of this contamination is attributable to the operations of a prior owner and will be the financial responsibility of that owner, as discussed below. Prior to the Company's acquisition of Ravenswood, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated the facility for approximately thirty years. Many of the conditions which Ravenswood investigated under the 3008(h) order exist because of activities which occurred during Kaiser's ownership and operation. With respect to those conditions, Kaiser will be responsible for the costs of required cleanup under the terms of the Kaiser Purchase Agreement. In addition, Kaiser retained title to certain land within the Ravenswood premises and retains full responsibility for those areas. Under current environmental laws, the Company may be required to remediate any contamination which was discharged from areas which Kaiser owns or previously owned or operated. However, if such remediation is required, the Company believes Kaiser will be liable for some or all of the costs thereof pursuant to the Kaiser Purchase Agreement. In connection with the sale to Pechiney of the fabricating businesses, the Company and Century of West Virginia provided Pechiney with certain indemnifications. Those include the indemnification rights Century of West Virginia and the Company, respectively, have under the Kaiser Purchase Agreement (with respect to the real property transferred to Pechiney) and the Company's Cast Plate, Inc., Stock Purchase Agreement with Alcoa. The Pechiney Purchase Agreement provides further indemnifications which are limited, in general, to pre-closing conditions which were not disclosed to Pechiney or to off site migration of hazardous substances from pre-closing acts or omissions of Century of West Virginia. Environmental indemnifications under the Pechiney Purchase Agreement expire September 20, 2005. They are payable only to the extent they exceed $2,000. 39
41 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) The Company, together with all other past and present owners of an alumina facility at St. Croix, Virgin Islands, has entered into an Administrative Order on Consent with the Environmental Protection Agency ("Order") pursuant to which the signatories have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage oil floating on top of groundwater underlying the facility. 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 compensate the other signatories by paying them the fair market value for the petroleum 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. The Company also gave certain environmental indemnity rights to St. Croix Alumina, LLC ("St. Croix"), an indirect affiliate of Alcoa, Inc., when it sold the facility to St. Croix. Those rights extend only to environmental conditions arising from Vialco's operation of the facility and then only after St. Croix has spent $300 on such conditions. Management does not believe Vialco will have any indemnification obligation to St. Croix arising out of the Order. Further, management does not believe Vialco's liability under this Order will have a material adverse effect on the Company's financial condition, results of operations, or liquidity. It is the Company's policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental related accrued liabilities were $900 at December 31, 2000 and 1999. All accruals have been recorded without giving effect to any possible 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 material adverse effect on the Company's financial condition, results of operations, or liquidity. Legal Contingencies While Century of West Virginia has been a named defendant (along with many other companies) in approximately 2,362 civil actions brought by employees of third party contractors who allege 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 settled as to the Company and as to Kaiser. Approximately 10 of those civil actions alleged exposure during the period the Company owned Ravenswood, and the Company has agreed to settlements for non-material amounts. The Company is awaiting receipt of final documentation of those settlements and entry of dismissal orders. Management believes there are no unsettled asbestos cases pending against the Company. The Company has pending against it or may be subject to various other lawsuits, claims and proceedings related primarily to employment, commercial, environmental and safety and health matters. Although it is not presently possible to determine the outcome of these matters, management believes their ultimate disposition will not have a material adverse effect on the Company's financial condition, results of operations, or liquidity. In August 1999, an illegal, one-day work stoppage temporarily shut down one of the Company's four production lines at the Century of West Virginia facility. The cost of this work stoppage is estimated to be approximately $10,000 including equipment damaged as a result of the production line shutdown. During 2000, the Company filed a claim with its insurance carrier for business interruption and equipment damage relative to the work stoppage and has received partial settlement of approximately $6,100. The receipts from 40
42 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) the claim have been included in the statement of operations under the caption "Other Income (Expense) -- Net". Commitments To fulfill its power requirements at Ravenswood, the Company purchases electricity from Ohio Power at a fixed price pursuant to a power supply agreement which terminates on July 31, 2003. Power for Mt. Holly is provided under a contract with the South Carolina Public Service Authority. That contract provides fixed pricing but is subject to modification for fuel adjustments and demand sales. It terminates December 31, 2005. On January 23, 1996, the Company and the Pension Benefit Guaranty Corporation ("PBGC") entered into an agreement (the "PBGC Agreement") which provided that the Company make scheduled cash contributions to its pension plan for hourly employees in 1996, 1997, 1998 and 1999. The Company made its scheduled contributions for each of the years. As part of the agreement, the Company had granted the PBGC a first priority security interest in (i) the property, plant and equipment at its Century of West Virginia facility and (ii) all of the outstanding shares of Berkeley. On February 2, 2001 the agreement with the PBGC, dated January 23, 1996, was terminated and the PBGC agreed to release its first priority security interest. Other Century of West Virginia's hourly employees, which comprise 81% of the Company's workforce are represented by the United Steelworkers of America and are currently working under a four year labor agreement effective June 1, 1999. 13. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS The Company produces primary aluminum products and manages risk through the issuance of fixed-price commitments and financial instruments. In connection with the sale of the aluminum fabricating businesses in September 1999, the Company entered into a Molten Aluminum Purchase Agreement (the "Metal Agreement") with Pechiney, that shall continue in effect until July 31, 2003 with provisions for extension. Pursuant to the Metal Agreement, Pechiney has agreed to purchase and the Company has agreed to deliver, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum. The selling price is determined by a market based formula. Subsequent to the purchase of an additional 23% interest in Mt. Holly from Xstrata, the Company entered into a ten year agreement with Glencore (the "Glencore Metal Agreement") to sell approximately 110.0 million pounds of primary aluminum products per year. Selling prices for the first two years are determined by a market based formula. The remaining eight years of the contract are at a fixed price as defined in the agreement. Exclusive of the Metal Agreement and the Glencore Metal Agreement, the Company had fixed price commitments to sell 50.3 million pounds and 124.4 million pounds of primary aluminum at December 31, 2000 and 1999, respectively. Of the total fixed-price sales commitments, 14.7 million pounds and 68.3 million pounds at December 31, 2000 and 1999, respectively, were with the Glencore Group. The Company had no fixed-price commitments to purchase aluminum at December 31, 2000 or 1999. In order to manage the Company's exposure to fluctuating commodity prices, the Company enters into forward sales contracts for primary aluminum that will be settled in cash. These contracts are used to offset fluctuations in the selling price of anticipated sales occurring in the month the contracts are settled. The Company had forward sales contracts for 453.5 million and 60.0 million pounds of primary aluminum to be settled in cash at December 31, 2000 and 1999, respectively. Of these contracts, 396.4 million and 60.0 million 41
43 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) pounds were with the Glencore Group at December 31, 2000 and 1999, respectively. The forward sales contracts at December 31, 2000 are scheduled for settlement at various dates in 2001 thru 2003. Based on market prices at December 31, 2000, the forward sales contracts could be settled by the Company receiving approximately $1,734. The actual settlement will be based on market prices on the respective settlement dates. On January 1, 2001, the Company designated the forward sales contracts as hedges and will account for gains and losses pursuant to FAS No. 133 as amended by FAS No. 138. Prior to January 1, 2001, realized and unrealized gains and losses on forward sales contracts have been reported in the statement of operations under the caption "Net Gain (Loss) on Forward Contracts". The Company also enters into forward purchase contracts for natural gas that will be settled in cash. These contracts are intended to manage the Company's exposure to fluctuations in prices of the natural gas used in its production process. The Company has designated these contracts as a hedge. Accordingly, unrealized gains and losses are deferred until the hedged purchase of natural gas occurs. Unrealized gains and losses are recorded in the balance sheet under the captions "Prepaid and Other Assets" and "Accrued and Other Current Liabilities". Based on market prices at December 31, 2000, the forward purchase contracts could be settled by the Company receiving approximately $1,514. The forward sales and purchase contracts are subject to the risk of non-performance by the counterparties. However, the Company only enters into forward 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. The Company entered into a long-term supply agreement for 936.0 million pounds of alumina annually, beginning January 1, 1996. That agreement will terminate at the end of 2001 and be replaced by a new long-term supply agreement with Glencore. This new agreement provides for a fixed quantity of alumina at prices determined by a market-based formula. In addition, as part of its acquisition of an additional 23% interest in Mt. Holly, the Company assumed a supply agreement with Glencore for the alumina raw material requirements relative to the additional interest. The unit cost is also determined by a market based formula. The alumina supply agreement terminates in 2008. Although the Company has not materially participated in the purchase of call options, in cases where Century sells forward primary aluminum, it may purchase call options to preserve the opportunity to benefit from price increases significantly above the forward sales prices. In addition, in cases where the Company purchases forward primary aluminum, it may purchase put options to protect itself from price decreases. 14. RELATED PARTY TRANSACTIONS The significant related party transactions occurring during the years ended December 31, 2000, 1999 and 1998, and not discussed elsewhere in the notes to the consolidated financial statements, are described below. Related Party Transactions -- Century During the years 1998, 1999 and 2000 and at December 31, 2000, the Chairman of the Board of Directors of Century was a member of the Board of Directors of Glencore International AG. In addition, during the years ended and at December 31, 2000, 1999 and 1998, one of Century's Board members was the Chairman of the Board of Directors of Glencore International AG. 42
44 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) Related Party Transactions -- Century of West Virginia During the years ended December 31, 2000, 1999 and 1998, Century of West Virginia purchased and sold alumina, primary and scrap aluminum in transactions with Glencore at prices which management believes approximated market. Related Party Transactions -- Berkeley A substantial portion of Berkeley's sales during the years ended December 31, 2000, 1999 and 1998 were to Glencore. Summary A summary of the aforementioned related party transactions for the years ended December 31, 2000, 1999 and 1998 is as follows: <TABLE> <CAPTION> 2000 1999 1998 -------- ------- ------- <S> <C> <C> <C> Net sales............................................ $129,320 $68,801 $74,252 Purchases............................................ 16,993 63,256 43,651 Net gain (loss) on forward contracts................. 2,261 (5,368) 10,574 </TABLE> See Note 13 for a discussion of the Company's fixed-price commitments and forward contracts with related parties. 15. SUPPLEMENTAL CASH FLOW INFORMATION <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 1998 ------- ------ ------ <S> <C> <C> <C> Cash paid for: Interest.............................................. $ 371 $6,305 $5,528 Income taxes.......................................... 771 2,021 9,850 Cash received from: Interest.............................................. 2,675 1,670 -- Income tax refunds.................................... 13,322 174 5,584 </TABLE> Non-Cash Investing Activities During the years ended December 31, 1999 and 1998, $1,845 and $3,242, respectively, of interest cost incurred in the construction of equipment was capitalized. No interest was capitalized during the year ended December 31, 2000. 16. BUSINESS SEGMENTS Prior to September 21, 1999, the Company operated in two reportable business segments; primary aluminum and sheet and plate products. The primary aluminum segment produces rolling ingot, t-ingot, extrusion billet and foundry ingot. The sheet and plate segment produced a wide range of products such as brazing sheet for sale to automobile manufacturers, heat treated and non-heat treated plate for sale to aerospace and defense manufacturers, heavy gauge, wide-leveled coil for sale to heavy truck, truck trailer, marine and rail car manufacturers and sheet and coil for sale to building products manufacturers. The accounting policies of the segments were the same as those described in Note 1 "Summary of Significant Accounting Policies" except that intersegment revenues were accounted for based upon a market- 43
45 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) based standard established by the Company. The Company evaluated segment performance based upon gross profit. Effective with the sale of the sheet and plate segment to Pechiney on September 21, 1999, the Company now operates in one business segment: primary aluminum. <TABLE> <CAPTION> CORPORATE, UNALLOCATED & PRIMARY SHEET AND PLATE ELIMINATIONS TOTAL -------- --------------- ------------- -------- <S> <C> <C> <C> <C> 2000 Net Sales Third-party and intersegment customers........ $299,277 $ -- $ -- $299,277 Related party customers....................... 129,320 -- -- 129,320 Depreciation and amortization................... 14,208 -- 187 14,395 Segment gross profit (loss)(4).................. 32,645 -- (187) 32,458 Segment assets(1)............................... 327,131 -- 6,639 333,770 Expenditures for segment assets................. 17,631 -- -- 17,631 1999 Net Sales Third-party and intersegment customers........ $248,569 $385,754 $(136,848) $497,475 Related party customers....................... 68,801 -- -- 68,801 Depreciation and amortization................... 9,986 8,577 186 18,749 Segment gross profit (loss)(2)(3)............... (17,232) 10,773 (186) (6,645) Segment assets(1)............................... 303,992 -- 6,810 310,802 Expenditures for segment assets................. 14,737 8,246 -- 22,983 1998 Net Sales Third-party and intersegment customers........ $276,025 $534,522 $(234,541) $576,006 Related party customers....................... 74,252 -- -- 74,252 Depreciation and amortization................... 9,308 10,191 186 19,685 Segment gross profit (loss)..................... 28,791 9,857 (186) 38,462 Segment assets(1)............................... 181,383 353,028 11,219 545,630 Expenditures for segment assets................. 19,132 25,126 1 44,259 </TABLE> - --------------- (1) Segment assets include accounts receivable, due from affiliates, inventory and property, plant and equipment-net, the remaining assets are unallocated corporate assets, deferred tax assets and intersegment eliminations. (2) The primary segment includes a non-cash charge of $4,623 for inventory writedowns and LIFO adjustments. (3) The sheet and plate segment includes a non-cash charge of $7,649 for inventory writedowns and LIFO adjustments. (4) Includes a non-cash charge of $1,631 for inventory writedowns. 44
46 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) Included in the consolidated financial statements are the following amounts related to geographic locations: <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Net Sales United States.................................... $428,597 $501,655 $568,136 Canada........................................... -- 38,572 54,763 Europe........................................... -- 15,840 14,611 Other............................................ -- 10,209 12,748 </TABLE> At December 31, 2000 and 1999, all of the Company's long-lived assets were located in the United States. Revenues from one customer, Glencore, represented 30.2%, 12.1% and 11.4% of the Company's consolidated revenues in 2000, 1999 and 1998, respectively. Revenues from another customer represented 55.1% and 10.4% of the Company's consolidated sales in 2000 and 1999, respectively. Revenues from this customer in 1998 were less than 10% of the Company's consolidated revenues. 17. QUARTERLY INFORMATION (UNAUDITED) On September 21, 1999, the Company and Century of West Virginia sold their fabricating businesses. Accordingly, the following information includes the operations of these businesses through September 21, 1999. Effective April 1, 2000, the Company acquired an additional 23% interest in Mt. Holly and the following information contains the results of the acquisition from that date. Financial results by quarter for the years ended December 31, 2000 and 1999 are as follows: <TABLE> <CAPTION> GROSS INCOME (LOSS) INCOME (LOSS) NET PROFIT BEFORE PER SHARE BEFORE NET INCOME SALES (LOSS) EXTRAORDINARY ITEM NET INCOME EXTRAORDINARY ITEM PER SHARE -------- ------- ------------------ ---------- ------------------ ---------- <S> <C> <C> <C> <C> <C> <C> 2000: 1st Quarter(1)....... $ 96,449 $ 8,167 $ 5,627 $ 5,627 $ 0.28 $ 0.28 2nd Quarter(2)(3).... 109,065 7,873 6,897 6,897 0.34 0.34 3rd Quarter.......... 111,103 8,077 4,349 4,349 0.21 0.21 4th Quarter(4)....... 111,980 8,341 8,432 8,432 0.41 0.41 1999: 1st Quarter.......... $163,359 $ 1,559 $(2,759) $(2,759) $(0.14) $(0.14) 2nd Quarter(5)....... 169,006 (827) (5,080) (5,080) (0.25) (0.25) 3rd Quarter(6)(7).... 153,045 (7,144) 16,649 15,287 0.82 0.76 4th Quarter(8)....... 80,866 (233) (3,529) (3,529) (0.17) (0.17) </TABLE> - --------------- (1) The first quarter 2000 gross profit includes non-cash charges of $1,631 for inventory writedowns. (2) The second quarter 2000 income before extraordinary item includes an additional pre-tax gain on the sale of the fabricating businesses of $5,156. (3) The second quarter 2000 income before extraordinary item includes proceeds of $3,000 in partial settlement of the Company's claim with its insurance carrier. (4) The fourth quarter 2000 income before extraordinary item includes proceeds of $3,065 in partial settlement of the Company's claim with its insurance carrier. 45
47 CENTURY ALUMINUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 -- (CONTINUED) (5) The second quarter 1999 gross profit includes non-cash charges of $3,842 for inventory write-downs and LIFO adjustments. (6) The third quarter 1999 gross profit includes non-cash charges of $11,748 for inventory writedowns and LIFO adjustments. (7) The Company recorded a pre-tax gain on the sale of the fabricating businesses of $41,130 and an after-tax extraordinary charge of $1,362 to write-off deferred debt fees in the third quarter of 1999. (8) The fourth quarter 1999 gross profit includes a non-cash credit of $3,318 for the net effect of inventory writedowns and LIFO adjustments. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 46
48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This Item will be included in an amendment to this report on Form 10-K to be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K. The information regarding Executive Officers of the Registrant is included in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION This Item will be included in an amendment to this report on Form 10-K to be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This Item will be included in an amendment to this report on Form 10-K to be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This Item will be included in an amendment to this report on Form 10-K to be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) LIST OF FINANCIAL STATEMENTS The following Consolidated Financial Statements of Century Aluminum Company and the Independent Auditors' Report are included in Part II, Item 8 of this Form 10-K. Independent Auditors' Report. Consolidated Balance Sheets at December 31, 2000 and 1999. Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998. Notes to the Consolidated Financial Statements. 47
49 (a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES Independent Auditors' Report. Schedule I -- Condensed Financial Information of Registrant as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000. Schedule II -- Valuation and Qualifying Accounts for the years ended December 31, 2000, 1999 and 1998. (a)(3) LIST OF EXHIBITS <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- <C> <S> 2.1 Stock and Asset Purchase Agreement dated July 26, 1999 by and among Century Aluminum Company, Century Aluminum of West Virginia, Inc. and Pechiney Rolled Products LLC(f) 2.2 Management Services Agreement dated as of September 21, 1999 by and between Century Aluminum Company and Pechiney Rolled Products LLC(f) 2.3 Molten Aluminum Purchase Agreement dated as of September 21, 1999 by and between Century Aluminum of West Virginia, Inc. and Pechiney Rolled Products LLC(f) 2.4 Amended and Restated Shared Facilities and Services Agreement dated as of September 21, 1999 by and between Century Aluminum of West Virginia, Inc. and Pechiney Rolled Products LLC(f) 3.1 Restated Certificate of Incorporation of Registrant.* 3.2 Amended and Restated Bylaws of Registrant, dated March 5, 1999.(e) 4.1 Form of Stock Certificate.* 10.1 Revolving Credit and Term Loan Agreement among Century Aluminum Company, Century Aluminum of West Virginia, Inc., Berkeley Aluminum, Inc., and Century Cast Plate, Inc., as Borrowers, various lending institutions, as lenders, BankBoston, N.A., as Agent, The CIT Group/ Business Credit, Inc., as Co-Agent, and BancBoston Robertson Stephens Inc., as Arranger, dated as of March 31, 1999.(e) 10.2 Alumina Supply Agreement between Alcoa Alumina & Chemicals, L.L.C., Alcoa of Australia, Ltd. and Ravenswood Aluminum Corporation, dated July 24, 1995.*(a) 10.4 Agreement between Ravenswood Aluminum Corporation and United Steelworkers of America AFL-CIO, Local 5668, dated November 30, 1994.* 10.5 Agreement between Ravenswood Aluminum Corporation and United Steelworkers of America AFL-CIO, Local 5668, dated June 12, 1992.* 10.6 Employment Agreement between Century Aluminum Company and Craig A. Davis.(b)(e) 10.7 Employment Agreement between Century Aluminum Company and Gerald A. Meyers.(b)(e) 10.8 Employment Agreement between Century Aluminum Company and Gerald J. Kitchen.(b)(e) 10.9 Employment Agreement between Century Aluminum Company and David W. Beckley.(b)(e) 10.10 Form of Employment Agreement between Century Aluminum Company and Steven R. Sedberry.*(b) 10.11 Form of Severance Agreement between Century Aluminum Company and Craig A. Davis.*(b) 10.11a Amendment to Severance Protection Agreement between Century Aluminum Company and Craig A. Davis(e) 10.12 Form of Severance Agreement between Century Aluminum Company and Gerald A. Meyers.*(b) 10.12a Amendment to Severance Protection Agreement between Century Aluminum Company and Gerald A. Meyers(e) 10.13 Form of Severance Agreement between Century Aluminum Company and Gerald J. Kitchen.*(b) </TABLE> 48
50 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- <C> <S> 10.13a Amendment to Severance Protection Agreement between Century Aluminum Company and Gerald J. Kitchen(e) 10.14 Form of Severance Agreement between Century Aluminum Company and David W. Beckley.*(b) 10.14a Amendment to Severance Protection Agreement between Century Aluminum Company and David W. Beckley(e) 10.15 Form of Severance Agreement between Century Aluminum Company and Steven R. Sedberry.*(b) 10.16 1996 Stock Incentive Plan as amended through June 8, 1999.(b)(e) 10.17 Non-Employee Directors Stock Option Plan.*(b) 10.18 Amended and Restated Asset Purchase Agreement between Kaiser Aluminum & Chemical Corporation and Ravenswood Acquisition Corporation, dated as of December 13, 1988.* 10.19 Acquisition Agreement between Virgin Islands Alumina Corporation and St. Croix Alumina, L.L.C., dated July 19, 1995.* 10.20 Ravenswood Environmental Services Agreement between Kaiser Aluminum & Chemical Corporation and Ravenswood Aluminum Corporation, dated as of February 7, 1989.* 10.21 Asset Purchase Agreement Between Xstrata Aluminum Corporation and Berkeley Aluminum, Inc. dated as of March 31, 2000 (g) 10.22 Form of Tax Sharing Agreement.* 10.23 Form of Disaffiliation Agreement.* 10.26 Amended and Restated Owners Agreement between Alumax of South Carolina, Inc., Berkeley Aluminum, Inc. and Glencore Primary Aluminum Company LLC, dated as of January 26, 1996.* 10.27 Limited Term Firm Power Supply Agreement between Ravenswood Aluminum Corporation and Ohio Power Company dated as of June 28, 1996.(c) 10.28 Amendment No. 1 to the Limited Term Firm Power Supply Agreement between Ravenswood Aluminum Corporation and Ohio Power Company dated as of June 28, 1996.(c) 10.29 Tenth Amendment to Loan and Security Agreement by and among Century Aluminum of West Virginia, Inc. and Berkeley Aluminum, Inc. and BankAmerica Business Credit, Inc. entered into as of May 11,1998.(d) 10.30 Century Aluminum Company 1996 Stock Incentive Plan Implementation Guidelines.(b)(d) 10.31 Century Aluminum Company Incentive Compensation Plan.(b)(d) </TABLE> 49
51 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- <C> <S> 21.1 List of Subsidiaries. 23.1 Consent of Deloitte & Touche LLP. </TABLE> - --------------- * Incorporated by reference to the Registrant's Form S-1 Registration Statement, as amended, Registration No. 33-95486. (a) Confidential treatment has been granted as to portions of this exhibit. (b) Management contract or compensatory plan. (c) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (d) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (e) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. (f) Incorporated by reference to the Registrant's Report on Form 8-K dated October 6, 1999. (g) Incorporated by reference to the Registrant's Report on Form 8-K dated April 20, 2000. (B) REPORTS ON FORM 8-K: NONE 50
52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURY ALUMINUM COMPANY By: /s/ GERALD A. MEYERS ------------------------------------ Gerald A. Meyers President and Chief Operating Officer Dated: March 9, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. <TABLE> <CAPTION> SIGNATURE TITLE DATE --------- ----- ---- <C> <S> <C> /s/ CRAIG A. DAVIS Chairman and Chief Executive March 9, 2001 - --------------------------------------------------- Officer Craig A. Davis /s/ WILLIAM HAMPSHIRE Vice-Chairman March 9, 2001 - --------------------------------------------------- William R. Hampshire /s/ GERALD A. MEYERS President, Chief Operating March 9, 2001 - --------------------------------------------------- Officer and Director Gerald A. Meyers /s/ DAVID W. BECKLEY Executive Vice President and March 9, 2001 - --------------------------------------------------- Chief Financial Officer David W. Beckley (Principal Financial Officer and Principal Accounting Officer) /s/ ROMAN A. BNINSKI Director March 9, 2001 - --------------------------------------------------- Roman A. Bninski /s/ JOHN P. O'BRIEN Director March 9, 2001 - --------------------------------------------------- John P. O'Brien /s/ STUART M. SCHREIBER Director March 9, 2001 - --------------------------------------------------- Stuart M. Schreiber </TABLE> 51
53 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Century Aluminum Company: We have audited the consolidated financial statements of Century Aluminum Company and subsidiaries (the "Company") as of December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, and have issued our report thereon dated February 16, 2001 included elsewhere in this Form 10-K. Our audits also included the financial statement schedules listed in Item 14 of this Form 10-K. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania February 16, 2001 52
54 CENTURY ALUMINUM COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS <TABLE> <CAPTION> DECEMBER 31, ---------------------- 2000 1999 --------- --------- (DOLLARS IN THOUSANDS) <S> <C> <C> ASSETS Prepaid and Other Assets.................................... $ 2,610 $ 316 -------- -------- Total current assets................................... 2,610 316 Property, Plant and Equipment, Net.......................... 662 843 Investments in Wholly-Owned Subsidiaries.................... 217,707 192,402 -------- -------- Total............................................. $220,979 $193,561 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Due to Subsidiaries......................................... $ 14,257 $ 9,873 Accrued and Other Current Liabilities....................... 3,267 2,427 -------- -------- Current Liabilities.................................... 17,524 12,300 Other Liabilities........................................... 816 1,533 Contingencies and Commitments (Note 2) Shareholders' Equity Common Stock.............................................. 203 202 Additional paid-in capital................................ 166,184 164,409 Retained earnings......................................... 36,252 15,117 -------- -------- Total shareholders' equity............................. 202,639 179,728 -------- -------- Total............................................. $220,979 $193,561 ======== ======== </TABLE> See notes to condensed financial information 53
55 CENTURY ALUMINUM COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Selling, General and Administrative Expenses................ $ 9,717 $10,599 $ 9,268 ------- ------- ------- Operating (Loss) Income..................................... (9,717) (10,599) (9,268) Income Tax Benefit (Expense)................................ 3,498 3,816 3,336 ------- ------- ------- Income Before Equity in Income From Continuing Operations of Wholly-Owned Subsidiaries................................. (6,219) (6,783) (5,932) Equity in Income From Continuing Operations of Wholly-Owned Subsidiaries.............................................. 31,524 12,064 23,869 ------- ------- ------- Income Before Equity in Extraordinary Charge of Wholly-Owned Subsidiaries.............................................. 25,305 5,281 17,937 Equity in Extraordinary Charge of Wholly-Owned Subsidiaries.............................................. -- (1,362) -- ------- ------- ------- Net Income.................................................. $25,305 $ 3,919 $17,937 ======= ======= ======= Basic Earnings Per Common Share Income before extraordinary charge........................ $ 1.25 $ 0.26 $ 0.90 Extraordinary charge...................................... -- (0.07) -- ------- ------- ------- Net income................................................ $ 1.25 $ 0.19 $ 0.90 ======= ======= ======= Diluted Earnings Per Common Share Income before extraordinary charge........................ $ 1.24 $ 0.26 $ 0.89 Extraordinary charge...................................... -- (0.07) -- ------- ------- ------- Net income................................................ $ 1.24 $ 0.19 $ 0.89 ======= ======= ======= </TABLE> See notes to condensed financial information 54
56 CENTURY ALUMINUM COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> NET CASH FROM OPERATING ACTIVITIES Net income............................................... $ 25,305 $ 3,919 $ 17,937 Equity in undistributed net income of subsidiaries....... (31,524) (12,064) (23,869) Depreciation............................................. 181 186 186 Change in other prepaids and current assets.............. (2,294) (45) (271) Change in other current liabilities...................... 2,616 2,628 2,257 Change in other liabilities.............................. (717) (1,767) 3,300 -------- -------- -------- Net cash used in operating activities...................... (6,433) (7,143) (460) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment................ -- -- (1) Business acquisitions.................................... -- 7,254 (7,254) -------- -------- -------- Net cash provided by (used in) investing activities........ -- 7,254 (7,255) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from (payments to) subsidiaries............... 10,603 4,021 11,715 Dividends paid........................................... (4,170) (4,132) (4,000) -------- -------- -------- Net cash provided by (used in) financing activities........ 6,433 (111) 7,715 -------- -------- -------- Net increase/(decrease) in cash............................ -- -- -- Beginning cash............................................. -- -- -- -------- -------- -------- Ending Cash................................................ $ -- $ -- $ -- ======== ======== ======== </TABLE> See notes to condensed financial information 55
57 CENTURY ALUMINUM COMPANY NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation -- In the accompanying condensed financial information of the Registrant ("parent-company-only financial statements"), the Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings and losses of subsidiaries. The Company's share of income from continuing and discontinued operations of subsidiaries is reflected using the equity method of accounting. Parent-company-only financial statements should be read in conjunction with the Company's consolidated financial statements and the notes to such consolidated financial statements appearing in this Form 10-K ("Consolidated Financial Statements"). Certain amounts in 1999 and 1998 have been reclassified to conform with the presentation in 2000. 2. CONTINGENCIES AND COMMITMENTS For disclosure of contingencies and commitments, see Notes 4, 12 and 13 to the Consolidated Financial Statements. 3. SHAREHOLDERS' EQUITY For disclosure of information concerning shareholders' equity, see Note 8 to the Consolidated Financial Statements. 56
58 CENTURY ALUMINUM COMPANY SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS <TABLE> <CAPTION> BALANCE AT CHARGED TO BALANCE AT BEGINNING COST AND END OF PERIOD EXPENSE DEDUCTIONS(1) OF PERIOD ---------- ---------- ------------- ---------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> Year Ended December 31, 1998: Allowance for doubtful trade accounts receivable.................................... $2,270 $120 $ -- $2,390 Year Ended December 31, 1999: Allowance for doubtful trade accounts receivable.................................... $2,390 $109 $2,470 $ 29 Year Ended December 31, 2000: Allowance for doubtful trade accounts receivable.................................... $ 29 $256 $ -- $ 285 </TABLE> - --------------- (1) On September 21, 1999, the Company and Century of West Virginia completed the sale of the fabricating businesses to Pechiney. As such, Pechiney assumed the risk of any bad debts included in the accounts receivable of the fabricating businesses. 57